Stupid Is Good

Las Vegas houses some of the world's most magnificent hotels. The Wynn, the Encore, the Bellagio, the Venetian, the Palazzo, the Palms, the Trump Hotel, the Aria, the Mandarin Oriental, the Mirage, the MGM Grand and Caesars Palace, to name just a few. And Caesars Palace in particular. It's the most colossal hotel and casino complex you have ever seen.

Begun in 1966, it now boasts six massive towers. The Forum, Roman, Centurion, Palace, the Augustus and now the Octavius. It has 3960 rooms, eight Roman-style swimming pools, 160 restaurants and shops, four gigantic ballrooms and three wedding chapels.

The game in Vegas is to wow you with so much pizzazz that you don't see what's going on until it's too late. The classic example is the Palazzo, which is completely indoors and designed to feel like Venice at 8pm, at night, all day. Who wants to gamble at 9am? At the Palazzo, you don’t have to.

Of course, most people buy into the whole thing and have a blast - they go hard, spend their money and retire hurt with lifelong memories that make it worthwhile. But stay long enough and you see through it, if you care to, which is why Vegas is only ever a place you visit. It's not a place you live because if you stray too far from the game plan, walk about during the day, turn the lights on and stop to notice what's going on, then your epiphany will be that all those hotels, all those towers, all those incredible casinos were built on the backs of losers.

It is rather incredible, really, that despite Caesars Palace standing right out in the middle of the Strip as a gigantic, unembarrassed testament to the odds at a casino, people still turn up to play. Maybe that's why they bus you straight into the underground car parks - so you don't look around, so you don't notice, so you don't begin to question too soon just where all the money came from.

Then there’s Australia. A nation of gamblers whose courage and risk taking is legendary. After all, Australia is a nation built by people who took a risk, simply by coming to its shores.

The legacy is that half of adult Australians gamble on a regular basis. And to the incredulity of Bill Bryson, an objective English Author, we have close to 200,000 gaming machines, which is almost one per on hundred adults and our total gambling turnover is around $225 billion a year, and more during the pandemic when the proportion of online gamblers rose to 78%.

See this article in the Washington Post about Australians. We have half a per cent of the World's population but 20% of the World's pokies.

Gambling is in the Australian DNA, it must be, because faced with almost certain loss, we have still turned up, and keep turning up, with hope in our hearts. In Australia we admire a winner. We laud a “Boy done good” particularly if they were lucky. In Australia taking risk and luck is a noble, not stupid, trait.

Lucky Country? Or unlucky country?

The comparisons between gambling and the share market are unashamedly unconcealed. In the casino, they distract you with flash and feathers and disable you with drink. Meanwhile, somebody has their hand in your back pocket.

In the share market, they dazzle you with colourful software, trading platforms, average returns, IPOs, dividend yields, franking, charts and the media iced by jargon, urgency and ever-thinning sophistication, whilst someone has their hand in your SMSF.

And the marketing is the same. Drive from the Las Vegas airport to your hotel and you will hear the taxi driver's story of the girl who put a single dollar in the pokie machine at the airport and won a million dollars; a delusion of success reinforced by casino-floor plasma screens showing winners and their hauls.

And so it is that the share market also blinds us with the winners and their books about "How I Made $2,000,000 in the Share market". It is no different. The stock market’s casino owners are out lauding the winners as well, by glorifying the success of Warren Buffett and by suggesting that you too can achieve a limo at 24 by trading forex on your mobile phone.

And one of the most convenient truths of all, for the casinos as well as the stock market, is that in any betting industry, while the winners buy Ferraris so we will notice them, the losers seek the dark corners of anonymity. The winners stay and play, and the losers go away. Perfect.

Perfect for any industry that sells transformation through risk taking. Thankfully for them, no one ever publishes a book called "How I Lost My Kids' School Fees in Leveraged Derivatives". Even the losers wouldn't want anyone telling their stories, and they don’t. Convenient.

Yet gambling is one of the oldest industries in the world. And for a reason. People love gambling, you can't stop them and they don't want to be stopped.

The confusion for you as a long time sensible investor is that this short term momentum driven activity has no reference in value, and has added volatility, noise and predators. It is hard to tell them apart these days, the bookies from the financial services providers. The bookies use the same jargon, dress code, media outlets and, even, licences, as everyone else in the industry. And as they do so they are plundering the limited store of stock market respectability and integrity built over hundreds of years, as a camouflage for their bet-taking platforms and products.

They are using us, well, our share prices, as the base price for many highly marketed gambling options.

And that’s before we mention crypto. What a perfect combination for predators. A pandemic of government stimulated gamblers combined with a brand new highly volatile hard to explain, hard to argue against, social media driven, hyped up plaything, that anyone old, experienced and sensible couldn’t possibly know anything about. Don’t listen to us.

Brilliant. For the now failing platforms that clipped the ticket. 

But its not all bad. The stock market may be more volatile now than ever, there may be more sentiment that value in the share price equation, and there may be more guesswork than science in the trend, but don’t give up on the stock market just yet.

While stock market price integrity has become more fluid, volatile and vacuous, the underlying fundamental value of the companies on whose share prices the gamblers now rely, are still there. In the long term. And no manner of hype and herd will take that away.

So rest easy.

And for traditional investors, this is your take home. Do not dismiss the gamblers, welcome them. They are a gift, delivered to you daily. For two reasons.

The first is that short term momentum-based activity based on urgent guesswork creates volatility and price extremes. For the investor that creates regular, exploitable opportunity. That’s great.

And secondly, you should welcome the stupid into the market. The more uninformed people in the market, the more people there are to exploit.

Or let me put it this way. In a paddock packed with bunnies, even the sheep start to look like wolves.