A Gamble You Are Sure to Lose

Here’s a slap for all those people out there who think gambling in the stock market can pay.

One of the saddest things I’ve ever seen was at a casino in Las Vegas. There was a long line of people below a sign that read “Paychecks Cashed Here.”

How bad does it have to get?

I’ve never understood gambling. I grew up a poor kid, and the idea of putting money at risk in what I have always considered a rigged game (no matter which game of risk we’re talking about) makes me ill.

I guess that’s why I’m the bond guy here at The Oxford Club. I’ve said it many times: I am a market coward. I do not like to take risks.

Which brings us to the gamblers in the stock market…

There’s a mountain of evidence that proves untrained, novice frequent traders consistently lose money. In fact, the research indicates 95% of all trading-related activity in the market results in losses.

The Wall Street marketing machine convinces the average Joe that all he has to have is a computer and access to a brokerage website. It doesn’t matter which one – he’s on his way to trading to millions.

What these folks are doing isn’t investing, it’s pure gambling – poking and hoping, betting on a hunch, gambling.

And the odds of winning are about the same as those in blackjack or any other game of risk. In almost all cases, you lose!

And the market losses associated with this type of behavior are so large they can’t be tallied.

Is there the occasional guy who happens to hit it big? Yes, but the body count of those who do not is endless.

Here are a couple facts about gambling and the stock market…

• Within all income groups, gamblers underperform It doesn’t matter how much money you have or how much money you make. If you go the gambling route in equities, you’re going to lose.
• Gamblers don’t care where they gamble. Satisfying the urge to take risks with their money knows no bounds.

For example, research has shown that stock trading activity declined by a significant amount when lotteries were introduced in some areas.

And when an area is hit with an especially large lottery jackpot, there’s a decrease in trading among small investors.

This kind of money activity isn’t about returns or making money. It’s the thrill of the risk and the possibility of hitting the big one.

The sad truth is these folks who do it on their own almost always lose.

But maybe the most convincing piece of evidence against gambling in equities is that people with high IQs hold more mutual funds and are more diversified in stocks.

Neither of those scenarios – mutual funds or a diversified portfolio of stocks – are employed by people who day trade or think of the market as a casino.

If you want to gamble, get one of those cheap flights to Vegas, limit yourself to a couple hundred bucks that you can afford to lose (which you will), get it out of your system and then get serious about your money.

This is not a magic money machine. You don’t put $10 in one side, turn a crank and hundreds come out the other end.

Investing is a business of fundamentals, discipline and market wisdom. Nothing else!

Get serious, or get a certificate of deposit (CD). You won’t make enough on the CD to keep up with the taxes and inflation, but at least you won’t lose it all.

Good investing,

Steve