Almost everyone gambles at least once in their lives. For the most part, it is a source of enjoyment; for some, it becomes an addiction; and for a select few, it is a source of income. Gambling offers a living for a small minority and entertainment for the masses, but a casual gambler hoping to make a quick buck has about as much chance of succeeding as an ice cube on a hot stove.
Horse racing is a favorite pastime of some well-known investors. They include Peter Lynch of the Magellan Fund and Warren Buffett, who used to publish a handicapping newsletter. My first book was dedicated to my friend Lou, who spent several years handicapping horses and betting on them for a living before purchasing an exchange seat and approaching financial markets like a cool handicapper. Some card games, like baccarat, are solely dependent on chance, whilst others, like blackjack, need a level of skill that attracts clever players.
Gambling is seen as a profession by professionals. They continue to calculate the chances and act only when the math is in their favor. Losers, on the other hand, have a strong desire for action and go from game to game, choosing between half-baked systems.
Follow a set of money management standards when you gamble for entertainment. The first rule is to keep your risk to a minimum during each session. When a friend drags me into a casino, I put what I’m willing to lose that night in my right pocket and put my earnings, if any, in my left pocket. I quit playing when my right pocket is empty, and I never reach into the left. I occasionally discover more money in my left pocket than I do in my right, but I never count on it.
A friend who is a successful businessman enjoys the glitter of Las Vegas. Several times a year he takes $5,000 in cash and flies there for a weekend. When his bankroll runs out, he goes for a swim in the pool, enjoys a good dinner, and flies back home. He can afford to spend $5,000 on entertainment and never blows more than his initial stake. Lounging at a pool after his cash is gone, he differs from legions of compulsive gamblers who keep charging more chips on their credit cards, waiting for their “luck” to turn. A gambler with no money man¬agement is guaranteed to bust out.
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