Investing and gambling have often times been compared. The main thing people point to when drawing parallels between the two is the fact that both investors and gamblers have to deal with a certain level of risk. That is certainly true. However, it is about where the similarities end. Having said that, there are certain things that investors could learn from gamblers (and vice versa).
The gambling industry nowadays is bigger than ever, in part because of the growing success of iGaming. For those who don’t know, iGaming is a term that describes all forms of online gambling. In other words, stuff like the NetBet card games that gambling enthusiasts could enjoy online at any point during the day. Of course, as with land-based gambling, these card games come with a certain degree of risk.
In this article, we are looking at the way that gamblers use strategy to minimise risk when playing their favourite games. What is interesting is that some investors might get a kick out of learning that some of these strategies could teach them a lot about risk management in general. So, without further ado, let us take a look.
Betting Strategy
One of the most popular risk management techniques in gambling involves controlling your betting in order to minimize any losses, and maximise any potential wins. Most gamblers are well aware that casino games are luck-based, and therefore, tactics will not help much. So, they focus on the one thing that they can control: their own bankroll.
Though betting strategies are all built on the same principle of controlling your own bankroll, they can get quite diverse. Broadly speaking, there are two kinds of betting strategies: fixed betting and progressive betting. But what are the differences between fixed and progressive betting strategies, and what can investors learn from them?
Fixed vs. Progressive Betting
As you can probably guess, a fixed betting strategy involves players wagering the same amount of cash, over and over. For example, if you’ve started with a $5 wager, you will continue to bet $5, until you’ve run out of funds or until you, hopefully, get a win. Fixed betting strategies are very safe, however, they also don’t come with a big reward. It is why they aren’t very popular among professional gamblers, but do enjoy some success among newbies, amateurs, and casual fans.
On the other hand, progressive betting strategies require the player to increase their deposit after every loss. The idea here is that, on a potential win, the player will earn back what they’ve lost previously. There are several progressive betting strategies, most popular of which are the Fibonacci system, the Martingale system, D’Alembert system, and more. Progressive betting strategies vary in terms of risk and in terms of return. On average, though, they are much more popular among experienced gamblers.
Though it may not seem like it, there is a lesson for investors here. Namely, new investors should not jump headfirst into risky business ventures. Certainly, a degree of risk is necessary in investing, as in gambling. But note that the newbie gamblers are far more likely to stick to the safer betting strategy. Only once they’ve accrued enough experience do they move on to the “high-risk/high-reward” deals. Certainly, that is a lesson investors need to learn as well.
Bankroll Management
As we said, a lot of gamblers are well aware that playing chance-based games does not go well with strategy. So, instead, they focus on the one thing they can control: their own bankroll. That is why bankroll management is one of the first things that many new gamblers learn. For those who may not be aware, bankroll management is the ability to stay in control of your gambling funds.
Believe it or not, bankroll management starts before you ever create an account or set foot in a casino. It begins at home, when you are preparing for your trip. You set aside the cash that you think you can afford to lose, because, in truth, it is possible that you will get a really bad hand, or two. Many expert gamblers even recommend slashing the sum you’ve set aside in half, just in case.
Any good investor knows the importance of finances. Whether they are dealing with personal finance or the effects politics have on the greater finance industry in general, a good investor must stay informed when it comes to money management. In a sense, managing a bankroll at a casino is much the same thing. Players need to be informed about money management in order to stay ahead.
Blackjack Strategies
We’ve talked a lot about the luck-based nature of casino games and how it is difficult to implement strategies due to that nature. However, there are a few games for which that rule does not apply. The most popular of them is blackjack. Of course, the most popular strategy associated with blackjack is card counting, and it involves doing some serious mathematics.
With card counting, many gamblers have managed to overcome the dealers and take noteworthy casinos for all that they are worth. The best example would be the MIT Blackjack Team, which has entered the annals of gambling mythology. However, while card counting was an important aspect of their strategy, the students did rely on just a bit more than that.
Aside from card counting, blackjack players use other systems as well. One of the most prominent ones is so integral to the game that it has come to be known as “the basic strategy.” To keep it simple, the basic strategy is little more than knowing exactly when to do what in blackjack. Pro players know when to hit, when to hold, and even when to double down, based on all of the cards on the table.
Certainly, savvy investors can now see the similarities between playing blackjack and putting their money into stocks. Just like blackjack players must know when to hit and when to hold, investors must be aware of when it is right to withdraw their support of stocks, and when it is time to go all in on a certain market.