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18 September 2020

What I Learned the First Time I Lost a Million Dollars - CoinDesk

What I Learned the First Time I Lost a Million Dollars - CoinDesk

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When managing outside capital, the downside risks have to be top of mind.  Even in a space like crypto with asymmetric upside potential, the investing mindset has to shift away from “how high can it go?” to “how low can it go?”  Just like my conversation with my son, risk management is not something you can ever afford to forget. .

There weren’t any limits to the size of my trading book as long as I made money and nothing showed up in my risk reports that would raise red flags.

I was long $32 million bonds and had just made more than $1.4 million of paper profits.

The thing I remember most about that day, though, besides some high-fives, was that a very smart, senior trader with 20-plus years of experience leaned over to me and said, “The question isn’t ‘were you right or wrong,’ the question is ‘should you have owned that many bonds in the first place?’” .

I didn’t think much of that statement at the time, because I had just made $1.4 million in my trading book, but I think about it every day since.

It seemed many people in blockchain figured out how to buy and sell, but it wasn’t evident that many had figured out how to manage risk.

In March 2020, many young crypto investors learned hard lessons about risk management, discovering that managing risk is more than just downside price protection, and managing outside capital is more than just generating returns.

But there just aren’t that many talented risk managers

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