How to Lose Money Fast

May 4, 2013 by

Blackjack tableIn my younger days I learned a card counting system and, along with some buddies who did the same, frequented Las Vegas and isolated casinos elsewhere with the aim of making money playing Blackjack. Some in the group won consistently and some did not. (That I’m spending my time blogging instead of lounging beside my pool in a warm clime with my friend Margarita should give you a clue about my results.) I had loads of fun and learned a lot about gambling and how casinos work. That’s one reason I’m wary of Wall Street. 🙂

What Goes Up Must Come Down—Often Hard and Fast

How cash tends to ebb and flow between player and house was among the many observations I made during my “casino years.” In my somewhat frustrating experience, I found that my bankroll always grew at a very slow pace, when it grew at all. I’d claw and scratch for hours to grow my bankroll maybe just 10%. Then, ka-BOOM: In a crushing hand or short series of hands, I’d lose a big chunk of my bankroll, thereby flushing hours of hard work.

I realized at the end of a long day of card counting that my net results reduced to just a few big hands. If I’d won those hands, I’d be up for the day, but if I lost most of them, I’d be down. The other 99% of the thousands of hands I’d played were just noise, pushing money back & forth with the dealer with little net consequence.

If you’ve any experience counting cards or just playing Blackjack, you know what I mean: The count is high, so you jack up your bet. Then you get a pair of 8’s, and split. Then one of those gets paired and you split again. Then you get a 2 on one 8 and a 3 on another and you have to double down on both but get stiffed. Suddenly you’ve got a ton of money bet, queasiness in your gut, and paralysis in your limbs. Ka-BOOM: The dealer makes a five-card 21, against all odds.

My blood pressure went up a few points just writing that last paragraph.

Growing Savings Can Be Like Playing Blackjack

I’ve noticed that working to save money and build a nest egg often follows the same cash ebb & flow as playing Blackjack. You scrimp and budget to save a few dollars each week. Over the course of a year, you manage to save a decent emergency fund. Then you start putting a couple hundred bucks every month into a retirement account. Your savings grow steadily, but slowly, over years.

Then, ka-BOOM: Wall Street shenanigans melt down the financial system, you lose your job, your investments’ value shrinks by half in just a couple of months, and your house’s roof springs a leak into your living room. Now you’re draining your emergency fund to keep the bills paid and the rain out and wondering how many years you’ll have to postpone retirement. Not fun.

Can You Better Protect Your Savings?

You can help insulate your savings from the “poof” effect by avoiding certain temptations, aka “get rich quick” schemes:

  •  Options trading—like messing with stocks on steroids but with no limit to downside risk.
  • Foreign exchange trading.
  • Day trading—guess how many day traders are as successful as those depicted in CNBC commercials? Exactly none.
  • Commodity trading—pork bellies anyone? Imagine you’re short oil the day Israel attacks Iran’s nuclear production facilities. Ka-BOOM!
  • Penny stocks—classic sucker bait, not really in the category of stocks you’d consider for investment.

In short, the best way to insulate your nest egg from vaporization is to keep it simple and boring, my friends. And remember: The house always wins.

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