Primer on Gambling

So what happens next? Well, it’s not like the sellside (bankers and brokers) is very useful in actually providing actionable advice when something not in the script happens…

–Zero Hedge 8/12/15

Then again, considering all of these strategists were 101% confident the 10Y would have a 3% before a 1% handle, feel free to ignore everything they just said.

–ZH 8/12/15

Your financial advisors don’t know squat. They tell you this up front. Anytime they make a recommendation, they hand you a prospectus that says, “Past performance is no guarantee of future results.” When the bottom falls out and you are losing your life savings they will say, “We did not see this coming.” They never tell you to sell. You are one hundred percent on your own, other than the fact that they will commiserate with you as you go broke.

A guy with a tie reads my blog. “I don’t think you’re right,” he says. How come? “Earnings are good,” he tells me. Jesus. Earnings are always good at tops. They will be lousy at the bottom when it’s time to buy.

If you are planning on retiring with any money at all in your 401k, you better understand that you’re a gambler and your one job is to avoid being a sucker in uncertainty. Puggy Pearson, two-time world poker champion said, “Ain’t only three things to gambling: knowing the 60/40 end of a proposition, money management, and knowing yourself.”

Start with the odds in the market. Puggy would be sitting on his hands here. How much can you make when the market is at the highest valuation in history in relation to earnings. You don’t know the answer? Find out, sucker. Your advisor is not gonna volunteer this information.

Proper money management says you reduce your exposure as values get to upper extremes and, no matter what the market does, you hang on to cash until the cycle turns in your favor. You don’t know when this will happen. Nobody does, but that doesn’t mean you should willingly get run over by the locomotive of the Lord.

The toughest thing for a  gambler is self knowledge. Look at your history. How did you feel in March of 2009? That’s when you should have bought, you know. How do you feel now? Comfortable with your fully invested portfolio going up every week? That’s a warning to check the valuation and sentiment numbers. Or put protective stops under your positions. Make yourself liquidate when prices drop below your stops.

Understand this: you will never willingly do what you should do in the market. You will hate selling when you are making money and you will have a hell of a time getting yourself to buy when the world is coming to a catastrophic end. Everyone feels like this. If you can’t overcome yourself and do the right thing when it seems wrong, you have no business gambling.

That might be the first decision if you don’t want to be a sucker.





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