Drunk Roulette? How gambling is very much like investing in the stock market

Dear Reader,

I have been working on an article about the bad mad lads of the City but basically there are so many of them I am struggling to hone it down into something fun and readable for you. Apologies for the intermittent service

Today I met an old friend of mine in Norwich as I was passing through and we had a quick chat about markets. It suddenly struck me that investing in funds is very much like playing roulette.  I was trying to visually explain to him  that betting on the same number (fund) repeatedly because it has come up twice is very likely to end in tears 'a la woodford'.  Rather than putting your money repeatedly on the number 17 surely it would make more sense to spread it across 6 or 7 numbers in such a way you would increase your odds of success.  As I constantly harp on diversification of risk is key to a successful portfolio.

Anyway I also wanted to tell you a roulette story from my University days.  Very few people know I ran a drinking society back in the day called the Viking Society. It was set up to foster relations between the many Norwegian students at Strathclyde and the scots.  Somehow I ended up becoming its chairman in my second year with a great mate of mine David becoming its treasurer. Obviously I threw the rule book out and made it into an infamous drinking club where members had to take part in raids to other campuses and do many three legged pub crawls through Glasgow dressed as Vikings.  What fun we had!

The Student Union used to give societies a budget from the University to try and attract freshers and new members.  After our 'Cheese and wine' freshers week party David and I had quite a bit of petty cash. I used to live just off Sauchiehall Street in Glasgow very near to the Forte casino.  I joined the casino when I moved to uni as they gave you free drinks and sandwiches if you went to gamble (I was canny even in those days). 

I came up with a great idea one evening after spending far too much time in the Nelson Mandela Bar that we go and try and convert our money into more money while taking advantage of the free drinks. If I recall David had never played roulette and promptly lost his half. I was at the roulette table but equally trying to suavely order an exciting free cocktail like a ginger James Bond and not really paying attention.  I think given the lateness of the hour you can forgive me for the fact I just got up from the table and wandered off leaving my stake sitting there.

Long story short after another half hour at the bar as we decided to call it a  night one of the waitresses came up and asked if we wanted to collect our winnings.  Apparently my bet  that I had forgotten (I think it was red and even) had won 5 times on the bounce.  David and I through clever money management (blind luck) had made huge returns for the society.  We never looked back.

Was just a quick trip down memory lane after a random conversation in Norwich today.  Just remember diversification of risk is key and not put everything on red all the time.

I suppose you could define investing in index etfs as placing the same bet on every number on the table. You will 'win' every time. Right up until the ball lands on zero (the market sells off).  As part of portfolio building I always think some aspect of absolute return is worth considering as their long/short strategies effectively give you a bet on zero at the same time.

Don