Learn when to admit failure
It’s important to have a watershed moment and acknowledge a fundamental problem, instead of dividing it into palatable bite-size mistakes.
LTCM were exploiting market inefficiencies. Other people learned of the tricks. LTCM didn’t lose hope. They borrowed more and more leverage to exploit tinier and tinier margins.
Cowards live to fight another day
Visualizing failure takes less courage than considering how likely the failure will be.
Be a true coward. Plan out and visualize every step of your retreat before you first come to battle.
The point is to have backup plans. You’ll not shy away from challenging situations because you might lose. But knowing when to retreat is the million dollar problem.
Consider a Crisis of Faith When
A belief has long remained in your mind.
It is surrounded by a cloud of known arguments and refutations.
You have sunk costs in it (time, public declarations)
The belief has emotional consequences.
The belief has gotten mixed up with your personality.
And their math probably said the leverage was okay. Going belly up was a very unlikely event - according to the model. A systematic blindspot is devastating because we don’t even realize that we might be wrong at a more fundamental level.