One Bad Trade

As traders, or even as human beings, we basically have one job; don’t fuck up. Put more delicately, we strive to avoid that one bad trade.  The deal killer.  The one where you buy the farm.  The one that takes everything you have worked and strived for and rips it to shreds, throwing you out on the street in the process.

The irony is that no matter how much wealth you amass and no matter how much of a rainmaker you become, the tail risk of bad judgment, intransigent ego, and the inability to take a loss can shut you down.  Case in point, Marv Adelson.

Though the name may not be familiar to you, Adelson was a giant in his time–real estate developer, mobbed up Vegas visionary, husband of Barbara Walters, and founder of one of the most successful independent television studios in history.  The shows that came out of his company, Lorimar productions, read like a list of “must watch TV” from most of our childhoods.

The Waltons, Eight is Enough, Knots Landing, and Dallas were just a few of the vehicles produced by Lorimar.  When Adelson sold his company to Warner Communications in 1989 he was worth a cool $300 million.  At sixty years old that should have been it.  Done.  Check please.  Congratulations, you have won at the game of Life.  Feel free to relax in hedonistic comfort for the remainder of your days as the toughest decision you will have to make will be whether to have the cracked crab or lobster for dinner Winthorp.

Merv and Baba Wawa in the halcyon days.
Merv and Baba Wawa in the halcyon days.

But one bad trade took Adelson, who used to golf with Bill Clinton and rub elbows with Hollywood’s biggest stars, down so far that at age eighty-three he now lives by himself in a tiny one bedroom apartment.

Warner Communications eventually became Time-Warner, which as we all know made one of the most disastrous mergers of all-time when it bought AOL.  Warner Communications had bought Lorimar in an all-stock deal.  That stock became Time-Warner stock which was at a high of $58 prior to the merger, and as AOL Time-Warner stock eventually hit a low of $7.00.

And Adelson didn’t sell one single share.

In the process his net worth dropped by over 90%.  In theory that should have left him with $30 million dollars, a nice haircut to be sure, but more than enough for most people to live out the rest of their life in luxury.

Unfortunately Adelson had used his AOL Time Warner stock as collateral to fund other ventures, none of which were particularly successful.  At the end of the day, when his highly leveraged stock position collapsed, he was in debt to the tune of $112 million dollars.

In the course of a few short years, the man who once by his own words could “pick up the phone, call my private pilot, and be in Paris for breakfast the next morning,” was broke.  And it only took that one bad trade to undo fifty years of wealth creation.

And why didn’t he sell his stock when he was down 20%?  Or 50%?  Or even 75%?  His friends say that it’s because he “never believed that the stock wouldn’t recover.”

For another angle on that same bad trade read my post “I’m A Lawyer. No, I’m A Trader. Damn, I’m A Lawyer Again.”

Former TV Macher Merv Adelson Talks About Financial Ruin and His Las Vegas Mob Ties (Vanity Fair)

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