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Wise Money: Own the Casino

Quote to Ponder

"Investment performance doesn't determine real-life returns; investor behavior does." - Nick Murray

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What makes investing so difficult? Most people think about it all wrong.

I recently had a conversation with someone who has never invested before. She's from a country where they don't even have a stock market.

She equated investing to gambling in Las Vegas and remarked on how scary it seemed. I told her that most people indeed approach investing like gambling -- taking significant risks where the odds of success are relatively low.

But I asked her, "Who in Las Vegas makes the money?" She replied, "The casinos." Exactly.

If you want the best odds of making money in Vegas, you need to own a piece of the casino, not gamble inside one.

You would never cash in your 401(k) to gamble in Vegas. Yet many do so with how they approach their investments, whether they realize it or not.

To take an "Own the Casino" approach to investing, you must play a different game than most market participants.

You must understand that the economy can never be consistently forecasted, nor can the market be consistently timed for entry and exit points. To attempt to do so is merely gambling.

You must understand that reacting to current events will lead to substandard investment returns and possibly lifetime investment failure. To attempt to do so is merely gambling.

You must understand that the most reliable way to capture the full return of equities is to ride out their frequent yet temporary declines. Attempting to avoid those declines is...you guessed it...merely gambling.

"Owning the Casino" means owning and sticking with equities through thick and thin. Equities are shares in the world's greatest companies, representing ownership of their profits and assets. So hang on to them for dear life; they aren't chips in the casino.