BAC and BCS (Bank of America and Barclays ADR) have been good to me in the 2.5 days I have owned them. They are up 28% and 15% since I bought them. This kind of sudden paper gain is pretty rare. All sorts of thoughts and emotions enter my mind:
- I’m a financial mastermind.
- I’m just lucky.
- I should have bought more.
- Maybe I should hedge… BAC is announcing Monday.
(Actually the last idea, about hedging, is a bit impulsive; I may yet do it Monday morning. These stocks are in my smaller IRA which functions as my tax-deferred mad money account. Playing and being impulsive is OK with these funds.)
All of these thoughts, I realize, are silly and fleeting. I don’t take them too seriously. However, part of me thinks I should be beyond such unprofessional emotions and thoughts. I’ve been investing since I was about 10 years old… to one degree or another. I have over 20 years of investing experience. I’ve studied finance in college and discuss finance all the time with a variety of successful people. I’ve read and absorbed book after book after book about money and investing. And still I have reactions that I consider a touch foolish.
Gambling: Keeping it at the Casino and away from the Brokerage Accounts.
My occasional risk-seeking tenancies are one reason I took up poker (and other gambling) about nine years ago. I figured it would be a good way to familiarize myself with my potentially unhelpful emotions. Mathematically, gambling is a bad deal. Arguably there are only two games that potentially make mathematical sense: poker and blackjack. Assuming one is skilled and patient enough.
So I started with blackjack. I bought a book and practiced counting cards at home. I developed a passing proficiency. I then played for real. I more or less broke even. But I found it very boring.
I moved on to poker. Primarily seven-card stud and Texas hold ’em. I found some good poker books (Boy are there some bad ones! However, I recommend anything authored by Sklansky.) Over years I developed some skill. I found that I did best with tight play — staying out of most hands. When I consistent play tight and with focus, I do reasonably well. I also found that I can be my own worst enemy. Two emotions can cause me particular harm at the poker table. Anger and boredom.
Boredom eventually causes me to take marginal bets that I shouldn’t to avoid the tedium of sitting out hands. Anger clouds my judgment and leads me to careless, impulsive decisions. Over the years at the poker table I’ve learned a variety of skills and techniques to mitigate and manage the impact of anger on my game. I have been generally unsuccessful so far at finding techniques to mitigate my boredom at the table. The only thing that I have found helpful to target boredom is taking myself away from the poker table for a break — usually at the craps table.
Craps is a stupid game. It can also be a ton of fun. There are simply no workable systems to make money playing craps. One could put twenty dollar bills into a shredder, but craps is simply a more fun way to waste money. Playing craps lets me address my temporary poker boredom, and have fun. When I return to the poker table down 20 or 30 bucks, I play better poker because I am no longer bored. This can sometimes save me 100 or more and sometimes helps me make back my craps losses and more.
It was some pretty circuitous logic that took me from investing to blackjack to poker to craps. There are some decent reasons I bring up these things:
- Investing can easily spill over into gambling and speculating. Trying to take the gambling aspect out of investing is a worthwhile goal which should be sought but is never fully achieved.
- Any gambling is dangerous. Especially if one cannot differentiate between luck and skill. A player can be eaten alive at the poker table if he incorrectly assumes he is more skilled than the others. Same thing can happen with stocks and especially with more exotic things like options, futures, and commodities.
- Investing in stocks, index funds, and quality bonds is like playing poker or blackjack.
- Trading options (and futures, etc) is more like playing craps.
- Moderation and caution are paramount. Without these virtues one risks losing everything.
I’ve only scratched the surface of my eclectic perspective on investing vs. gambling. I’ve temporarily made some nice bling on my BAC and BCS buys. I strive to be a rational investor, but acknowledge that I am not yet a Vulcan. I’ve briefly explored some ways I channel and manage my emotional, impulsive energies. Hopefully, the paydirt I hit this week is not simply making some money on these two stocks. It is perhaps in finding different ways to explore the money/emotion connection. Hopefully soon I’ll get this blog open and running such that I get reader comments. I look forward to hearing from you.