We’ve all read about investors who’ve acted on a hunch, put money into a business and seen their cash multiply many times over. Unfortunately, there are also plenty of stories where the opposite has been true and a sure-fire cert has failed to perform. A relatively recent example of this was the first Dot Com boom and bust when very many people were affected. Similarly, players in casinos can also enjoy extraordinary runs of luck or long periods of simply not winning and this has driven many to look into the similarities between the two activities – as well as whether the skills needed to be an effective casino gambler are transferable to financial investment. So let’s take a look.
The first element to examine is an individual’s approach to risk. In a casino or online casino this translates into whether the player feels comfortable with taking on a bet which has longer odds but which will generate a far larger reward or is more at ease with making smaller potential returns but with a greater degree of certainty. In investing the parallel would be to either buy shares in a relatively unknown company which may have huge potential to multiply its value in a short space of time or to stick to larger, more established businesses that are likely to make slow if unspectacular progress. By having an insight into one’s own attitude to risk it can provide a solid foundation for decision-making in both of these arenas.
Linked to this is the art of bankroll management. In a casino player this means setting out with a fixed amount to play with and managing this carefully as the session progresses. So, for example, a prime example of good bankroll management would be to keep winnings separate and deciding not to use these as a stake for future bets. Exactly the same principle works well for stock market investing with all dividends and money made from stocks sales being ring-fenced and kept as profits.
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In order to make decisions the seasoned casino player will be looking for all of the information they can find to inform their next move. In games like poker this can mean carefully watching the others round the table to look for patterns of behaviour as well as any “tells” that they may be bluffing. In games like blackjack there are also sources of information like the basic strategy that can inform decision making. In investing there is the past performance of a company to be considered as well as other factors such as general business conditions which can give a good indication as to whether the shares are likely to appreciate in value.
The final, but essential, element that is needed in both casino playing and investing is luck. In a world where very little is totally predictable it’s essential that certain things fall into place at exactly the right time, and in the right order, to achieve the desired outcome.
So there certainly are ways that casino gambling can help with investing but, equally, both also have their own individual requirements. The real skill is always going to lie in identifying these and acting on them effectively.