Friday, March 13, 1998

A Day at the Casino
by Brian Clark ([email protected])

I recently went to a local casino to try my hand at some seven-card stud. I do this about once every other month or so, and let me mention that I consider this to be a reasonably Foolish thing to do, given my circumstances. I play with purely recreational money, I consider it entertainment even though I play to win, and hey, I just have to beat the other players, not the house.

In any case, playing poker at that casino is often very social, with many regulars who are on a first-name basis with each other and the dealers. That evening, the conversation turned briefly to stocks: evidently, one of the women at the table had previously recommended certain stocks to the dealer. Having recently found investing and Foolishness, I perked up my ears out of curiosity:

"So, did you try any of those stocks?" asked the woman.

"Yeah, but they didn't go anywhere. I sold them," said the dealer, as he shuffled.

"Even that one company, the drug company?" she persisted. The dealer shrugged, as he dealt out cards.

"Yeah, that one went down. I bought them, but sold them later that day," he explained.

The woman accepted this without even a blink, and I was aghast. Even before discovering the Motley Fool, I knew that this was a recipe for losing money. The trading costs alone would eat an investor alive, and the fluctuations of any stock in the short-term have almost no relation to the real value of a company. I had come face-to-face with my first honest-to-goodness day-traders.

The key to success at poker is not luck; it is rigorous application of the mathematics of probability and resistance to irrational swings of optimism or pessimism regarding the strength of one's hand. Certainly random chance plays a part, which is why a successful player must remain flexible and open to new information, such as the fact that the other guy's three kings showing beats your two aces in the hole. However, such ups and downs of chance tend to balance out over time, which is when skill and the "fundamentals" of probability take over. The Motley Fool shows us that the key to investing success is the same, and the profit margins are far better.

I was dealt a seven, an eight, and a jack, and promptly folded before betting a single chip. I go to the casino to gamble and socialize. I go to the stock market to win.

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