Are You Gambling Or Investing?

Are You Gambling Or Investing?
This is a Guest Post by AK of Fallible
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.

Are you investing or gambling? That’s the question you need to ask yourself. In this video I’ll use the example from the recent drop in Facebook (FB) to show the difference.

On reddit a user posted about his pre-earnings Facebook play. He took his entire account, $57,000 worth, and bought weekly puts on FB. After the drop, he was able to sell those puts for $451,000 — a gain of 1500%. Pretty amazing.

My question is whether or not this person had a real strategy behind that play. Is this repeatable? Is there any risk control? Based on the information in the reddit, it doesn’t look like it.

He bet his entire account on a zero or one type play where he would either win huge or completely blow out. And he did it based on and earnings report which no one knows what will happen. It doesn’t seem like a legitimate strategy to me. It sounds more like gambling.

Now there’s nothing wrong with gambling in the market. But it’s important to not get that confused with actual investing. People see a play like this and automatically start feeling FOMO. They think they should be getting the same returns. But if your goal is to grow your retirement and savings, you shouldn’t be taking plays like that. Because that’s gambling, while what you’re trying to do is investing. There’s a huge difference between the two.

Investing requires a repeatable strategy with knowledge of drawdowns, risk points, position sizing, and much more. It’s not betting your entire account on “red”.

To learn more, make sure you watch the video above!

And as always, stay Fallible out there investors!

Follow me on Twitter:
***All content, opinions, and commentary by Fallible is intended for general information and educational purposes only, NOT INVESTMENT ADVICE.