Is It Really Gambling If…

When I broach the topic of trading with “normal” people, I usually get one of four responses:

It’s gambling and you’re going to hell…


I only buy passively invested index products

[and have no idea if i’m up or down]..

Extraverts with zero risk tolerance

I owned BitCoin at $19,000…

[then I lost my life savings.. ($500)]

Millennials with a recently acquired drinking problem.

*Deer In Headlights*

Everyone Else

If they are part of the 2,000,000 so called “active investors” in the world, they might spout off some old school Warren Buffet or David Ramsey 1980’s know-how. Things ‘d hardly consider “investment advice” after the Fed put 4 Trillion into the markets and the US racked up a staggering 21 Trillion in credit card debt. Balance sheets and an earnings forecasts don’t matter anymore, the current state of the US and the price of money (interest rates) do. When money is insanely cheap- nobody cares that you can make money, they care about how much you are able to leverage [without blowing out].

Comments like this really make me wonder if “professionals” really understand what’s going on in the world:

I don’t like putting money into gold. I think it’s a bad place to put money, but I don’t call it gambling. It’s an ultra-high risk, volatile investment, but it’s not gambling. It’s a dumb investment. I would tell you not to do it, but it’s not gambling. Gambling is truly a random act of chance—the fall of a card, the roll of a die—those kinds of things. It’s a random act of chance. Investing is not that at all.

After reading this, I had to go back and lookup the actual definition of gambling:

Gambling is the wagering of money or something of value (referred to as “the stakes”) on an event with an uncertain outcome, with the primary intent of winning money or material goods. Gambling thus requires three elements be present: considerationrisk (chance), and a prize.[1] The outcome of the wager is often immediate, such as a single roll of dice, a spin of a roulette wheel, or a horse crossing the finish line, but longer time frames are also common, allowing wagers on the outcome of a future sports contest or even an entire sports season.

If I’ve learned anything about the market during my last 30,000 trades it’s this: the market goes up 52% of the time and down 48%. Additionally, the down moves are larger than the up moves. It takes years to go up and a month to get you right back where you started. What’s worse- you’ve learned ABSOLUTELY NOTHING along the way.

Over time the average S&P 500 return is ~7%. This also makes a few assumptions:

  • You invested at a bottom somewhere and ONLY invested more when there were other bottoms (eg: lowered your cost basis).
  • You paid ZERO management fees.
  • You left your money in the entire time.
  • You COMPLETELY ignore dollar inflation

More likely:

  • You invested at the middle or a top, just like everyone else
  • You averaged up (eg: raised your cost basis)
  • You paid 2% management fees in some kind of mutual fund
  • You took your money out once or twice as you got older, at a bottom.
  • If you measure the result against the current buying power of the dollar, you’re not actually up anything, you’ve learned nothing and have just about the same buying power you started with.

As I sit here playing world series of poker, I find myself thinking.. That’s a lot of risk for such a negligible return over the long haul. This also got me thinking of Mathew 25:14

[24] Then the man who had received one bag of gold came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. [25] So I was afraid and went out and hid your gold in the ground. See, here is what belongs to you.

You put your money blindly into a market fund, or worse- an annuity managed by someone else, take all the risk just to effectively break even. I can tell you with the roll of a die what my odds are, 1 out of 6. The odds of pulling flush on this hand, 19% (doh! didn’t get that last card I needed just now). I can even tell you the odds of the SP500 futures closing above 2550 in Jan:

64% Chance of closing above 2550 as of 12/30/2018

.. but for the life of me, with our massive debt, historically low interest rates and political chaos I can’t tell you the probability of the market being higher in 30 years. If it’ll keep the value of my current wealth, or be eroded because of some uncertain circumstance that can’t be measured. I can tell you that when I invest in myself- it pays dividends MOST of the time. That’s about all you can play for.

Life is all about taking risk. You risk your life every time you get in your car. It’s no different than betting on red with the spin of the roulette wheel. You understand the risk calculation and take the plunge. For some reason though, all the professionals tell us that the uncertainty of long term investing is somehow … safe?

It’s only gambling when YOU don’t understand YOUR risk.

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