While investing in the market is a little like gambling in a casino, when we invest part of our hard-earned nest egg, we want to tilt the odds in our favor before placing any bets.
At one time in my life, I was a student of the game of craps. When I placed a bet on the pass line, I could tell you the exact statistical probability of winning or losing on each roll of the dice. Of course, the odds of every game in the casino favor the house – otherwise there wouldn’t be a house. Gamblers consider themselves lucky when they can hold positions called “true odds” – which is basically 50/50 – and that happens very rarely.
Craps – like a stock portfolio – allows you to hold several positions at the same time and can quickly get complicated. Each shooter ends the game on a roll of the dice, with the casino potentially hauling in all the money on the table.
In the recent Downturn Millionaires webinar, Rick Rule of Sprott US Holdings said: “Volatility and risk are not the same.” Certainly, when we invest in a good company, the volatility of the market may cause the share price to fluctuate; however, if we know the company is solid, then the daily closing prices are nothing more than background noise. I seriously doubt Warren Buffett feels a need to check the price of his Coca-Cola (KO) stock several times a day.
At one point or another, I’m sure many of us have jumped into a stock hoping to catch a short-term trend going in the right direction. Though the rewards of this sort of investing can sometimes be very high, if you are a baby boomer nearing retirement or already retired, it’s better to throttle your emotions and place small bets.
When the dice get hot and people around the craps table start screaming, normally rational people often get too caught up in the game. When the shooter finally sevens out, the casino takes in quite a haul. One of the most important lessons in craps is learning the discipline to keep from getting caught up in all the emotion.
Since joining Casey Research, I’ve been amazed at how Marin Katusa, editor of the Casey Energy Report, Louis James, editor of the Casey International Speculator, and Alex Daley, editor of Casey Extraordinary Technology, have all managed to have such phenomenal success in highly volatile sectors. How have they managed to take risks down to a manageable level and build such a tremendous track record?
As a quick example, in the October issue of Miller’s Money Forever, I interviewed Louis James about the junior mining sector. At the end, I shared the track record of the Casey International Speculator with our subscribers:
“In the last ten years, it has recommended 359 positions; 280 have been closed, and the average gain is 107% over a time period of 24 months. What is interesting is that only 37% of its current recommendations are in positive territory, while the publication averages 60% winners. It gives great credence to the caution that, many times, after they make a recommendation, a stock will go down. In other words, despite a huge volatile market, where a good percentage of the investors lose all their money, Louis and his team have done a terrific job.”
Is this what Rick Rule was trying to tell us?