Are You an Investor – or a Gambler? – April 2022

Waiting for your number to come up – or playing a different (and better) game altogether?

When it comes to how you handle the money you have invested in the market – be it via superannuation, pension or any other form of investment, a key consideration is how you feel about ‘risk’.

I talk about it all the time, because aligning your investments with your feelings about risk is a critical part of sensible investing. But, in any discussion about money, risk and emotions, a big question is always in the background:

Are you investing, or are you gambling?

This is a critically important question for anybody looking to put their savings to work in ‘the market’. And, as I’ve said in the past, simply means agreeing take on some level of risk.

Which makes your answer to this question – are you investing, or gambling? –  a key indicator of how you will approach accepting that risk.

Because, for investors, those risks are often a reluctant cost of starting the long-term process of turning savings into wealth. The idea of them coming true is unpleasant, sure, but they can be managed and mitigated and, really, we must accept the bad if we’re going to chase the good when it comes to investing.

So, for most investors, ‘it is what it is’.

It’s a Flip of the Coin 

But, for gamblers, these risks are a two-sided coin:

–          They’re the adrenaline driving their excited pursuit of quick wins.  

–          And they’re the roof that falls on their head when things don’t quite go to plan.

This amplified approach to risk, this vacillation between 0 and 100, can make sticking to good financial behaviours really challenging for gamblers. Because it’s hard to diversify, stick to the long term and be patient when you’ve got a head full of steam and you’re constantly sprinting after things.  

Yet, in my experience, the investing tortoise beats the gambling hare ninety-nine times out of a hundred.

Like Attracts Like

Self-selection is a wonderful thing. If only because it means that, for the people I work with, the answer to this question is easy – you’re all investors.

You’re not punting on what an unknown horse is going to do in the gallops of your financial future.

You’ve committed to doing the sensible (boring) things consistently and well, secure in the knowledge that this is the path that gives you the greatest likelihood of growing, keeping and passing on real wealth.

 So this piece is not really for you.

Who It’s Really For 

Instead, this piece is for that one guy you know, or that couple you see at the club, or that person that’s at every barbecue talking about finance like it’s a blood sport.

Because, well, they’re wrong. Frequently, consistently and – sometimes – catastrophically wrong.

I mean, bless them, they don’t mean to be wrong any more than those people who only take their news from their Facebook feed do.  

It’s not their fault, is what I’m trying to say; they’ve been played by a system running on shonky incentives and endemic self-interest. A system that has been built to exploit our worst instincts so that other people can make (a lot of) money.

Because, for all their talk about the latest big new thing, about that golden opportunity us fools are mad to pass on or the latest shortcut to the rivers of gold, the simple truth is that they’ve been tricked into gambling instead of investing.

Like a spectator at halftime at the MCG, they’ve been bombarded with messages from people who profit from them making the wrong choice. Because, let’s face it, there’s a lot more money to be made convincing people to do the easy thing that’s wrong, than the hard thing that’s right.

 a lot more money to be made convincing people to do the easy thing that’s wrong, than the hard thing that’s right.

Omens and Talismans

And, like gamblers since time immemorial, they’re constantly looking for omens and talismans. Omens to tell them where the next opportunity will be; talismans to make it more likely they’ll win with this one.

War in Europe is their latest omen, of course, but before that it was inflation in the US, or the Chinese response to COVID or the worldwide impact of a ship stuck in that little canal.

Before that it was the election of Biden, or the murderous acts of the Saudi’s or Angela Merkels real agenda or Abenomics or the eurozone imploding or Modi being Modi, or any of the US interferences on the Arabian peninsula.

There are always omens to be found when you’re looking for them:

–          That horse has the same name as the first street I lived on! 

–          The RBA said some stuff about interest rates!

–          It’s been ages since double zero came up!

–          The NASDAQ is up! Down! Whatever!

And for our gamblers, these omens lend an air of certainty when discussing things that are inherently uncertain – like the financial markets.

So, with form guide (financial section) in hand, our gambling friends are incredibly confident about what will happen next.  

Of course, this confident forecasting always throws off rock-solid ideas about what we should all do about it.

We should strike now and take advantage of this (latest) once in a lifetime opportunity. They are, and so should you. We can all use the same ‘innovative’* methods they’re using to take advantage of this opportunity.

*(sidenote – if any financial product is ever spruiking it’s ‘innovative’ bona fides, run away. ‘Innovative’ is normally code for ‘well, look, I think this should work – how about you pay me to try it and see?’) 

It Doesn’t Really Matter

Now, the real shame of this is that none of this really matters.

The omens can be important, sure, but often, they’re little more than temporary distractions. They fill column inches and a 4-minute segment on a news show, but for the individual investor, there’s not a lot we can do about what little long-term impact it all has.

Because none of us can control what the market – any market – does.

There might be some big names that can bump a market in the right direction (Buffett, Musk, Gross, Biden maybe?) but for everyone else, we’re captive to the millions of random movements the market will make in any given period.

And – that’s fine!

This is what we need to accept when we start investing – that we can try as much as we like to know where things are going and what to do next, but in reality, we can’t really know.

So, instead, and to repeat myself, I believe we should focus on the things we do know and can control:

  • Our personal and individual objectives

  • Our financial means

  • Our tolerance for risks

  • Our individual and personal financial needs

  • A deep and secure moat to protect our financial castle 

Then we can invest in line with our own priorities – not those of the noisy interests encouraging our gambling colleagues to chase the quick wins. Our actual level of control and influence over the market is negligible – so we can accept that the market will do what the market will do.

And move on with the more interesting parts of our lives!

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