You sit down at the poker table and figure you know the rules. You’ve played before. Maybe even read Doyle Brunson’s “Super System” book.
If you’re smart, you are patient. You wait for a really good hand, something that looks like a winner before making any raises. You are feeling pretty comfortable as you study the other players at the table. And then something happens that makes no sense at all.
“China devalued its currency,” the dealer says. “You lose.”
As he rakes in the chips, you stammer that you had a flush. You were golden. The pot was yours.
Another player talks about the ups and downs of the game, someone else is muttering about the odds on a flush holding up and a third player says, “That’s poker,” as if no other explanation is needed.
You decided to play another hand. You peak at your hole cards and have two aces. As you fiddle with your chips, deciding how much to bet, one of the other players quickly begins fanning through the deck examining the cards that are going to be dealt in the immediate future.
“He’s a high-speed player,” someone explains. “He gets access to information before anyone else at the table. Pretty slick, huh?”
No, that’s cheating. And if the guy were playing against “Doc” Holliday or “Wild Bill” Hickok, he would never walk away from the table.
But this is the 21st century, and, of course, I’m talking about the stock market, not some friendly poker game. Sometimes called the most sophisticated gambling venue in the history of the world, more than half of the American population is playing on any given day. And hardly anyone of them knows what’s going on.
If I were to tell you that I took my life’s savings, went to a casino and sat down at a no-limit Texas Hold ‘Em poker table, you would likely think I was either a gambling addict or mentally unstable.
But if I were to tell a group of straight-laced suburban folks that most of my life savings was tied up in a 401(k) retirement account, and it was heavily invested in the stock market they would probably nod their heads in sympathy. After a week like this one, someone would inevitably say, “It’s only a loss on paper unless you pull your money out.”
In other words, don’t leave the table. Don’t worry about the money you’ve lost. Keep on playing. Heck, you may even want to double your bet because the law of averages says you’re going to win a hand pretty soon and you can recover some of that money you’ve lost.
Translation: There’s no better time to buy than in a down market.
That’s sort of like the George Bertonz blackjack system. George, a photographer at this newspaper many years ago, claimed that he always won in Las Vegas by doubling his bet after each hand that he lost. He made me promise to try his strategy the next time I was in Vegas. And I did.
I sat down at a $2 minimum-bet table and made a $2 bet and lost. So I doubled my bet to $4 and lost again. After four more losing hands, I found myself contemplating a $128 wager to win back the $126 I had lost and walk way with a $2 profit. I simply walked away.
“You would never have lost if you stuck with it,” said George, after I explained what had happened, although he claimed he had never lost six consecutive hands of blackjack. “That was a really bad run of luck.”
There was a time that you could sit down in a Vegas casino and keep track of all the cards dealt at a blackjack table, or at least count the number of face cards, which would give you a better chance of beating the house.
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That’s when casinos starting using double decks and triple decks and five decks and reshuffling every couple of hands to make it nearly impossible for the average guy to figure out when to increase the size of his bet or avoid making a large wager.
Even so, for good measure, the casinos banned anyone whom they suspected of “card counting.” The game is rigged in favor of the house, and anyone smart enough to figure out an edge is not wanted.
You would think that would keep people from gambling at casinos, but it doesn’t. People like the action.
And while some people would tell you there are similarities between gambling and investing in the stock market, most of us working stiffs really don’t have a choice when it comes to our retirement savings. We have to invest in the stock market through our 401(k) accounts, a sweetheart deal that would have made the old Vegas casino bosses salivate.
Workers are usually given a host of options to choose from (bond funds, small cap stock funds, large cap stock funds, international funds), and the general advice is to keep your money spread around, with more in the bond funds as you get older and less in the stock market.
That’s sort of like telling a guy who has never gambled that when he goes to Vegas he ought to put a few dollars on the craps tables, some more on the roulette wheel, a little cash on blackjack and a pile of money in the slots to increase his chances of winning.
“No, no, no, it’s nothing like that at all,” your co-workers will tell you, especially if they have ever read an issue of the Wall Street Journal or Forbes.
Diversification is the name of the game. Over time, if you play the market, you will win. Just look at all the graphs with the lines going up and down and finally up, up, up.
Nobody ever looses playing the market over an extended period of time, except for the guys who jumped out of office windows during the Great Depression, and they just made the mistake of pulling out too soon.
Now is not the time to panic (it never is). You’ve got to take the long view. Take them one game at a time.
Sometimes the investing cliches confuse me, so my wife and I have adopted our own approach.
“Don’t look,” she will tell me.
Don’t look at what?
“The stock market.”
So it’s crashing.
“I didn’t say that. Just don’t look!”
But you looked.
“I know. I wish I hadn’t looked. It doesn’t do any good.”
The next week, the roles are likely to be reversed. I will tell her not to look. She will get upset at me. Ask why I had dared to break our mutual vow not to look. And then demand to know what I saw when I looked.
We don’t shift money around a lot. They say you shouldn’t do that. They are the same people who say it’s not a real loss until you take your money out of the market, that you’ve got to take the long view, that the best time to buy is when the market is down and don’t panic. Somehow, “they” always seem to make money, no matter what happens to the rest of us — sort of like the guys who run the casinos.
For years, I’ve been wondering what happens to the stock market when baby boomers start withdrawing their money from their 401(k) investments or simply start dying off. I also sometimes wonder what would happen to the economy, and the stock market, when all the pensions go away, which seems likely.
Pension funds invest billions of dollars in the market, which helps finance American business growth, which helps create jobs, which puts more money into the economy. But “they” say that eliminating pensions would be a good thing because people would have more of their money to spend and invest in their 401(k) funds — allowing them to make decisions about their financial future instead of pension fund operators.
“Don’t even bother think about any of that,” my wife advises. “It doesn’t do any good.”
She’s right, of course. Don’t think. Don’t look.
“Train yourself to let go of everything you fear to lose.” That’s a quote from either J. Pierpont Morgan or Yoda. The funny thing is, it really doesn’t matter.
By the way, stock market futures suggest that the market will skyrocket. That’s what “they” say.
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