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Wednesday, February 18, 2009

On Not Gambling

The difference between us and most investors is that we do not gamble.
There is, in popular financial culture, a risk-reward curve. The more risk one takes, the more reward one can hope to gain. One might hear "there is always risk" or "you have to take risks."
Conservative investment goes along with meager returns in most people's minds.

We believe this is nothing but gambling, except, unlike gambling, you can choose your odds. While many may call this investment, we do not believe it is so. This is speculating; this is gambling. We believe it is possible to achieve high rewards with little to no risk. Readers must be aware that our opinion is not widely accepted in the financial world; still, we believe we are correct.

The key difference is that we do not try to predict the future. People buy stock because they believe it will go up; people buy houses because of the incredible appreciation of property value they hope to achieve; people buy commodities because they hope it will go up. For most, this is gambling. For some, it is sophisticated gambling, or intelligent gambling. Even those who do plenty of research will find themselves in this realm which we call sophisticated gambling. In fact, most so-called research is only of others opinions of what the future may hold.

The problem with this method is that nobody has a crystal ball; nobody can predict the future. You can read 1,000 "expert" opinions about what will go up in value, but you still really have nothing substantial to base your decision on. So, do we hope value goes up? Of course we do. Everybody wants their investments to be worth more than they paid for. The difference though is that we do not rely on it. We assure ourselves of a profit regardless of appreciation or not.

Does this mean we are not concerned with the future? Absolutely not. We are very concerned. We are concerned that our investment might go down! So, we make sure we have sufficient safeguards and buffers to protect our investment should it go down in value. We follow the maxim "hope for the best, plan for the worst." When the worst still protects our investment and assures us an adequate profit, then and only then do we consider it an investment.

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