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Welcome to the Casino

Last week we learned how to lose 40% in a day using ETFs. Abridged version: combine leverage with high volatility asset classes…


This was of course a tongue-and-cheek exercise. No one buys such things with the goal of losing 40% in a day – they buy with the goal of making that much.

And not surprisingly, many of the same ETFs that had the largest 1-day losses in history also had the largest gains…

Welcome to the market casino, open 9:30 AM to 4:00 PM, Monday through Friday.

For the gambler in all of us, there are an endless number of ways to make or lose large sums money in a given day. The market can easily become a casino if you treat it as such: trading in and out of highly volatile vehicles without a process or a plan.

Which is why all market participants need to look in the mirror and ask themselves a simple question: am I an investor or simply a gambler?

Many will say “I am an investor” when in truth they are nothing of the sort. If you have no methodology and are buying a stock or ETF merely because it has risen sharply in the recent past, was recommended by a guru/analyst/friend, or due to a certain alignment of the planets, you are a gambler.

This would be fine I suppose if you could accept the fact that you are gambling for the thrill of it, with no expectation of profit. After all, you have just about the same chance when betting on an individual stock or ETF over a short time period as you do at the blackjack tables. And it would be fine if you could do so in small amounts, akin to a lottery ticket, where any losses are not meaningful to your overall wealth.

But if you’re like most gamblers, this is an unrealistic assumption. You will have an expectation of profit, and you will eventually bet too much on a single trade. Don’t turn the markets into a casino, as tempting and easy as it may be. If you have such an urge step away and go see a show, as one should do in Las Vegas. There are far better ways to be entertained than to lose money.

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Related Posts:

How to Lose 40% in a Day

Leveraged ETF Myths

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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

CHARLIE BILELLO

Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.

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