Two weeks ago, I had the pleasure to introduce chart-based trading of cannabis-related stocks to the attendees of the National Institute for Cannabis Investors Retreat. In this hot new sector, the profit opportunities are as large as cannabis stocks are volatile, so the presentation was very well attended.
And as we were in Las Vegas, the conversation naturally turned to gambling. Some people asked whether the kind of speculation us traders do when we make a trade is the same as the gambling going on in the casinos on the Strip.
Let me tell you, the difference couldn’t be greater.
Gambling is all about luck – hoping you overcome odds stacked against you to make a big score.
Speculation, on the other hand, is not. It is designed to systematically control risk and buy at advantageous prices to make money over many trials or trades/investments.
Let me explain…
Casinos Will Make Your Money Vanish Like Magic
Las Vegas is known for many things, but gambling is what comes to mind for most Americans when we hear the name.
As for me, I never put one thin dime in a slot machine, or make any bets at a blackjack table.
My “guilty pleasure” in Vegas is the same as anywhere else I go: enjoying the world-class food, amazing wine, and good company. Two weeks ago, my friend here at Money Map Press, Tom Gentile, wrapped all of that in one. He invited me to a watch the famous illusionist and magician David Copperfield, and then hang out with him for a minutes afterward:
I’m glad to report that, like the Statue of Liberty, which David famously made vanish on live TV in 1983, both Tom and I came back from the dinner.
But David isn’t the only one in Las Vegas that can make things go “poof!”
Casinos make their money on a simple rule of gambling: the odds are against you. People lose more money than they win, and the difference goes to the casino.
Game theorists call it a game with a negative expected return. On average, you are better off not playing. That big payout everyone gambles for is either too small or too rare for the game to be worth your money.
In other words, in gambling – if you play long enough, “the house always wins.”
That’s not to say a little bit of gambling can’t be fun. There’s no denying that it could have entertainment value. But as a way of making money, it is, quite literally, worse than doing nothing at all.
Speculation, on the other hand, is something quite different…
Beat the House by Not Playing Its Game
Speculation, when done using a proven system, is a game with a positive expected return. Put simply, it means you make a plan to put the odds in your favor.
As traders, we speculate on what’s about to happen to a stock, option, or other security, and use our money accordingly. We step in and buy when others want to sell, and sell when others want to buy.
Just like gamblers, we don’t expect every single trade to win. This may be why gambling and speculation can appear similar.
But a gambler is much worse off. Just like us traders, gamblers are uncertain about the outcome of any one bet. However, us traders can be sure that, if we follow a proven strategy and use good risk control, over multiple trades we will come out ahead. It’s mathematically proven.
It’s also mathematically proven that the gambler can be sure to, over the longer run, lose money. After all, if being a gambler was profitable over the long run, casinos wouldn’t let you gamble.
There are some exceptions, of course, and casinos guard against them with great vigor. For example, “counting cards” in blackjack is a mathematically proven way to beat the house. It was popularized in the book Bringing Down the House by Ben Mezrich, as well as its movie adaptation, 21.
Its inventor, Bill Kaplan, turned $1,000 into $35,000 in just over nine months. As you can imagine, he soon couldn’t set foot in a casino without being followed by security.
The process involves assigning a score to each card according to how good it is for you as opposed to the dealer. Once the cards left in the deck favor you, you bet more.
A more sophisticated approach involves only joining games where the remaining cards favor the players.
But that is simply adopting a system – it turns blackjack from gambling into speculation. And so casinos have put many tools in place to thwart card counters including using more active decks, shuffling more often and monitoring players for card-counting behavior.
Similarly, using a proven system to identify what to trade and when gives you an edge over the market as a whole. It’s what separates you from the beginner who trades on emotion, and loses unless they get lucky.
A systematic trader wins over the long term, but has to deal with some expected losses along the way.
The most important key to successful investing is having a tried and true trading system. Right now, just for signing up to be an Insider for as little as $39, I’ll also give you a free copy of my book, which will show you how you can identify your own trades that have a higher probability of success, and how to limit the downside risk that comes with all investing. It won’t be long before you could be enjoying double-your-money trades of your own. Click here to learn more.
In any event, I don’t recommend counting cards. Casinos ban people caught using the technique.
Stick with trading. It’s easier, and you don’t have to go all the way to Vegas to do it.
Great trading and God bless you,
D.R. Barton, Jr.