Jeff Ma, Arthur Levitt and Investor Gambling

Jeff Ma knows a good bit about gambling, and he says that’s just what investing is, gambling.  The twist: for his money, long-term, diversified  investors are the smart betters.

That’s because they do three good things:

  1. Invest in instruments (for example, index funds) that have predictable movement over time.
  2. Have a time horizon (longer than a year) that allows that predictable movement to occur.
  3. Utilize a money management (don’t put all your eggs in one basket) strategy that allows you to remain in the game for the duration of your long time horizon.

As a student at MIT, Ma spent six years on the school’s Blackjack team. Started as an academic experiment on card counting, the team eventually ended up winning millions betting at the tables in Vegas.  The team’s antics, and Ma in particular, became the subject of a bestselling book, Bringing Down the House. Now an author himself, Ma has spent his post-academic career in startup businesses, most recently as one of the founders of Citizen Sports, a site and tools for fantasy sports league enthusiasts.

In a piece on The Huffington Post, Ma lays out how he connects smart gambling to successful investing. In card counting, he explains, he and his teammates tracked the cards that had already been seen in order to predict those yet to come. They then used that information to calculate when their odds of winning were better and bet accordingly. In other words,  they exploited smart money management and time to increase the chances they’d win.  In the casinos it sometimes took them close to a year to win. And they played hundreds of thousands of hands of cards.

Ma doesn’t have a problem with applying the same rules to investing, nor does he have any qualms about calling investing gambling.

Let’s settle on a definition (of gambling) of “risking something of value on an uncertain outcome for potential gain.”

With this definition most types of market investing would be classified as gambling. Certainly, the money you invest would fall under the category of “something of value” and the appreciation of a stock is far from a certain outcome. So investing in the market is gambling.

But is that really bad?

Not if you do it right, he argues.

More than a decade ago SEC chief Arthur Levitt famously called day-trading stocks “gambling” and he wasn’t in favor. “Day traders are not really speculating because traditional speculation requires some market knowledge. They are instead gambling, which does not require market knowledge,” he wrote.  Had long-term, informed investing gone out of style? Levitt worried.

A prominent Wall Street figure before he went into public service, Levitt has a disdain for gambling Ma does not. But it is interesting that while they disagree on terms,  both come out in favor of the same type of investing in the end.

1 thought on “Jeff Ma, Arthur Levitt and Investor Gambling

  1. Thailane

    It's not an ecsuxe, I want to know MORE about what I am going to invest in before I do so again. I plan to spend the next few months actually learning something before paying someone to figure it out for me. Knowledge=power. I have held mutual funds before for a few years, my parents set it up and I never learned anything from it, I want to do it differently this time and I've chosen the point where I pay off my student loan as the time to get back in the game, it's only MORE motivation for me go get the stupid thing paid off!

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