At the age of 22, I made a 535% return in one hour.
It was a speculative play I wouldn’t recommend to the average person. But here’s why I did it back then…
After reading Edward Thorp’s book “Beat the Dealer,” I decided to learn Blackjack and taught myself a simplified version of card counting.
This system tracks what cards are left in the deck, so once you know the odds are in your favor, you adjust how much you bet.
It may be funny to some, but after all that effort, I only played 5 games in total. But I won every one of them.
My best game ever was in a small casino on the Nevada/California border. I played the $1 minimum while waiting for the count to get favorable.
I came to the table with $20 (the amount I was willing to lose) and walked away with $127.
That 535% return was enough for me. And I’ll never forget that experience of spending hours learning to count cards and evaluate the risk of each hand.
It taught me a critical lesson about investing that changed my life – every play carries a risk. It’s how you manage that risk that determines your outcome. And the goal is to leave yourself with one of two outcomes: walking away on top at best, or barely scathed at worst.
It’s a lesson we explore here at Intelligent Income Daily by providing you with the safest way to play the most reliable income-producing investments so you can sleep well at night.
Today, I’ll share the real secret to approaching speculative investments, so you can enjoy investing in the “fun” plays while protecting your wealth from their risks.
Investors are Human Beings, Not Spreadsheets
Life comes with risks. And the more risk you’re willing to take on, the greater potential return you stand to gain.
The key is learning to take on only the risk you can afford to lose and walk away from risk you cannot.
But one thing that I’ve learned as an investor is that eliminating risk altogether reduces human beings to a spreadsheet. And when you reduce a human being to a carefully calculated spreadsheet… they will find other ways to feel human again.
Let me explain…
After being locked in their homes for months, awaiting the potential end to the world… Many investors fell victim to what I call the “post-pandemic speculative mania”… The YOLO (you only live once) or FOMO (fear of missing out) mentality.
Following endless weeks of being careful and weighing every potential threat of human interaction or exposure to COVID-19 and possible death… Investors needed a way to feel human again.
During this time GameStop soared 10,692% from April 2020 to January 2021. A $10,000 speculative bet turned into $1,069,2000.
One trader bought $7,850 worth of Shiba Inu coin, a joke cryptocurrency based on the parody of another joke coin (Dogecoin). He turned that into $5.4 billion in 14 months.
GameStop and Shiba Inu later crashed, and these fortunes got wiped out.
Investors were saying no to so many pleasures in life because of the pandemic that they just couldn’t say no to themselves when it came to risking their hard-earned wealth for another silver bullet.
So how do you prevent yourself from making the same mistake?
By taking these two steps:
Set aside money to speculate that you can afford to lose.
Select the profit percentage you will walk away at before you speculate.
These two things have served many of our subscribers well and kept them from throwing away large percentages of their portfolios to feel the rush of being human.
Invest in What You Enjoy (with Limits)
There are opportunity costs to everything, and the same is true of gambling and speculation.
Most of us have a “trading” or “speculative” itch. Whether it’s going to Vegas or owning Tesla, ARKK, or crypto. And scratching that itch in hopes of better future returns is tempting.
Just make sure your speculative and gambling buckets are a small enough portion of your portfolio and overall assets that you can still meet your financial goals even if you lose it all.
The next time someone makes you feel bad for speculating or spending money on things you enjoy, remember that long-term sustainability is the key to retiring rich.
It’s far better to be investing in the safe, dividend-growth blue-chips 90% of the time, with 10% for what you enjoy… than fall victim to an all-in FOMO mentality.
If you’ve lost out on these types of plays, you don’t need to beat yourself up about it. Life is about learning from your mistakes. But it’s also about finding the limits that work best for you so you can still enjoy yourself.
My short “career” as a card counter taught me how to gamble and speculate the smart way, ultimately making me a better long-term investor.
Hopefully, the right kind of speculation and risk management can do the same for you.
Analyst, Intelligent Income Daily