This story was originally published here.
My parents met in a casino in Reno, Nevada in 1970…
My mother worked as a cigarette girl. My dad spent a lot of time in Nevada. Although he ran a chain of beauty shops in the area and worked as a hairdresser, he would tell you he was first a professional gambler.
When I was a kid, this seemed to be a generous assessment of his “profession.” He gambled every day – keno was his game of choice – and through the years, he had a few big winners, though he certainly gave that money back over the long run.
Having always loved numbers myself, I began to study the math of different casino games.
I always found blackjack to be the most interesting game…
What fascinates me about it is that for every hand, there is a mathematical “answer” to what you should do next…
Depending on what the dealer is showing and what cards you have, you can know exactly what to do to maximize your chances of winning the hand.
Of course, the casino holds the advantage. Even if you play perfect blackjack, the casino always has a house edge of about 0.5%.
The single most difficult psychological decision for blackjack players is what to do when you have 16 and the dealer is showing a 7 or higher.
The correct answer is that you should “hit” (ask for another card)… But if you do, you'll “bust” (get a card that pushes you over 21 and, therefore, lose) nearly 77% of the time.
It's difficult to understand why the math says you should knowingly make a bet if you know you're going to lose more than three-fourths of the time…
But the math says it's the right play, due to the high probability that the dealer is sitting on a 17 (or greater) – and therefore likely has a hand that will beat yours unless you take a chance to improve it.
This example works equally well playing at the tables in Vegas and trading stocks on Wall Street…
Sometimes, the best decision is to do something that seems like a losing trade. Perhaps it will be in the near term, but it's still the right move.
In October, I told my Empire Elite Trader readers to close out of our position in streaming company Netflix (NFLX). We bought the stock based on an extremely oversold condition, and it worked perfectly… Just 18 days later, we closed the position for an 8% gain.
The company was set to report earnings the next day. Because our original trade had nothing to do with earnings, we decided to take our profits off the table.
Following satisfactory earnings, NFLX shares skyrocketed higher in after-hours trading, at one point soaring 10%. One subscriber accused us of being “shortsighted.” But did we make a huge mistake?
The next day, Netflix closed up 4%… And within a few days, it was trading 5% below where we sold. Though shares eventually turned back around and have since continued higher, the trade reiterates an important investing lesson…
If you have a plan, stick with it. You won't regret it in the long term…
It's like hitting on 16 when the dealer is showing a 7. Sometimes your plan works, and sometimes it doesn't. But if you have a plan in place – and you stick to it – you give yourself the best odds of winning.
Of course, hopefully your trades have a higher chance of working out than a hand of blackjack. But investing does include a chance of losing your money.
That's why the most important thing you can do as an investor is to be disciplined.
Whether you're gambling in Vegas or investing in the stock market, one of the first things you should do is lay out your goals. When I play blackjack, I have two goals: to enjoy myself and to try to win money.
In investing, “enjoying yourself” is a valid goal, too. Investing can be intellectually engaging. It allows you to learn about new businesses, economics, and human behavior and psychology.
The difference is, you are not at a mathematical disadvantage when you invest… if you do the work and maintain your discipline.
When I walk up to the blackjack table, I make two decisions ahead of time: how long I want to play and how much money I'm willing to gamble (and potentially lose). Then, I either lose it all (and walk away from the table) or double my money (and walk away from the table).
That's an approach that has treated me well on the blackjack tables over the last 20 years. And with a few adjustments, I've found that it works well in the stock market, too.
In blackjack and investing, you'll do much better over the long run if you plan the trade and trade the plan…
This means you must do three things…
Editor's Note: To keep reading, click here.
Crash Warning as Virus Shocks U.S. Markets
Scared by the market's recent fall of nearly 3,000 points?
Then you’d better take a minute to see this.
As you might imagine… investors are panicking out of stocks. But a rare opportunity is developing in the stock market, right this very moment.
And it’s all thanks to a powerful secret uncovered in the 1970s.
A secret that pointed one man to the incredible investment vehicles that quickly transformed him into one of America’s richest men.
In fact, the “super stocks” he uncovered are directly responsible for a huge part of his net worth.
These investments are called “super” because they do what financial theory says is impossible:
They deliver super-high returns with a very low level of risk, no matter the market conditions… even when other investments are crashing.
Today, you have the chance to invest in your first one.
Because an analyst from one of the world's leading financial research firms, has just discovered the next “super stock” with massive profit potential.
But fair warning: what he has to say is controversial.
