Are You an Investor or a Gambler?

Today’s post is going to be brief.

I could fib and say it’s because brevity is the soul of wit, but really, I’m just distracted by a combination of flashing lights, high stakes, and beautiful women.

There’s really no place like Vegas…

Personally, I’m not a huge fan of gambling. I know the odds, and I know they’re not in my favor, so I try to stay away from the tables as much as I can. For whatever reason, though, I can’t help but roll at least a few dice whenever I’m here for a conference.

Vegas is a city built on bad decisions. In my short time here, I’ve already witnessed a few examples.

Sitting to the left of my colleagues and me at the bar last night was a man visiting from Australia. It was his second night in Sin City, and he was already down four grand.

He’s here for another two weeks.

At the craps table, we watched an Asian man — who was, I’m guessing, somewhere in his 60s — lose his entire stack of chips in a matter of minutes.

There must have been at least seven grand on the table.

“This is not good” were the only words he could mutter as he walked away. You could only imagine the sinking feeling that ran through the pit of his stomach when those sevens hit.

Wall Street’s Rigged! (in your favor)

Chances are if you’re reading this right now, your appetite for risk is relatively high. Perhaps not Vegas-high, but at least technology-investing high.

Investing in technology requires us to speculate, plain and simple. No matter how much research you do, there’s always the element of the unknown — the theoretical dice-roll you take on in hopes of owning a piece of the next big thing.

For this reason, I wanted to take the chance to talk a little about risk and a few simple steps you can take to mitigate it.

First, let’s take a quick look at the odds.

At the casino, the house is always in favor. Craps, baccarat, and blackjack are your best bets. You have around a 48% chance to come out on top if you play these games correctly.

Keno, Wheel of Fortune, and slots are your worst payouts. The house can have up to a 24% advantage over you in these games.

In the market, the odds are actually well in your favor. Over the last 85 years, the market has been down just 31% of the time on an annual basis.

Unlike Vegas, the house has no advantage when it comes to equity. Investors have the advantage here, and it’s historically been 19%.

Credit: Yardeni Research

Regardless of this advantage, risk mitigation is incredibly important. This is particularly true in volatile sectors such as technology.

If you’re going to take part in speculative trading, here are two things you absolutely need to be doing if you’re not already.

Set a Stop-Loss

Setting a stop-loss helps protect you from unforeseen events. Negative earnings revisions, supply constraints, delayed product launches — you won’t have immediate access to your broker during all of these events. A stop-loss will act as a safety net when you’re not paying attention.

Additionally, a stop-loss takes the emotion out of trading. Losses are inevitable, but we often have a hard time selling for less than we bought. When you set your accepted level of loss beforehand, you remove all that internal dialogue from the equation.

Diversify

Innovative technology is exciting, and the potential returns are huge, but if you only own equity in this space, your portfolio could be a ticking time bomb.

That might sound weird from someone whose career centers on being long in tech, but I don’t write to convince you that technology is the end-all, be-all of the market.

Every investor needs to maintain a healthy balance of value and growth, and you can’t get that in any one industry alone.

Best of luck in your trading this week. It will no doubt be better than mine on the tables.

Until next time,

Jason Stutman

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