Why Gamblers Never Win in the Long Run

In life, there are two types of people: strategists and gamblers. Chess players and card players. Only one wins in the long run.

1:00am, Las Vegas, NV

The casino floor is packed. 1 AM in one of the world’s busiest casinos is not the best time or place to be wandering aimlessly to look for two of your drunken pals. Unsurprisingly, they wandered off, most likely blowing away their money faster than a middle-aged investment banker’s badly fitted hairpiece on a windy day. But I know these guys well enough to know of two possible Schelling points–default meeting points in the absence of communication.

Person A, who we’ll call Marty, has always been a high-roller, even with a modest salary as a data entry specialist. He loves playing blackjack, so it was not inconceivable that I would find him at a table, face palming while the apologetic dealer repeats “21…dealer wins again.”

Person B, let’s call him Ned (I couldn’t think of a more boring name—apologies to all Neds out there), is a more conservative type, yet just as foolish (if not more so). I figure he will be at any one of the thousands of glitzy cash guzzlers we like to call slot machines.

Their objective is to play until they run out of money. My objective is to save them from reaching theirs.

…Half an hour later

With just a little patience, a watered-down free drink, and about 15 minutes, I knew I’d be able to track them down, exactly where I imagined. Okay it took about a half hour (I was in no particular hurry).

In a few minutes, I’ll lead them away from their misery and misfortune, pockets light and eyelids heavy. Not until the next morning will they be able to chalk this night up as yet another loss in the long line of unsuccessful casino trips.

Moral of the story: gambling at the casino is not a good way to invest your time and money, and might actually be worse than stock-picking in the long run (but that’s a discussion for another day).

More substantial moral of the story: I realized that, although there can be real consequences resulting from one bad night at the casino, the bigger picture shows us that in life, there are just two types of people: chess players and those who play the slots. These are more than just games people play. They are metaphorical mindsets.

Present Day

I could have tried to convince Marty and Ned with logic and reason of the illogic and ill-reasoning of playing the house at the casinos. But old habits die hard, and convincing gamblers to quit while they’re behind is almost as fruitful as convincing gamblers to quit while they’re ahead. Pick your battles.

As a gambler, you may win some battles, but the house always wins the war in the long run (especially at the slots). So I learned at an early age, not from wisdom, but others’ misfortune, the oh-so-prescient and cheesy saying that the best way to double your money is to fold it in half and put it back into your pocket. (Truth be told, you might catch me at a blackjack table every once in a long while…I’m not a total saint). Nevertheless, as is my penchant, I looked for an alternate and less crowded path to sanity and prosperity.

As I got older, I began to notice that there was a meta-game being played at a higher level. It was the strategists vs. the gamblers. On one hand, the gamblers were the desperate ones. It was as if their livelihood and pride rode on very hand in blackjack, every river in poker. The strategists were the casual players. Ones that would play just for fun or some productive ulterior motive.

And wouldn’t you know it? The strategists tended to win more often than not. In gambling, as in negotiation, the one who tries the hardest or wants it the most, usually loses.

And then it became abundantly clear, it wasn’t just the strategists playing against the gamblers. It was the strategists playing the gamblers. The strategists were always playing chess and the gamblers were just pieces on the chess board. And the arena wasn’t just limited to poker tables and chessboards. It was a game being played in all phases of life. And in the long run, guess who wins?

On Investing

We are all investors, whether you like it or not. At any given moment, you are investing time, energy, attention, and to a lesser degree, money.  Unfortunately, as long as you are breathing oxygen and your heart is beating, you are investing in some way, shape, or form.

For example, investing your money by keeping it under the mattress (or in a checking account) is like playing the slots for your entire life. Over the long run, you’ll always lose to the house not matter what. But hey, you’re a gambler. You’ll need to have that cash handy!

Another way to put it, working two jobs and hustling everyday may keep you busy and pay the bills, but could you invest the time you spend at the second job in something scalable and meaningful in the long-term? Short-term gambling can trick you into believing you are winning, but you will never get “rich” until you become a strategist and play the long game.

Stop for a moment and think about where you are at this point in your life. Are you a gambler? Or are you a strategist? Regardless of where you are on that spectrum, put more thought into where you invest your resources (especially time). See what happens. Thinking as a chess player will take you further in life than defaulting to gambling. You may think that is quite obvious. Yet I see too many card players out there who are but pawns on the chess board.

If you’re not quite sure which camp you’re in, here is a comparison between a chess player (strategist) and a card player (gambler):

PLAYING CHESS (STRATEGISTS)	PLAYING CARDS (GAMBLERS)
You live fully in the present moment, but you are oriented for the long run and project several steps ahead.	You live in the future, yet you are oriented for the short run and only think in the present moment.
You are more deliberate and strategic in your decisions.	You are more instinctive and emotional in your decisions.
You have a semblance of control over what your opponent does.	You have minimal control over each iteration, besides walking away.
You are proactive.	You are reactive.
You are more likely to be an angel investor or an index fund investor. You are more thoughtful and tactical with how you diversify your money.	You are more likely to be a stock picker or not invest your money at all. You don’t realize that watching CNBC leads to no informational advantage.
The market chases you. You are always in demand. You set your price.	You chase the market. You are always in pursuit. You pay the price others set.
“Hard choices, easy life…	…easy choices, hard life.” –Jerzy Gregorek
You like to watch Jeopardy.	You love to watch Wheel of Fortune.
Risk mitigation is among your top priorities.	Reward maximization is your top priority.
You trade your money for time, and look for asymmetric returns. You are able win the game on your terms.	You’re eager to trade time for money. Renting out your time is how you believe you will achieve financial freedom.
You understand the power of exponential growth.	You can only understand linear growth.
You are a skeptical empiricist.	You are a gullible theorist.

Obviously, this is not an exhaustive chart. But you get the gist. Decide where you are within this dynamic. Decide where you would like to be. As the great hedge fund manager Ray Dalio says, “pain plus reflection equals progress.” The cautionary tale above of Marty and Ned is an example of the pain in the equation. The rest of this blog post can serve as the reflection.

Take some time to reflect on your pain, and progress is all but guaranteed.

Hone Your Strategic Mind

“Victorious warriors win first then go to war. Defeated warriors go to war first and then seek to win.” –Sun Tzu

By now, we know that in order to win long run games, you must become a strategist. Gamblers may win in the short-term, but the law of large numbers shows what happens over many iterations.

Strategists develop certain habits. Among them are:

A) Developing awareness of your aspirations vs. your capabilities. Many people tend to overestimate their capabilities to achieve certain aspirations. It is healthy to have a confident outlook, but back it up with reason.

B) Asking “what is the next logical step?” or “what is the logical conclusion?” Playing out all possible outcomes can be a daunting task. Practice on paper. Use TV shows, movies, or YouTube videos as practice. Your ability to account for every possibility will put you miles ahead.

C) Studying game theory and risk mitigation. Game theory, while mathematical and theoretical, can be a very useful framework in accounting for many different strategic variables. This may be the most important item on the list.

D) Reading Sun Tzu, Machiavelli, etc. Study the lessons of those who came before you. It is far better to spend a matter of hours learning other people’s lessons than to spend a lifetime creating your own lessons.

E) Playing chess. Another great way to build a strategic foundation, this can teach you how to think several steps in to the future.

Gamblers by Nature, Strategists by Nurture

We are all born gamblers. It is our default setting. But we are mimetic creatures, and will learn and do as we are shown. It takes effort to actively cultivate our strategic disposition—our approach to life. If we accept the default, we’ll just go through life as programmed robot gamblers, in essence.

To be clear, there is absolutely nothing wrong with opting out of the game. If wanting better or different is not something you care for, if you are happy where you are, you are ahead of most of humanity and I commend you. But that doesn’t mean others won’t be playing the game. You must learn the game to avoid being played as a pawn on someone else’s chessboard.

In the end, it all comes down to how much effort and thought you are putting into your life. I am a big believer that you get what you put in, but if you consistently put in more over a long period of time, you will begin to receive asymmetric returns.

It’s why gamblers never win in the long run. Life is a chess game, whether you want to play or not. Avoid learning, and you will always be chasing the market. Learn to play, and the market will always be chasing you. For if you know your opponent’s next move before they make it, you’ve already won.