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mikecart1 (98.69)

To be a Good Investor, Do You Need to be a Good Gambler?

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July 30, 2013 – Comments (12)

While gambler's are synonymous with being broke, degenerate, and losers they are also something that may be an asset to being an investor - risk takers.  When you look back and the past several years and you can actually do this with any given year (bull or bear market), there are always a group of a dozen or so stocks that are in the media but are risky.  They are risky because the businesses are declining, the stocks have dropped in share price, or the future speaks of doom.

The following year, many  of these dozen or so wildcards make huge % gains that crush any other 'safe' stock you could have owned.  I'm not talking biotech.  I'm not talking penny stocks.  I'm not talking unknown businesses.  I'm talking about the SIRI's, LVS's, AAPL's, and even last year's TSLA's that has made a huge run so far and even FB's recent run this past week.

These aren't junk companies.  Even now you could arguably get in either a TSLA or FB or AAPL.  But now you are not wondering if these companies will exist, you now wonder if the price you are buying it now is going to go up later or if you got suckered into buying yet another stock at its peak.

The real question you need to ask ignores all the ratios, financial data, and so-called experts that only highlight their correct picks while ignoring all their bad ones.  The real question is will the price of the stock you buy now will EVER be higher at any other point in the future while you are still alive?

The other question is whether to be a good investor, do you need to be a good gambler?

12 Comments – Post Your Own

#1) On July 30, 2013 at 11:01 AM, JohnCLeven (78.56) wrote:

What's a good gambler? 99% of gamblers go into a casino, and play, fully aware that the odds are stacked against them. That's the antithesis of being a good investor.

I think instead of gambling, perhaps being a good poker player is more appropriate.

A great poker player knows the odds and knows the competition.
They have the balls to bet heavy when the odds are in their favor, and the fortitude to resist betting when the odds are not in their favor.

David Einhorn, for example, has been a very successful investor, and a pretty successful poker player, placing well in various World Series of Poker events. That's no accident.

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#2) On July 30, 2013 at 1:01 PM, ElCid16 (95.70) wrote:

Agree with #1 - completely.  So does this guy:

http://brooklyninvestor.blogspot.com/2013/05/greatest-investment-book-ever-written.html 

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#3) On July 30, 2013 at 3:23 PM, mikecart1 (98.69) wrote:

JohnCLeven,

I didn't know that David Einhorn played poker on that level.  I played in a past life (lol I'm still in my 20's and talking like I'm about to retire) but don't anymore for real money.  But I have found that my past experiences with gambling - specifically poker in casinos and online - has helped me take emotion out of stock plays and has actually been a great asset for me personally.  I never was the crazy raiser or loose cannon at the tables and I am not in investing.  Probably why my motto is to make money at all costs - even for $1.

EICid16,

Good link.

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#4) On July 31, 2013 at 1:28 AM, valuemoney (99.99) wrote:

By definition I would say No.

Gambling is the wagering of money or something of material value (referred to as "the stakes") on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods. Gambling thus requires three elements be present: consideration, chance and prize.[1] Typically, the outcome of the wager is evident within a short period.

I would say if you are a GOOD INVESTOR your time horizon should be A LONG period of time. I am a bad gambler but a good investor. Now if you a trader I would agree with the gambler and comment #1. Poker events and trips to the casinos last days maybe. True investments should last for 5 or more years..... maybe even a lifetime.

To be a great investor learn how to value a business and how NOT to gamble.

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#5) On July 31, 2013 at 1:34 AM, valuemoney (99.99) wrote:

TSLA or FB or AAPL are all gambles in my opinion. You are right about trying to take emotion out of stocks though. That will help a ton!!!! It is hard to do for most though. Same goes for a poker player on tilt.

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#6) On July 31, 2013 at 2:25 AM, daveandrae (< 20) wrote:

Show me someone that it is impatient, and I will show you a "bad" investor.  It doesn't matter what stocks they own or how talented / intelligent they are. 

Show me someone that can, without warning, stomach a 50% decline in his equity holdings with equanimity and without self reproach, and I will show you someone that is well on his way to becoming financially independent.

Truth be told, the dumbest person in the world dollar cost averaging into any 2 star equity mutual fund over 30 years will still become wealthy as long as he adheres to the aforementioned philosophy. 

Investing really is just that simple.  Notice I said simple, not "easy." If it were easy, a hell of lot more people would be wealthy.  

Good day.  

 

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#7) On July 31, 2013 at 10:57 AM, mikecart1 (98.69) wrote:

valuemoney,

You got a point.  The investments in poker resemble those most of traders and specifically day traders.  But it does make an investor more immune to emotion and the value of money.

I agree it is most for people to do because they relate to how long it takes to make $X.  No matter what their career is, this is how THEY value money.  It is one reason why I feel people shouldn't be surprised at how athletes or other similar professions go through money.  The value drops down.  However, I think they could be great investors if they put their mind to it.

Also good CAPS score btw ;)

daveandrae,

Your 2nd paragraph is key.  I agree 100%.  When you are able lose everything, you have nothing to lose and everything to gain.  When you got nothing to lose, you can ONLY win.

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#8) On August 02, 2013 at 3:23 AM, Zack907 (99.37) wrote:

valuemoney

That is one of many definitions of gambling and even in that one it says TYPICALLY short term, So it could be long term

That point aside, being good at poker has given me many skills for stock INVESTING. As Mikecart wrote, it has helped to take emotion out of investing.

In addition to this, skills at valuing risk and rewards and expected value have transfered over nicely. Poker you have to look at each situation and look at what are the chances of failure what are the chances of success. What will you make if you succeed what will you lose if you don't. Then look at the overall expected value and use that to decide if it is which option to proceed with. This has many parallels in valuing stocks.

You also need to learn patience. This goes hand in hand with the expected value because you learn not play every hand  regardless of risk or expected value, because you can wait for the better opportunities where you have less risk or bigger positive expected value, or as Warren Buffett would call it "Margin of safety".

You also learn about bankroll management. Don't take risks with money you can't afford to lose. Don't invest to the point where outside circumstances could prevent you from playing out the investment. Both cases raise your chance of allowing emotions to dictate your actions and raise the chance of an unforseen risk wiping you out. 

These are all skills that can be learned gambling that will make someone a better investor. 

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#9) On August 02, 2013 at 4:53 AM, talotu (< 20) wrote:

Bill Gross was a card-counter 30 years ago.

Professional gambling is not short term in any way, it's about putting yourself in good situations over and over again.  The biggest gambling company in the world is Berkshire Hathaway. They bet billions every year with a small (1-3% edge) on insurance and re-insurance. 

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#10) On August 02, 2013 at 6:13 AM, JuanAMignone wrote:

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#11) On August 02, 2013 at 8:50 AM, mikecart1 (98.69) wrote:

Zack907,

Excellent analysis.

talotu,

Also agree.  Yes each poker hand may last just a few minutes to as little as seconds.  But it is about the long-term trend of this cycle and if you are making the right moves these few minutes or these few seconds over and over again across long time periods.  You could even say that poker on the pro level is a longer investment than most stocks.  For a stock you get in and out in maybe 1-2 years.  For poker pros, the investment is a lifetime.

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#12) On August 02, 2013 at 12:18 PM, OceanJackson (62.90) wrote:

The answer is you do not need to be a good gambler. It is neither a sufficient or necessary condition to being a good investor.

A good gambler is a probability calculater.  A good gambler captures value by correctly calculating the probability.  A good investor is - and when I say this I do not mean "value investing", is also a value capturer, but does not need probability to do so, and in fact, probability is only one tool a good investor can use.

Keep in mind a value capturer can capture different kinds of value. The value that exists when a stock price varies from the inherent value of the underlying asset, or, the value created artificially by people, such as momentum, trend, prediction of fear & greed etc.

So of course I'm using value in the universal sense of the word, and it's crucial to understand that there are many different kinds of value in the Universe. 

Investors capture many kinds of value, and the kinds specifically that translate into $.  To bolster the distinction between an Investor and Gambler further, it helps to see the difference between an Investor and say, employees, entrepreneurs, & workers.  They are value creators.  Again, value in the universal sense.  In other words, if I spend all summer restoring a vintage 1968 Mustang, I'm one '68 Mustang the wealthier, the value pie has been enlarged.  

Investors are value capturers.  Craftsmen & workers are value creators.  Gamblers are probability calculators - because that is the only means they have to capture value. 

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