When you are dead. Every living creature in this universe is gambling on a million things every second of its existence. Don’t think that you get off easy because you don’t actively gamble. You don’t!
One of the fascinations I have with our American culture is that we pretend that gambling is a sin The real sin is pretending that you are not. You may not playing cards, betting on horses, rolling dice, betting on football games, or playing the market, but you are gambling. I think gambling was heresy in a world that believed in predestination, but that world doesn’t exist any more, does it?
You are gambling with your money, your health, and your life. That is a simple statement of fact. but we are really interested in your money. How are you gambling with your money?
Once you realize that every single thing you do with your money is gambling, you can start thinking about what you are doing to gamble successfully. If you think you are not gambling, you never even get to this point. You can’t have a continuous improvement plan for an activity you are not even aware of.
What does getting better at gambling really mean, anyway? It means winning more and losing less. It means winning more when you win and losing less when you lose. Gambling is not only a process, it is a process with well-defined commonly understood and agreed upon metrics. The person with the most money is usually the best gambler.
That is, that person is usually the best gambler when it comes to money. Having pile of money is nice, but we all know of people that had miserable lives with plenty of cash, as well as people who have great lives despite never having won a monetary bet in their lives. Money is just one way of keeping score, and it is only the best way of keeping score when the goal is strictly the accumulation of money. That’s a broad limitation, but important nonetheless.
The number one currency in most of our wagers is time. You can always get more money and try again as long as you don’t run out of time, but you can never get that time back. Money can help you make the most of time, but it can never get you time back. And time is really all we have.
So how do you get better at gambling? It’s all about identifying and eliminating risks. A risk is anything that might cause you to lose a bet. For example, every day you are making a bet that your house won’t burn down. There are many things you can do to increase your chances of winning this bet. This is just like any other bet.
What if the bet we are talking about is that you will have enough money to retire? A lot of people get this bet wrong. Some of these people always knew they were going to lose that bet, but the loss has come as a surprise to lots of people lately. Many of these people thought they had already won this bet, and many of them had if they had taken all of their profits two years ago. Some couldn’t and some wouldn’t, but almost all who didn’t got clobbered.
A lot who got clobbered ignored the first rule of risk managment. “Don’t put all of your eggs in one basket.” Victim after victim in the Bernie Madoff case said that they gave Bernie all of their money. The same is true of of many of Allan Stanford’s victims, but getting Ponzied isn’t the only risk. You might have had all of your money in Enron, Washington Mutual, or General Motors.
Of course, there were many who were forced to keep all of their eggs together. Employee stock options made many employees multi-millionaires on paper, but many of these people had to keep their company stock. Some could have cashed their options and sold the stock, but if they didn’t sell the stock or never cashed their options, all of that money disappeared. Sometimes it disappeared by itself, and sometimes it took some or all of their other money with it.
Other common sense rules of risk management that got ignored included: “If you bet all of your money all of the time, you will lose it all eventually no matter how smart you are.” Use of leverage or margin is betting MORE than all of your money all of the time. The use or misuse of leverage is behind nearly every market disasters except outright frauds.
There are lots of other risk management rules that everyone knows. Apply them! Remember that you are gambling. and take the appropriate steps to protect your butt. You already know what to do. Pay attention and use some discipline!