Dazzling lights

Flashing signs

Cheers to joy!

Grumbles of disappointment.

No clocks or windows. Just plenty of drinks.

Every day, millions of dollars are exchanged through dice thrown, wheel spun, card flipped and cards flipped.

Casinos have a unique character.

What do you do first when you enter a Casino?

You may love the excitement of the crowd. You may be a calculated player who spends his time in the poker rooms playing Hold’Em. You may love the thrill of letting the roulette wheel decide your fate or you might be a Blackjack expert who always hits 16 on the first try.

Casinos have games for everyone with a love of risk.

Each game has its rules and caters to different types of players.

A poker player who is calculated will nip at small bets, and fold most of his hand. He will sometimes bluff, even though he has a 2-7. Sometimes he goes for the kill when the odds are on his side. Poker is a game of psychology. The key to winning doesn’t depend on the hand dealt but rather how you play.

The player of roulette knows that the odds are stacked against him. He doesn’t seem to care . He is there to get an adrenaline rush. The thrill. The thrill of putting everything on the line in a single wheel spin. In a sufficiently long timeline, all roulette players will go bust. In the heat of the game, each roulette player believes he will win big.

A Blackjack player knows his bankroll, and he has a system. He knows how to play blackjack. He knows exactly how much he should bet for each hand and how to make the most of his time at the table. He knows how to tell when he is hot or cold and when it’s best to leave.

Each game has its rules but they all use the exact same pieces: cards and chips.

Imagine you have been dealt a pair 9’s when playing poker. You know you have a good hand so you stay to watch the flop. Next, the three cards dealt are 2 of Hearts, King of Spades, and 9 in Clubs. You double your bet because the odds are in favor of you with a trio. If no one else has pocket Kings in their hand, then you will have a good chance to win this hand.

Imagine that someone watched you and thought you were playing Blackjack, not poker. Double up because you had two nines. For them, it would be crazy. Who doubles down if they have 18? You are asking for trouble.

Same cards, the same moves. It makes sense to a poker player. Blackjack players would find it insane.

This situation would not occur in a real casino. Blackjack players are at the Blackjack table, while poker players are at the Poker tables. The tables are clearly marked so it’s easy to tell what game everyone is playing.

What if there was no way to tell the difference between games? What if the rooms and tables were not separate? What if people played different games at the same table?

It would be chaos, wouldn’t you say?

This table is a crazy invention. It’s called the stock exchange.

Imagine that everyone is simultaneously buying and selling stocks at the same exchanges. It’s not What but Why that makes the difference. This Why shows us the games they’re playing.

Yesterday alone, 76M Tesla shares changed hands. However, no two investors purchased or sold the stock for exactly the same reason. A 20-year old day trader who reads 5-minute candlestick charts thinks Tesla is undervalued because he can sell call options and make a profit within 30 minutes. If the university endowment, which holds its investments for an average of 10 years, believes that Tesla is overvalued because it thinks incumbents will gain market share over the next decade.

Tesla stock is Tesla stock regardless of the owner. Is it undervalued or overvalued? It depends on the game.

You’re opinion about a stock is as much affected by the game you’re playing as the stock itself. We’re all playing the same game with the same pieces at the same table.

The current market decline is a great investment opportunity for a 25-year old with a time horizon of 40 years, but it can be a death sentence for a 70-year-old retired person. Your investment decisions will be influenced by the game you are playing.

Morgan Housel stated, “The markets are rational but investors play a different set of games that look irrational from the perspective of people who play a different kind game.”

 

Markets are rational, but investors play different strategies and these strategies appear irrational for people who are playing another game.

Morgan Housel
Apr 12, 2021

Same stocks. Same cards. Same stocks. Same table. Different games. Different games.