When the new year dawned on 2021, shares of retail video game reseller GameStop sold for $18 per share. But by the waning days of January, the seemingly unappealing stock that was stuck in a rapidly-declining industry had soared to a price of $483.
That meteoric rise was fueled by members of a Reddit forum focused on day trading after the group successfully executed a risky investing strategy known as a “short squeeze.”
Essentially, these small-stakes investors gambled on themselves and beat the house (Wall Street hedge funds who short-sold GameStop) in a billion-dollar game of chicken. Since then, the stock market has been likened to a giant casino by many in the media.
Learn how gamblers can use their knowledge for day trading below.
1. Gamblers Have Experience With Balancing Risk vs. Reward Assessments
First things first, purchasing and trading shares in a public company puts your capital at risk.
Just like any bet on the blackjack table or spin on the slot machine, money spent on stocks is beholden to random variables.
And in the world of Wall Street, those same random uncertainties are known as volatility.
In any event, both gamblers and investors must make two central decisions—how much money to risk and on what to risk that money.
- Should you spend $100 chasing huge jackpots on the Megabucks slot, or take that dough to the blackjack table where doubling your stake is possible?
- Should you use your $1,000 trading account to purchase long shot “rags to riches” stocks like GameStop, or would it be wiser to tuck those funds in a steady yet slow climber like Amazon?
The parameters may differ wildly between the two fields. But as you can see, both gamblers and investors are well-versed in the minutiae of risk and reward assessments.
By falling back on previous experiences with balancing risk and reward at the why playing at both physical and online casinos
, a budding day trader can more easily avoid the stock market’s many pitfalls.
2. Gamblers Consider Money as a Tool
The most successful investors are those who possess a natural detachment from the value of a dollar. That’s not to say that the Warren Buffets of the world don’t care about earning a profit; on the contrary, building a fortune one trade at a time is their life’s passion.
But on the path toward profit, the best investors won’t bat an eye when parting ways with significant sums. They instinctually know that the money stashed away in their portfolio is simply a resource to be marshaled accordingly.
After all, the money used to purchase stock very well could’ve been used to buy a new living room set or to splurge on a luxury vacation. And in those cases, the money spent provides a tangible benefit, while investments can be made and lost without offering anything useful at all.
Of course, every good gambler knows one mantra above all else: “Scared money don’t make money.”
By developing a detachment from the funds placed at risk, both gamblers and investors feel quite comfortable using money on hand in an effort to make more of it down the road.
3. Gamblers Have a Keen Understanding of Long-Term Value
For most of the millions of tourists who flock to Las Vegas every year, that weekend spent inside a casino represents their only chance to beat the house. And given that short runway, a sample size of only a few hundred bets doesn’t give them much room when it comes to random variance.
Only by pressing your skill edge over and over again can the best players finally realize the probabilistic benefits of their smart decisions. In the gambling community, this is known as “playing for the long run,” and winning players know that a massive sample size is required to smooth out random variance’s inherent bumps and bruises.
The same phenomenon holds true when it comes to investing in the stock market. Take a stock like Evolution Gaming Group as the perfect example.
Back in March of 2015, the then obscure Swedish online casino software provider set a price of $17.80 upon its initial public offering (IPO). From there, early investors watched as Evolution Gaming—which specializes in “live dealer” online casino games that utilize live streaming technology and human dealers—climbed slowly but steadily.
In other words, a long-term thinker who saw the potential of live dealer exclusivity could’ve turned $5,000 into a three-bedroom house in the ‘burbs.
While day trading obviously implies buying and selling on a short-term level, investors who know how to prioritize long-term value are capable of making a killing.
4. Gamblers Aren’t Afraid to Lose a Little Before Winning Big
Nobody likes to lose, and that applies to both gamblers and investors alike. Nonetheless, whether you’re playing baccarat or buying stocks, losing money along the way is simply par for the course.
They want to realize real returns on their money right off the bat, so when their preferred stocks start to slide, many investors beat a hasty retreat and sell off far too early. Lo and behold, the stock rebounds over the next days, weeks, or months. There’s that long-term approach again… Then, the panic seller sees that they’ve made a mistake.
Imagine the path a card counter in blackjack takes to eventually beat the game. At first, they might lose hand after hand when the deck count isn’t in their favor. But by dialing their bets back at that juncture, identifying a favorable deck count, and betting big to take advantage of the opportunity, they recoup their losses and start stacking profits.
5. Gamblers Know How to Hedge Their Bets and Walk Away When the Time Is Right
Conversely, while many beginning investors have trouble cutting bait on a struggling stock, savvy gamblers have no trouble walking away from the table.
When it becomes clear that an investment play just isn’t working out, eating the loss and selling off can often be a winning move in the long run.
The similarities between casino gambling and investing in the stock market are undeniable.
Thus, it’s no surprise to learn that many gamblers have developed an interest in investing over the last year of lockdown. Because the skillsets needed to succeed in both endeavors often overlap, gamblers can easily get a leg up on other aspiring investors.
Whether that’s the case for you remains to be seen. Keep your skills sharp at legal online casinos and start expanding those betting concepts into the stock market. Good luck and may the variances ever be in your favor!