Career Curveballs: My Worst Trade -- And What It Taught Me

by: Larry Fink

In 1986, my team lost $100 million dollars. Why? Because we didn’t know as much as we thought we did.

At the time, I was running the mortgage-trading desk at First Boston. Mortgage bonds were the hottest investment on Wall Street, and the desk I ran was one of the best—if not the best—in the business. The prior quarter, we made $130 million for the firm, in part because we leveraged technology and hard data to understand the market better than our competitors.

Except we didn’t.

Not only did we make a bad bet on the direction of interest rates, but we also misjudged the technology’s capacity to grasp the size and complexity of the market. It was pure human error, and human error by proxy. The distinction doesn’t matter. What mattered was the hubris that led us to believe that we knew everything about the market.

The experience was a humbling one. Pretty quickly, it was clear to me I wasn’t going to have the career path at First Boston that I thought I would. My confidence as a manager and an investor was severely shaken. But I decided—along with some colleagues—to put that experience to good use. So in 1988, we founded BlackRock.

The concept was simple: help investors better understand the risks in their fixed income portfolios. We knew better than anyone else the pitfalls of not understanding those risks, and we were committed to helping our clients manage them—both to guard against loss and to seize opportunities for gain.

But this time, we went about things differently. If we managed a portfolio effectively, we never said, “We’ve got it all figured out!” Because you never have it all figured out. And as the firm has grown and evolved, we have always pushed ourselves to grow our understanding of risk and the markets, and to help our clients do the same. Staying ahead in investing—like staying ahead in any business—is about constantly learning, innovating and anticipating changes.

Whether you’re investing, studying, or running a business, it’s never enough to say, “Here’s what I know.” You’ve got to do more: You’ve got to ask, “What don’t I know?”

You can’t ever stop being a student. It’s only when you stretch the boundaries of your knowledge that you’ll truly find out what you need.

The opinions expressed are current as of April 2014, are subject to change and are deemed by BlackRock, Inc. to be accurate and reliable. Reliance upon information in this article is at the sole discretion of the reader.

Photo: Jeff Hutchens/Getty Images