Tuesday, March 27, 2007

Vegas, Gambling and Your Investment Strategy

This is Shadox, coming to you live from the sin capital of the world, Las Vegas, Nevada. Yes, it's true. I am here on a two day business trip, and will be going out to hit the town in a few minutes. But before I do, I wanted to share a quick thought about the connection between Las Vegas and people's investment strategy, personal finances and net worth.

What is it with Gambling? Seriously, I simply don't get it. Before I left for the airport this morning, one of my colleagues asked me if I gamble. My answer was "No. I understand statistics". It's not that I am getting on my high horse again (although you can hear the sound of hoofs in the background), it's just that I simply don't get why people willingly gamble, when they know chances are that they will lose their money.

I guess that the answer to this is twofold. There are some people who gamble, knowing full well that they will probably lose money. They do so because they enjoy the process. They do it for fun. These are people willing to pay a "Dream Tax" - the fee you pay for having the opportunity to dream of breaking the bank. They are, in essence, no different than someone who pays $50 for a fun night out. OK, I can understand that rationale, but it doesn't work for me.

The other group of people, and I suspect this is probably the majority of gamblers, gambles because they actually think that they can beat the house. They think they can win big because they have a system, they are very lucky, they have skills most people don't have, or they have blue eyes. Whatever their reason, they think they are being logical in thinking they can beat the odds.

Due to statistics, some of them do indeed beat the odds and make money at the roulette table or the slot machines. Many of these consider this proof positive that their system works and that they will continue to beat the odds in the future.

So, what does all this have to do with personal finance? When you think about it, the answer is: EVERYTHING. The world is full of people that are convinced that they can beat the house, and that the odds do not apply to them. In Vegas they call them gamblers, but out in the real world they call them day-traders, stock pickers, house flippers and get-rich-quick scheme participants. In a town that was built on the premise that there is a sucker born every minute, you can see these people sitting by the video poker machines, or spending their money at the Craps table. They are easier to spot out here, but that person who was telling you about how his new stock pick is going to make millions, is as much a gambler as any of the ones playing the tables on the Vegas Strip.


broknowrchlatr said...

I am personally a version of #1. I enjoy math. I got a minor in math. I don't play any casino game without first knowing exactly what the odds are. I don't even think I COULD beat the house. I don't play the slots but love table games, especially roulette. It is fun regardless of whether you win or loose. I like 'pretending' to have a strategy and then gloating when it 'works'. I also love walking up to a table where people are losing and betting $100 down on black. Then winning and walking away.

Overall, I'm down a couple hundred bucks over the last 10 visits. When you factor in the gallons of free coke i get, I'm probably only down an average of $15 a visit and its a lot of fun.

Shadox said...

See, that is a prefectly fine way to enjoy an evening if you like that sort of thing. It is very different from those who think that they can play to win.