encounter was a victory, but weve shown it as an example of what not to do.

Similarly, some people can make money almost by instinct. In January 1987, I was visiting the New York offices of the legendary trader Paul Tudor Jones II. He was not in the office, but rather was on a chartered jet flying out to the Super Bowl in California.

Paul called the office for a market update. In those days it was harder to stay current with market prices because the Internet was rudimentary and wireless technology was not well developed. Thus, when Paul called from the plane he didnt have any current information on the market.

Paul had started the day thinking that stocks would rise, and the previous day he had purchased what can be described as a boatload of S&P futures. So when he called to ask where the market stood, the higher the market, the more money he would have made. At the beginning of the call, Paul received some good news; the market was up a lot, and he had made some millions of dollars.

Just moments into the call, however, the stock market began to fall precipitously. As Paul heard the prices change, he asked to be patched through to the exchange floor in Chicago where the S&P futures trade. Shouting from his jet into the phone, patched through a noisy connection, I heard Paul sell all of his stock position- get me out, now. In just a few moments the voice from Chicago told Paul that he was out. With a quick reaction to a fast-moving market, Paul exited his position for a hefty profit.

I was then surprised to hear Paul instruct Chicago to sell even more stock futures. Since he didnt own any, these additional sales created a short position where he would profit from a further market decline. In the space of just moments Paul had gone from a massive and profitable bet that stocks would go up to a massive bet that stocks would go down. Throughout the next few hours, stocks did, in fact, decline substantially and this earned Paul millions more.

Gutsiest move I ever saw. Mavericks rival Slider whispers this

about the risky and successful split S just after the official criticism of the maneuver. Paul Tudor Jones instantaneous reversal-from betting on stocks to betting against stocks-qualifies as the gutsiest trading move that I ever saw.

In Top Gun, the instructors suggest that the other pilots learn not from the instinctual Maverick, but rather from the unemotional pilot Ice Man (played by Val Kilmer). Similarly, while we might all wish we could trade like Paul Tudor Jones, we probably should not attempt to mimic the instinctual nature of his trading.

Recall from Chapter 3 that Professor Odean finds typical investors tend to make precisely the wrong moves. The nonprofessionals in Odeans study tended to buy bad stocks and sell good ones. For these investors the instinctual split S moves tend to lead to losses not profits.

Professor Odean has published another study that confirms his earlier finding that trading is dangerous to most peoples pocketbook. As with the previous work, this second study (coauthored with Professor Brad Barber) examined the brokerage accounts of thousands of individual investors. The goal was to look at the difference between men and women, and it has the provocative title of Boys will be boys. 12

In what way were boys being boys in this study? Professors Barber and Odean found that men in this study were worse investors than women. Per each dollar invested, men earned significantly less money than women. In investigating the reasons for the gender difference, it turned out that men traded 45% more frequently than women.

Every trade is costly so all other things being equal, the more an investor trades, the less money at the end of the year. All that extra trading definitely cost men. How about the actual stock selection? Were men or women better at picking winning stocks?

Professors Odean and Barber found that men and women are equally bad at picking stocks. On average, every trade cost the investors money as compared with not trading. Men did worse simply because they traded more. The study concludes, Men lower their returns more than

women because they trade more, not because their security selection is worse.

Conclusion: Never trade emotionally, and trade as little as possible. If you can trade like Paul Tudor Jones II or fly a jet like Maverick, then you dont need any advice.

Lesson #2: Never Trust Anyone, Not Even Yourself

During the technology bubble of the late 1990s, one of the best ways to make money was to get some stock at the initial public offering (IPO) of a company. The most famous of these IPOs was that of theglobe.com whose stock went up by more than 600% on the first day.

Of theglobe.coms stock at the offering price, $10,000 netted a profit of $60,000 in a matter of hours. Sure beats the day job! Dozens of other IPOs had enormous first-day rises.

How do we get our hands on some of that IPO stock? In Glengarry Glen Ross a group of real estate salespeople ask a similar question. In a tough environment where sales are lagging, Alec Baldwin is brought in to motivate the team.

Baldwin arranges a contest: Whoever sells the most in the next week will earn access to the coveted (and closely guarded) Glengarry Glen Ross leads. These contain the names and contact information for people who are very likely to become buyers. With the promise of easy money, the salespeople do everything they can (legal and illegal) to get their hands on those golden leads.

In the bubble, people did all sorts of things to get into IPO stocks. I was never invited to participate in any of this, and I watched others with envy. On the day of the Etoys IPO, for example, my friend Judith told me about an acquaintance who had made $20,000 trading the stock. When