Monday, August 25, 2008

Investment Lessons from the Blackjack Table

Sometimes, I play blackjack. It's the only type of gambling that I've ever really been interested in, due to the surprisingly small house advantage - I don't have the skill to count cards, yet the odds are still not stacked too high against me. It occurs to me that there are a lot of similarities between blackjack and stock trading.

The main thing, I think, is that odds are in blackjack that at some point in the evening, you'll have more money than you started with. If you walk away from the table at that point, you've won - just not much. On the other hand, if you stick around waiting for the big payout, odds are good that you'll wind up behind, but there's that tantalizing chance that you'll walk away rich.

I sold my Timminco stock for a $400 profit, 9%. This is not the most I could have sold it for, and if TIM can deliver on their promise to make UMG-Si at $10-$15/kg, it could easily turn out that I missed out on $10 000. But, like blackjack, it's probably best with a wild swinging stock like this to walk away while I'm up. There's every possibility that they will be unable to deliver on their promises, in which case the company will only be worth a fraction of its current value.

I've found this to be true in my other speculative holdings. I have a great deal more confidence in the ability of FR and WEE to deliver on their promises...yet in both cases I've let slip chances to make a 10% profit and walk away, and in return, I'm currently sitting down 22% on the two.

So, maybe I'm a wimp...maybe I really don't have the balls of steel that it takes to make the big returns. On the other hand, maybe I'm that smart player who can consistently take small profits and run with them. After all, if I could consistently turn 10% on a trade in about a week, I could generate massive annual gains.

Anyway, for better or worse, TIM is closed, and I'm looking for the next one.

In the time it took me to write this post, TIM dropped from $16.30, where I sold it, to $15.00...within pennies of my buy point. Am I feeling happy right now? I think so.

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