In January our family went to Las Vegas to watch my younger son's hockey team play in a tournament out in the desert - yes, ice hockey is becoming a national sport! For this Atlanta-based group of 17- and 18-year-old young men, it was their first trip to the city known for its entertainment value, especially the gaming industry. Watching their expressions and body language as we toured the casinos between games was worth the price of admission as it was definitely an educational experience. There were multiple mini discussions throughout the weekend between parents and their kids, which included questions such as: "Why is gambling addictive for some people?", "Why don't people stop once they have generated a profit?", "Which games have the best odds of success?", and so on. From a hockey weekend perspective, our boys experienced some difficult odds as two of their five games included a come from behind victory late in the 3rd period as well as an overtime and subsequent shoot-out victory. It was gut-wrenching for the parents! Fortunately, the team wasn't overly distracted as they went undefeated and won the tournament, returning home with the hardware they were seeking, including a team trophy and individual gold medals.
Throughout my 30 years serving in the wealth management industry, I have heard the comment that investing in the capital markets is synonymous to gambling. My immediate response is "not exactly", though I do acknowledge that there are some similar themes between the two industries, which include the emotional guardrails of greed and fear, understanding the probability of success, and the concept of risk vs. return, for example. As we all know, the only guarantees in life are death and taxes, so investors who are solely concerned about the downside risk are forgetting about the upside potential. Most of us realize the odds are stacked against the consumer who walks into a typical casino. Ironically, the odds of success are in favor of an informed investor who deploys capital in a diversified manner across various asset classes. As a quick refresher course, the average S&P500 bull market (defined as a 20% or greater rally preceded by a 20% or greater decline) has seen a gain of 114.4% over a total of 1,011 calendar days between 1928 and Jan 23, 2025 [1]. This compares to the average S&P 500 bear market (defined as a 20% or greater decline preceded by a 20% or greater rally) decline of 35.1% over 286 days during approximately the same time period [2]. Those wealth generating historical returns and odds of future success (recall history has a way of repeating itself) are pretty compelling. For comparative purposes, I encourage you to use ChatGPT or other generative AI tool to research the odds of success playing blackjack or rolling dice at the craps table and compare those to the data I have provided.
Just before our trip to Las Vegas, I had met with a business owner who was selling his business for a significant amount of money, more than he ever had envisioned. Upon congratulating him, he reflected back on his professional life and stated that he has worked since the age of 19 (he is now in his early 50's) and the situation was somewhat surreal to him. He mentioned how he had failed multiple times in various businesses before finally "figuring it out", and he mused over the lessons learned along the way that were invaluable to him. After letting his comment marinate for a moment, I explained to him how simplistically the market (i.e. his industry) extrapolated his 30 plus years as a business owner (both success and failures) and placed a market value on his overall success. I also reminded him that if he had quit during any of those "failures" which he described, he would not have realized the benefits he and his family are now experiencing. This provides us with an easy parallel to make with investing: what if one liquidated (i.e. quit) their S&P 500 portfolio on March 9th, 2009 after experiencing a 27.6% decline (i.e. failure) in the previous 62 days? They would have missed experiencing a 400% return over the next 3999 days [3] - yikes!
Walking through the Las Vegas airport to catch our return flight home, we had one final opportunity to pass through mini casinos within the airport (slot machines, video blackjack games, etc.). As I reflected back on both our kids' team success as well as the business owner I had met just before my trip, I was reminded of the song, "The Gambler" by Kenny Rogers, whose deeper message is about life, wisdom and decision-making. I'll send off this Craig's Corner with my favorite line in the song which suggests success depends on how you play the hand you're given, rather than the cards themselves: "Every hand's a winner and every hand's a loser."
[1] Bespoke Report (Bespoke Investment Group), p. 2, January 24, 2025
[2] Ibid
[3] Ibid