The Blue Roof

For the sake of clarity, let’s look at definitions:

Investing – anything that increases in value over time because the income increases.

Speculation – anything that increases in value because of supply and demand or because of general volatility. I group sports betting, horse racing, day trading and spread trading, in fact any trading, here.

Gambling – what you do in the casino and when you try to live without adequate risk protection (ie, life, disability and short term insurance).

 Although the lessons can apply to all three groups, I am actually discussing Speculation more than Investing.

 The first thing that stands out when you start reading about gambling, is the need for discipline. You can easily get returns of 70% in a couple of minutes, but you lose your shirt much quicker and easier!

 That is why everybody who writes about any form of gambling/speculation recommends that you have rules and a system that you adhere to religiously. The moment you deviate from the rules you will lose big time.

Discipline also implies very strict logic and no emotion. The two times that I saw a casino, it amazed me how everything is geared to get the emotion of greed going. Lotto adverts in the media get the greed going. “Just imagine what you would do if you won the jackpot – fire the boss in style; buy an island; buy your dream house”. It fuels the dreams of a high flying lifestyle! And people start thinking with their hearts instead of their heads. And they feed the monster in the bottomless pit.

 And just a little bit of success and the optimism and greed soars and there is no stopping. The jackpot is always just one coin further, just one more coin. Speculating with emotion is a sure way of losing a fortune!

 Over-confidence is another attitude to beware of. You get to know the game, you have some success, you know you can win – and suddenly you take on the world! And all caution flies out the window and you put the bank on the line for that deal of a lifetime! And then you go south with the deal … If you ever won any money in the Lotto you will know what I mean!

 Lesson 1: If you get involved with any form of trading, gambling and investing – discipline is the first non-negotiable requirement. I cannot emphasise this enough. And it is like a circular argument – if you don’t have enough discipline to stick to the rules, will you have enough discipline NOT to play?

 Lack of discipline can turn you into the moth and the candle. You feel the heat, you know you should stay away, but you are drawn to the flame and, fight as you may, you are always trying to get as close as possible without slipping. Unfortunately, in this scenario slipping is a matter of time.

 Discipline is non-negotiable, that is why we start with it.

 

This entry was posted on Monday, October 26th, 2009 at 08:07 and is filed under Business, Financial Planning, Gambling, Investments and Investing, Property, Short Term Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.