Playing Not To Lose
October 10th, 2006 by Kenric
On Saturday afternoon a friend of mine called me and said You don’t have to watch the Illini game. I said, They lost right. He said, They were up 25-7 and the quarterback had 175 yards passing in the first half. He ended up with 190 yards passing for the game because they kept running the ball to milk the clock. I said. They were playing not to lose. I think all fans hate it when teams play not to lose. Every sports fan wants their team to continue pouring it on, go for the jugular, forget the prevent defense! Then again late night Saturday I was sitting at a No-Limit Texas Hold’em Poker tourney. I had done fairly well to become chip leader with 9 players left. I began to tighten up. I had all these chips and I didn’t want to lose them. An hour later I was the short stack. Wow! How did that happen? I was playing not to lose. I had lost my aggression and was folding almost every hand. Luckily I came back and won the tourney.
What does this have to do with investing? I hate to say this but many investors are investing not to lose. When it comes down to investing, one’s first thought is usually, Am I willing to lose this money or can I afford to lose this money. While these are both very responsible questions, they stem from a mindset that limits your potential. I have realized that I’ve fallen into this mode. I was very active in real estate over the past 3 years. When the market turned late last year, I sort of went into a shell. I had done so well over that I began to fear losing my equity and net worth. That mindset was reinforced by all the media bubbletalk and it made me sit on the sidelines the past 8 months. I am a firm believer that you can make money in any market. I had let my fears get to me.
I had actually wrote this post out on Sunday but did not publish it yet because of the new Google stuff. Yesterday I was sitting and Barnes & Nobles reading the new Kiyosaki & Trump book and came across this passage:
One day, during a brief meeting in his office, Donald simply said, “I invest to win. Don’t you?” With that statement the defining difference appeared. He and I invest to win, while others invest not to lose. We have talked here about the advice, “Save money, get out of debt, invest for the long term (generally mutual funds) and diversify.” Late that afternoon, Donald and I discussed how we did not focus on saving money. In fact, we are both millions of dollars in debt – but good debt. We do not diversify, at least not in the context that most people use the word diversify. And while we are both long term investors, we do not invest in mutual funds, at least as a primary vehicle. Why? Because we invest to win….
Most other financial experts are telling people to play it safe, to live below their means. They are telling people that investing is risky and that they need to save and avoid losing. The experts aren’t focused on winning. They’re focused on not losing.
-Why We Want You To Be Rich.
This just reaffirmed what I’ve been thinking. Maybe it’s a sign. Three different situations, same result. With that, I put an offer in for that duplex in Tucson.
Posted in General | 6 Comments »
Stumble it!
I’ve also been sharing your thoughts lately. It seems 99% of people are very risk-averse. My home town is a strange microcosm. We have over 40 restaurants from Canada’s doughnut chain Tim Horton’s now. Back in 1998 I approached my grandfather about starting a franchise in his neighbourhood because a gas station had closed leaving a vacant corner at one of the busiest intersections in the city, and one that would grow strongly into the future (due to a guaranteed boom in housing starts West of the city).
Was he interested? Absolutely not. This was an opportunity to turn $200,000 into a serious monthly cash-flow (of say $20,000). Franchises now cost $450,000, but I assume this was lower 8 years ago.
This was a good lesson for me on how not to behave, and why not to be so conservative!
NG
By NGifford on Oct 11, 2006
I sometimes wonder if it’s easier for the winners to give the “play not to lose” speech. After all, they have enough money that if one of their investments doesn’t come through, it’s not a problem.
It’s worth noting that for every Trump, there are probably a million people that have similar skills and did the same things, but perhaps didn’t have a lot of the luck and timing to see it work.
An example of that was Netscape over 10 years ago saying that the browser was going to be the OS. With all the Web 2.0 applications out there, it’s starting to come true. Unfortunately Netscape isn’t in position to take advantage of that today.
In closing, you bet big you can win big, but you can also lose big. You just don’t read about the losers in books because they don’t have the money and attention of the public. Who cares about the losers?
By Lazy Man And Money on Oct 11, 2006
I don’t believe that betting big equates to also losing big. Sometimes we don’t take chances that have big potential profits with minimal losses. We get worried about the minimal losses part and don’t see the big profit potential because its not a sure thing.
If I didn’t hate my job in 2004 would I have quit and moved onto real estate investing? I think at that point I had nothing to lose by quitting. I’m sure I was investing not to lose before then. Once I quit my job I truly had nothing to lose cause I realized if it didn’t work out I’d just go back to my old job. Fortunately, my “to win” investing worked out. But I think more importantly it changed how I looked at investing.
By Ken on Oct 11, 2006
I wonder, philisophically, whether the people who worry about the small losses, or the 5% chance that you could lose your entire investment are setting themselves up for losses. Even if they do take a risk, and bet on something big with minimal loss… they may be too focused on the loss potential to work towards the win. A self-fulfilling prophecy?
I’ve been investing in real estate on a small scale for 2 years now, and I have a lot of friends who just don’t get it. One of my friends has some money ($80k) from his education fund… but he’s terrified of losing it. I attempted to explain to him that even if the housing market took a dive in my area, dropping 20%, as long as this doesn’t happen in the next 2-years, you would still be ahead of the game. Furthermore, I plan to hold my properties for 5-10 years because they provide positive cashflow… so its a moot point because by that time I’m sure the market would recover somewhat.
The argument went back and forth… but he was never fully convinced that the investment was a ‘reasonable’ risk.
I plan on trying to gather together an investment group, have any of you tried this approach? I will post more on that on my blog in the future.
NG
By NLG on Oct 12, 2006
It’s ok to play not to lose. That’s basically what I do at work. I do enough to get by – screw the year-long extra effort for a few extra $Ks at year end.
By knuckle_headed on Oct 12, 2006