Why did JP Morgan loss $ 2 billion in a couple of weeks?

The iPhone alarm clock rings around 6 am. Its charging out of reach, not to press the ‘snooze’ button. The broker gets up, puts on his tracksuit and sneakers and goes jogging in the nearby park. Then showers, has coffee, toast and heads for the City. In the subway goes through the must-read Wall Street Journal and Financial Times. In the office he fires the computer, three screens with the latest indexes light up. A quick glance and he already knows what’s happening. The stock exchange opens, hundreds of phone call and quick decisions. Put simply, this is what a typical London City trader’s day looks. Probably this is how Bruno Iksil’s, the so-called London whale, days looked like. The man, who, by all appearances, is responsible for the two billion dollar loss at JP Morgan bank.

A trader works under considerable pressure. His work requires intuition and analytical thinking. And all must be done here and now.

It is a profession for both introverts and extroverts. However, there are two significant differences between the two types. One is that after work, the introvert prefers to go home and skip the business diner and drinks. And two … he wouldn’t squander two billion dollars.

Numerous studies, including neurological ones, conducted on traders show that extroverts make decisions based on the desire of immediate gratification. Responsible for this is the amygdala, the so-called old, emotional part of the brain. By investing huge amounts of money, the desire to earn even bigger amounts is so powerful that traders-extroverts block the warning signals coming from, let’s call it, the rational part of the brain. The promise of reward is so overpowering that instead of slowing down and evading potential danger, the trader-extrovert speeds up.

And does he speed up. Bruno Iksil lost an average of 50 million dollars a day. Every day for six weeks. A small passenger aircraft is worth 50 million dollars.

Compulsive gambler’s brain works in a similar way.

But there is hope. The extrovert-trader has to first realize that he has this tendency of speeding up where he should slow down and then learn to stop and analyze the situation. These same studies show that he must adapt a habit of ‘stopping’. Just as introverts do. When the situation becomes dangerous introverts-traders slow down and back away.

I recommend a book explaining how brokers think – Inside the Investor’s Brain by Richard L. Peterson. You can read it at this link – click here

I will refer to one quote from this book “Successful traders are usually emotionally stable introverts”.

Warren Buffett and George Soros are undoubtedly two of the best investors in the world. Guess what personally type they are.

If you have any comments or recommendations please feel free to leave them below, I will be happy to reply to them.