Do you know the difference between playing craps and investing in the stock market? In my opinion, absolutely nothing! There is very little difference between playing craps and investing in the stock market. Some stocks have a high risk factor with a probability and expectation of a greater return, while other stocks have a lower risk factor, but also with an expectation of a lower return. Similarly, some craps bets have a higher risk factor with a greater win pay-off while other craps bets have a lower risk factor with a lower rate for the win pay-off.
There are many similarities between various types of stock investments and playing craps. For example, investing in stock options is extremely risky compared to investing in conservative, dividend paying securities, like Disney, Coca Cola or MacDonald's. Stock options will allow you to make huge profits, but with a lot of risk. Investing in the conservative companies will have a lower risk, but will give you much lower profits. Of course, you can still lose money investing in conservative companies.
In craps, you can bet on a 2 or 12 which will give you the highest profit (pays 30 to 1), but it also has the greatest risk of losing (less than 3% probability of winning). Or, you can bet on the 6 and 8 which have lower pay payouts, but also a lower risk of losing. As in investing in stocks, a craps player will have a chance to lose even on low risk bets.
Webster's New World Dictionary, Compact School and Office Edition, defines "Invest" as "to put (money) into business, bonds, etc., in order to get a profit." Webster's Dictionary defines "Gamble" as "1. to play games of chance for money, etc. 2. To take a risk for an advantageous position." By comparing the definitions of "Invest" to "Gamble," one can ascertain that if you invest, you are putting money into stocks (business) or bonds or bank certificates of deposit in order to make a profit. If you "Gamble" (play craps), you are putting money (a wager) on a portion of the Craps table layout in order to win money. Depending upon how you invest and how you bet playing craps determines if you will have a greater chance of making money or a greater chance of losing your money.
If you listen to radio financial talk show hosts and their guests and you watch advanced-based TV programs (CNBC), as well as read investment magazines and publications, you will notice similar philosophies for investing as we suggest in playing craps. Some of the comparisons are as follows:
1. "Investing always involves risk." - - Don McDonald, nationally syndicated talk show host, 1/24/01. Bob Brinker of Money Talk has also said something to the same effect.
Translation: Playing craps always involved risk.
2. An advertisement by American Century in Smart Money Magazine, January, 2001, page 58, states in part as follows:
"It's knowing teamwork and a disciplined approach can deliver solid, long-term results." See also, Money Magazine, December, 2000, page 30.
Translation: Playing craps with a disciplined approach can deliver solid, long term results.
3. TD Ameritrade in their disclosure to investors about options (2008) state in part:
We know that options can be an important part of your investing strategy. . .
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.
Translation: Playing craps is not suitable for everyone. Playing craps may expose individuals to potentially rapid and substantial losses.
If you apply investment techniques and sound business principles to playing craps, you should be able to minimize your losses while maximizing your profits (wins). Just remember - - as there is no foolproof strategy to investing, there is no foolproof strategy to playing craps.