“I am more concerned about the return of my Capital than the return on my Capital.” Will Rogers
A few nights ago we watched a rerun of a great movie, Seabiscuit. If you haven’t seen it, you are missing a wonderful and exciting story.
You see the horses coming down the stretch, the crowd at the rail jumping up and down in excitement that their horse may win and their wager pay off – that is gambling. Win or lose, they have $2, $10 or $X at risk. But they know it!!
When someone buys a stock and invests $2,000, $10,000 or $xxxx, are they gambling?
The recent activity by some stock buyers regarding GameStop has raised the question – what is investing and what is gambling?
Some would say, if you’re excited when investing, you’re gambling!
Now don’t get me wrong, there is nothing wrong with a modest wager once in a while. But mixing the two, investing and gambling, is a dangerous cocktail. And if you don’t realize that you are mixing them then it is a really dangerous situation!
If your goal is to have fun and enjoy proving how clever you are by beating the other guy….you are gambling. But you probably already know that.
The sad fact is that many of today’s “investors” are actually gambling and don’t realize it.
When you have 60% to 70% of your portfolio long in stocks with no downside protection, you are GAMBLING!
If your investments keep you awake at night, you are overly exposed and you’re GAMBLING!
Here is a great definition of investing from a friend of mine, Mike Dever, in his book, “Jackass Investing. Don’t do it. Profit from it.” (2011)
“Investing is the process of identifying the best, most rational opportunities for profiting within your means, and then unemotionally following a process that combines those opportunities into a portfolio that has a high probability of achieving the greatest returns possible while limiting risk over a specific period of time.”
If your goal is to grow wealth and preserve your hard-earned money, be sure you recognize it if you are accidentally gambling.
What is the Hidden Gamble?
Unless the investor has taken steps to reduce their risk, they are GAMBLING!
This is the Hidden Gamble in investing!
Trend Followers only invest in Trending i.e. (performing) stocks. They manage their investments to allow for diversification. They place a trailing stop loss order to limit any potential losses and lock in profits. They ride their winners. They avoid the Hidden Gamble and they sleep well at night!
And remember to always ride Your winners and cut Your losses!