Here at Wealthpin we hate gambling.
The lottery… roulette wheels… dice games…
These are activities driven by pure luck… and that luck is inevitably stacked against the player.
But there are other games associated with gambling…
Like poker… that don’t have to be gambling at all. If you approach these games correctly – they’re called “advantage plays.”
And a sharp operator can make some REAL money playing them.
In poker you’re not playing against the casino – you’re playing against the other players. So once the casino takes their cut, if you can beat the other players at a good enough rate, you can do very well for yourself.
But like anything in life with a good payoff, there’s still risk.
There’s still uncertainty.
Your opponent’s cards are face down. So is the rest of the deck. You have to make decisions, good ones, despite having incomplete information.
And here’s the real kick in the groin – even if you make the right decision – you can still lose a poker hand.
Two aces is the best hand to start with in Texas Hold’Em Poker.
But even they lose 20% of the time. You can have the best hand of two aces, and you’re opponent can have the worst hand of a 2 and a 7, and they can still beat you.
In the short term that is.
Because in the long run, if you play smart and conservatively and keep an eye on your bankroll… you’re all but guaranteed to make money.
Despite your opponent’s cards being face down… despite the deck being face down…
And guess what – the exact same thing applies in investing.
Investing is always risky. Big blue chip companies that are known the world over can go bankrupt.
Geopolitical conflict… or a global virus… can send the economy into pure chaos.
But that doesn’t mean you can’t win… in fact you can still win really big.
In the decade following the 2008 crash it seemed like you couldn’t lose. The market went up and up and up…
And just putting all your money into large tech companies like Google and Apple and Facebook was a massive ticket to success.
Nowadays – that simply isn’t true. Things are a lot more chaotic and a lot more uncertain.
For just one example – all of those hugely lucrative tech companies rely on microchips. And those microchips are almost exclusively made in Taiwan.
As geopolitical tensions ramp up and China grows emboldened… that crucial technology supply chain is suddenly at risk.
And everything from pick up trucks to iphones to refrigerators could be impacted.
Is that a guarantee? Of course not.
We’re operating in darkness, in uncertainty. Anyone who tells you otherwise is either stupid or a liar.
But again – darkness doesn’t mean that we can’t make smart decisions, and set ourselves up to profit big in the long fun.
Of course metaphors like this are all good and fun- but they don’t mean a damn thing unless you can apply them in the real world.
So at a nuts and bolts level – how do we make smart investing decisions in the face of uncertainty?
Well let’s go back to our poker friends, and borrow from them – namely bankroll management.
Never over commit to a position. Make sure your portfolio is diversified.
So make aggressive, bold moves. Go after opportunities!
But know that some will lose, and if you blow everything on one position, you’ll miss out on future opportunities.
And that doesn’t mean diversified between large American blue chips, which mostly move in lockstep with each other.
It means real diversification – if you have shares in big tech companies – maybe you should consider shares in gold miners.
If you have a lot of exposure to American stocks – maybe you should consider some European assets.
If you’re 401(k) is stuffed full of $100 billion behemoths, maybe its time to take a look at microcaps with valuations more in the $100 million range.
The best investors in the world lose trades all the time.
That’s why they spread their portfolios across many different companies and asset classes.
And that’s why despite losing trades all the time… they still have mansions and private jets. We could do well to follow their examples!