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Massive Mistakes And Their Gold Cost

Blog Jun 21, 2016

Every now and again people make mistakes. Usually, the mistake is a simple one, like locking the keys in the car or forgetting to mail a bill. In these instances maybe a late charge or a locksmith fee is all that is required to set things straight. In other instances, people make massive mistakes that are much more costly to undo, if they can even be undone. This little blog article will look at a few instances where a momentary lapse of concentration cost big dollars, and then we will convert those dollars to gold cost.

Massive Mistakes And Their Gold Cost: Juan Pablo Davila.

This particular story is one of my favorites, for a few reasons. This story has intrigue, ridiculousness, a non-happy ending, and a moral. Juan Pablo Davila worked as a futures trader for the state-owned copper mining company in Chile back in the early 1990’s.

Gold Cost ; Chile

Copper Mining Is An Important Part Of The Chilean Economy.

One day while at work, Mr. Davila meant to sell some particular underperforming shares, but entered the number of shares he wanted to sell into the “Buy” column and ended up with more underperforming shares. The mistake is said to have produced a $30 million loss.

These mistakes are called “Fat finger” mistakes in the trading world, and they exist to this day. In fact, if you just google fat finger you will get quite a few very expensive and quite scary results. The financial system that the world runs on today is a cobbled together network of vastly varying securities and practices. Digital currencies and the digital systems that transmit their values are quite vulnerable decades after Davila fat fingered away $30 million, but his story gets even more interesting.

Rather than tell his bosses of the error, Davila decided to try to recoup the lost money by making profitable trades that would cover up the loss. However, as you might expect, making up $30 million is not very easy.

Gold Cost : Davila

Mr. Davila’s Original Fat Finger Error Mushroomed Into A $200+ Million Loss.

Over the next six months, Juan Pablo made 5000 trades with more than twenty different brokers. Davila was very much like a gambler, possessed, and he traded like one. In the end, Davila was more than $206 million down. Worse yet, at times, he had apparently hedged more than $1.8 billion in order to make his trades. Davila could have singlehandedly taken down the Chilean economy, or at least its copper industry, some say.

Davila was sentenced to prison for his crimes and faced fines of as much as $100 million. All said and done, Davila served three years for his financial crimes. While we cannot really put a price on the time that the simple mistake cost Davila, we can put a gold price on the dollars that Mr.Davila traded away back in 1994.

Here we go:

The average price of gold in late 1993 and early 1994, when Mr. Davila was executing his failing trades, was about $390.00 per ounce. $206 million / $390.00 = 528,205 one ounce gold coins that Mr. Davila ended up losing. The gold cost of his fat finger error is enormous. Today that same pile of one ounce gold coins would have a gold cost of over $649 million.

Massive Mistakes And Their Gold Cost: Lockheed Martin.

Lockheed Martin is an American firm that specializes in defense, security, and more recently, global aerospace. The company develops advanced technologies and has clients around the globe. Because of the military nature of many of the programs Lockheed Martin develops, much of what goes on there is classified as Top Secret. This particular massive mistake story has some Top Secret elements to it, as you will soon see.

Gold Cost : Lockheed Martin

This Time Lockheed Martin Was One $70 Million Step Behind.

Lockheed Martin contracted with a foreign un-named government (Top Secret) to produce a military transport plane. Developing and producing a fleet of military transport planes is a long-term commitment, and the financial contracts that surround such things recognize this.

Buried deep in the contract between Lockheed-Martin and the nameless government, was a clause that tied the cost of the planes to inflation. Basically, as time goes by during the production of the airplanes, the value of the dollar may change, and this can change production costs, so Lockheed Martin inserted a particular formula into the contract to equate for the inflation factor.

Unfortunately for Lockheed Martin, there was an error in the formula. The error was relatively small and quite unnoticeable to the untrained eye. The error was simply a comma that was misplaced. Math people understand that this mistake can be huge and massive or small and infinitesimal, depending on what you are doing with the numbers.

Gold Cost : C-130J

The C-130J Is The Plane That Reportedly Cost Lockheed Martin $70 Million For A Typo.

In this case, the error is said to cost Lockheed -Martin about $70 million in inflation costs that could not be recouped. Apparently Lockheed-Martin found the error and asked the client to pay what would have been the corrected pricing, and the customer said no. A contract is a contract, sometimes, and this single error in the contract was good for a $70 million loss.

The story broke in 1999. So using the average price of gold in 1999, which was about $290.00 an ounce, and dividing that number into $70 million reveals a gold cost of about 241,379 one ounce gold coins for this misplaced comma. Expensive.

Massive Mistakes And Their Gold Cost: Not Owning Gold.

The point of this article is that many parts of our financial system are at risk. Therefore, many of your investments and assets are at risk. If a comma can cost $70 million, or a single distracted trader can potentially ruin Chilean mining, what unseen risks is your portfolio vulnerable to?

Gold Is Wealth.Gold coins and gold bars, on the other hand, seem to be much less vulnerable to commas and fat fingers. ITM Trading does not suggest you abandon your current investments entirely, but that you simply diversify a percentage of your wealth into tangible gold and silver coins and bars that you can hold and store safely.

When economies and currencies fail, gold becomes extremely valuable. Gold becomes so valuable that a failing currency cannot purchase gold. In this case, not owning any gold may be the most expensive mistake you ever make. Don’t confuse the price of gold with gold cost, begin ordering your gold coins and gold bars from ITM Trading today.

Thumbnail Photo We believe that everyone deserves a properly developed strategy for financial safety.

Lynette Zang

Chief Market Analyst, ITM Trading

Sources & References In This Article


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