First Friday Book Synopsis

"…like CliffNotes on steroids…"

Forget the “Dimon principle.” Investors should follow the Feynman principle.



Richard Feynman (Photo: PBS/Everett Collection)

Here is a brief excerpt from an article published by the Wall Street Journal and WSJ.com “Intelligent Investor” columnist Jason Zweig. He  pulls up a chair on Mean Street to explain how J.P. Morgan violated a simply rule in its $2 billion trading loss: You must not fool yourself. To read the complete article, check out other resources, obtain subscription information, and register for email alerts, please click here.

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When J.P. Morgan Chase’s JPM chief executive, James Dimon, disclosed a $2 billion trading loss during a hastily organized conference call on Thursday, he said: “This trading may not violate the Volcker rule, but it violates the Dimon principle.”

Mr. Dimon didn’t say what the Dimon principle is, and a spokesman for the nation’s largest bank by assets didn’t respond to requests for comment.

The Feynman principle, however, is simple: “You must not fool yourself—and you are the easiest person to fool,” as the Nobel Prize-winning physicist Richard Feynman put it.

Asked on April 13 whether J.P. Morgan’s trading operation posed significant risks to the bank, Mr. Dimon called it a “tempest in a teapot.” The bank’s chief financial officer insisted the London-based division was merely “protecting that balance sheet,” adding that J.P. Morgan was “very comfortable with the positions we have.”

The moguls of J.P. Morgan, in letting a complex risk run wild and denying any potential for error until it was too late, are a reminder that one of the biggest dangers in finance is self-deception.

For investors, the bigger the commitment, the more certain they become that they must have been right to make it—and the harder it becomes to let go.

The literal meaning of the word “invest”—from the Latin vestire, to clothe or dress—is to wrap oneself up in something. Experiments at racetracks and elsewhere have shown that people who bet on an outcome become up to three times more confident that it will occur than people who didn’t put up any money.

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To read the complete article, please click here.

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Saturday, May 12, 2012 - Posted by | Bob's blog entries | , , , , , , , , , ,

2 Comments »

  1. Whatever else this debacle proves, it should prove this — there are people with enormous responsibility who let things slip by. Big things — costly things.
    In 2008, such failures set the U.S., and world, economy back for years. Many years.
    I know that the Wall Street firms lobby hard, with large dollar amounts behind their efforts, to keep regulations to a minimum. Regulations may not catch everything, and may not protect us in every way. But it is foolish to say “we do better without regulations.” I don’t think so!

    Comment by Randy Mayeux | Saturday, May 12, 2012

  2. The “we do better without regulations” is “attitudinal,” stated by what they do to keep regulations to the fewest possible. Wall Street spends vast sums of money in lobbying against regulations. Here’s just one example, a rather prominent example considering the subject of this blog post:

    “JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon led Wall Street bosses in a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits….
    JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon led Wall Street bosses in a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits.
    The contingent, which included Bank of America Corp. (BAC)’s Brian T. Moynihan, 52, and Goldman Sachs Group Inc. (GS)’s Lloyd C. Blankfein, 57, pressed the Fed on rules they said would overstate trading risks and harm financial markets, the central bank said yesterday in a statement.
    The meeting highlights the magnitude of Wall Street’s campaign to blunt new regulations.”

    Here’s the link: Dimon Cites ‘Give and Take’ After Bank Chiefs Meet at Fed.

    Comment by Randy Mayeux | Saturday, May 12, 2012


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