Translated by Andrew Vanburen from a Chinese-language blog by Vicky Wang in Sinafinance
FOR THOSE OF US living in Hong Kong, it’s hard not to see the strong influence of the betting industry on both the locals and the boatloads of mainlanders who are either coming from or going to neighboring Macau to try their luck in the casinos.
Not being much of a gambler myself, I still can say there’s not much strength to the increasingly common comparison between bourses and casinos.
It's hard not to pore through a financial journal these days, especially during turbulent trading session, and not discover that it has become somewhat fashionable to compare share investing to a night at the roulette wheel.
But the big difference is that the former requires background research, patience, intelligence, wisdom and the ability to read the trajectory of a stock.
While the latter activity -- a turn at the roulette wheel -- just takes a few chips... and a little luck.
After all, if you don’t have much luck at a particular table, you can walk eight paces to another dealer and try your blackjack skills elsewhere, as each table (or slot machine) is, in theory, completely independent of the others.
However, in the stock market, nothing works independently and investors should always be aware of this.
That being said, it wouldn’t be intellectually dishonest to talk about the way the two activities mirror each other in some ways.
After all, behind every cliché is kernel of truth, so the cliché about clichés goes...
Gamers step up to a game of chance and can custom design the intensity of risk they wish to endure, knowing full well that if the odds are 100:1, a one dollar winning bet will only bring in 100 dollars, but a 100 dollar wager will net the lucky gambler a cool 10,000 dollars.
Limiting factors to putting down the 100 dollar wager might include the following: patron only has five bucks in his pocket, patron has 100 one dollar notes and wants to spend the evening at that one table playing one-dollar games all night, or perhaps the patron hears loud laughter and celebratory cheers coming from the adjacent craps table and is lured elsewhere.
Do you see where I’m going with this?
Substitute a few words here and there in the above paragraph and you could very well be describing a morning meeting with your broker.
The bulk of capital market investors are risk-averse, and will put manageable stashes of cash into a stock and then increase the dosage gradually if and when the share price begins a protracted ascent.
But for those seeking quick and sizeable profits, one needs to be like the 100-dollar bettor at the roulette wheel described above.
Only in this way can an investor purchase the bulk of his or her shareholding at the initial “first noticed” price level.
However, one major distinguishing characteristic differentiating the motives behind the gambler and investor described here is this: the gambler knows the roulette ball is a perfect sphere and there is really no way to know with any certainty what number it will finally lodge itself in.
Therefore, other than researching the rules of the game – and maybe getting some inside information on how “generous” a certain casino is compared to other houses – it is pretty much an exercise in futility to do much preparatory bookwork before throwing the ball.
It’s all up to the Fates the moment it leaves your sweaty palm.
But ask any investor who makes a killing in the market about the secret to their success.
I would wager that very few of them are throwing darts at a dartboard full of company names before deciding where to throw their lot.
To most of you, all these muted “profundities” are no doubt very familiar territory already.
But it doesn’t hurt to go over the basics behind some of the tenets of investing psychology now and again, does it?
After all, a cliché like “markets are like casinos” does lose its meaning – and the ability to serve as a warning – if repeated over and over again.
But behind every cliché is a kernel of verity.
Two Different Drivers In Hong Kong’s Ongoing Mini-Bull
ALEX WONG: Don’t Let Gyrations Make Gamblers Of Us