I recently attended a stock investment seminar that was held by a brokerage firm. Obviously, the firm subsidized the course because they know educated investors can profit themselves and potentially become long-time customers. As I was sitting in the class, I noticed that there were many similarities between successful stock investing and casino gambling.
Money Management
The very first thing mentioned in the seminar was that many people make money investing in the stock market, but the majority lose it all back because they do not know how to manage their money. Many investors jumped into the stock market in the late 90's and made an enormous amount of money only to lose it all when the market took a down turn in 2002. History repeated itself a few years later when the market took an upturn in 2005 and then came crashing down again in late 2007. Again, we had big gains followed by big losses and those who stayed in for the duration lost money.
Many gamblers have big wins in the casino, but end up losing it all back again. This is also because of improper money management which is controlled by one of the two emotions that rule us: fear and greed. When we win big, it is our greed that makes us keep gambling or investing all of our winnings because we want more. You have to learn to lock up a profit after you win. This does not mean that you have to quit playing, but you should establish a limit on the amount of your winnings you want to continue gambling with.
Stop Losses
The secret of being a successful stock trader is learning to cut your losses short and letting your profits run. Stop losses have to be decided before the trade, and you must get out if that stop is hit. Stock investors use a trailing stop on their winning trades. When they make money, they will raise their stop limit above their initial investment to guarantee a profit. As the stock climbs higher, they keep raising the amount of the stop.
When you win at the casino, you should lock up some of your winnings. If you want to continue playing, set a stop loss where you will quit if you start to lose. Like the smart investor, you can keep raising the stop loss as you continue to win. You can use a percentage of your win as your new stop loss. For example, you might pick 50%. If you win ten dollars more, raise your stop by five dollars and so on.
Plan the Trade—Trade the Plan
Successful people know how to make a plan and follow it, instead of running about aimlessly and making decisions on the spur of the moment. We were told in the investment seminar that we need to have a plan before we ever enter a stock trade.
The plan should include a profit goal and a stop loss if the trade goes wrong. By having a clear plan established before we trade, we can take the emotion out of our decisions and hopefully not succumb to fear or greed. The plan includes the type of trade, the amount of money we want to risk or win on each trade, along with the amount of time we are planning to spend trading.
Many casino players simply go to the casino with a pocket full of money and jump from game to game until all their money is gone. Before you go to the casino you should establish a plan for your visit. The first thing you need to decide is how much time you will spend at the casino; then decide how much money you are willing to spend gambling. This amount will be your stop loss for the entire visit. Knowing this amount, you can divide your money into a number playing sessions. You should also have a profit goal if you have a winning session.
Risk and Reward
Stock investing and casino gambling share several other principles. There is the risk to reward ratio which means that the bigger the reward, the more risk that that you will lose your money. If you invest in certain riskier options, you will occasionally score big. But you will lose more often because the odds against you are so high. This is similar to playing progressive slot machines where you might win a big jackpot, but jackpots will not happen very often.
Rule #1
The most important rule that applies to both investing and casino gambling is to never invest or gamble with money that you cannot afford to lose. There are no "sure bets" in the stock market or in the casino, and you must be prepared for any losses that may occur. However, if you manage your money correctly, you may see a big return on your investment. Good Luck!
Until next time, remember: "Luck comes and goes..Knowledge Stays Forever."
Bill Burton is the author of 1000 Best Casino Gambling Secrets and Get the Edge at Low Limit Texas Hold'em available online at www.billburton.com . Burton is also an instructor for Golden Touch Craps: www.thecrapsclub.com.
