What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus - Deepstash

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What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus

http://nautil.us/issue/31/stress/what-i-learned-from-losing-200-million

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What I Learned from Losing $200 Million - Issue 31: Stress - Nautilus
I'd lost almost $200 million in October. November wasn't looking any better. It was 2008, after the Lehman Brothers bankruptcy. Markets were in turmoil. Banks were failing left and right.

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The illusion of control

Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of contro...

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Success and crisis

Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the...

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Drawing up your own tests

Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.

Encourage innovatio...

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Stress tests

Stress tests

Stress tests cannot be improved. History is a much better predictor than a stress test. But even history requires a model to interpret it.

We always have a preconception of cause and ...

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Abandon the illusion of control

The illusion of control can be adaptive, in the sense that it encourages a focus on problem-solving behaviors as opposed to an emotional response.

Producing your best-informed guesswork prev...

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SIMILAR ARTICLES & IDEAS:

A financial crisis

A financial crisis

A financial crisis is often associated with a panic or a bank run where investors sell off assets or withdraw money from savings accounts.

  • Asset prices drop in value.
  • Consu...

Causes of a financial crisis

Generally, a crisis is caused if institutions or assets are overvalued, and can be worsened by panic and herd-like investor behaviour.

Contributing factors include systemic failures, unexpected or uncontrollable human behaviour, regulatory absence or failures, or contagions that is like a virus that spread from one institution or country to the next. If left unchecked, an economic crisis can cause a recession or depression.

Financial crisis examples

  • The Stock Crash of 1929. On Oct. 24, 1929, share prices collapsed after a period of wild speculation and borrowing to buy shares. It led to the Great Depression, which was felt worldwide. One trigger of the crash was a drastic oversupply of commodity crops, which led to a steep decline in prices.
  • The 20007-2008 Global Financial Crisis. This was the worst economic disaster since the Stock Market Crash of 1929. It started with a subprime mortgage lending crisis in 2007. Then it moved into a global banking crisis with the failure of investment bank Lehman Brothers in September 2008.

Playing it safe: a silent killer

The dangers of playing it safe appear so gradually that they rarely get noticed.

It is like a slow leak in a tire, you only notice it when you are stuck. You don't have an idea of how it h...

Hanging onto old ideas

People try desperately to hang on to antiquated ways of doing business because of a false sense of security. They believe that they can maintain their old ideas indefinitely, even if all evidence shows the contrary.

Question everything

Questioning everything could help you to spot problems and create a culture of understanding and action.

What does this business look like in five years?  What are our customers worrying about today? What will concern them tomorrow? Where are we failing to communicate? Are we capitalizing on all our strengths? What opportunities are we missing?

one more idea

“Focused” and “Diffused” Modes

When learning, there are times in which you are focused and times in which you allow your mind to wander. Both modes are valuable to allow your brain to learn something.

Take regular break...

Chunking

This is the idea of breaking what you want to learn into concepts. 

The goal is to learn each concept in a way that they each become like a well-known puzzle piece. 

In order to master a concept, you not only need to know it but also to know how it fits into the bigger picture.

Beware of Illusions of Competence

There are many ways in which we can make ourselves feel like we have “learned” a concept.

Instead of highlighting or underlining, rather take brief notes that summarize keys concepts.