bet black and white casino chance

The casino may actually provide better odds

 

Call me a traditionalist but I rather put my money where I can see the money.

When investing in equities, the money can easily be seen from the financial statements that publicly-listed companies have to provide. These records are also subject to an audit and hence, to a large extent, you can trust the numbers.

However, when the world’s filled with easy money, many people can raise money to fund what is essentially an idea. These ideas are typically moonshots and can fail for a variety of reasons. Of course, the payoff from taking these bets are huge.

Imagine being an early investor in Google, Facebook or Amazon. Now that Amazon has hit a US$1 trillion in market cap, I’ve been seeing the headline about how $1,000 invested in Amazon in 1997 would be $1,000,000 today. It’s stories like these that provide the lure of Venture Capital.

Unfortunately, as Ben Carlson highlights, even investing in Venture Capital funds that supposedly have the expertise to seek out the most promising startups can be an expensive affair. Even in the middle-of-the-road scenario, you may have been better off just investing in public equities.

What Billionaires Do Don’t Apply to You (Unless you are one)

This also brings us to the point about taking the advice of people who already have tons of money.

You can’t unless your income and wealth profile is like them.

In a separate post, Carlson also shares how J.P Morgan’s Jamie Dimon is against holding bonds and how personal finance guru Suze Orman holds very little of her wealth in equities.

The point is that what they do may not necessarily be suitable for other people? After all, how many of us can earn the income that Dimon or Orman do from work? In addition to their work, the amount of capital that they can put to work is so huge that the risk-free return from that is something most people would die to have.

It’s like what a friend told me before. If you have a $100 million, just parking that in the bank to earn 2-3% per year is going to net you a cool $2-3 million dollars to spend every year. Unless you plan to be like Johnny Depp, you don’t really need anywhere near that amount to survive each year. Therefore, you can easily take on more bets on moonshots that the average person.

The Role of Financial/Investment Advisors

This is where financial advisors need to really be kept in check so that they don’t recommend funds or products that their clients can ill-afford to invest in. In general, I think the regulators have some basic protection by specifying certain products as Specified Investment Products (SIP) and Excluded Investment Products (EIP) although the whole idea was probably a delayed response to the whole minibonds issue.

However, the list applies quite generally and the example that comes to mind is when the relationship manager from a local bank tried to advise my mother to go into gold mining stocks as a way to take advantage of the potential returns from rising gold prices. This was some years ago but fortunately, my mother checked with me and I basically told her that the guy was an idiot.

Obviously, the guy was just trying to earn his commissions and he probably wouldn’t have given that same advice to any normal retail banking client but still, it’s not like my mother’s account is at a level that would have allowed her to take moonshot bets.

Final Thoughts

At the end of the day, the more money you see being poured into businesses that have no profits or positive cashflow, the more you should be worried. If your account allows you to take bets on these moonshots, then, by all means, go ahead.

However, if you have neither the temperament for frequent losses and the account for it, then please don’t bet the farm on things that may not happen. If anything, the crypto-boom last should serve as a cautionary tale for everyone.