5 ms·

The Psychology of Betting Big and Losing It All

64 points by RickJWagner 5y ago

GDC7 5y ago
Bottom line of the piece is: Nobody is as happy as the person who is both very impulsive and very lucky. I mean it's not some new discovery. It was obvious for the attentive observer that Sinatra had lived a happier and more interesting life than Rockefeller. Similarly Hugh Hefner has lived a more fulfilling life than Charlie Munger. You gotta live in the moment and be impulsive to be happy. But to sustain those levels of impulsiveness you need luck to go your way to somehow always manage to avoid the negative consequences of impulsivity. Whether it's some Mafia boss looking for a revenge after having been diluted from the record publishing partnership or some disgrunted Playboy bunny going on a media blitz aiming to gain a huge amount of money...both men needed a huge amount of luck to avoid being taken down.
- cs702 5y ago
  For individual investors who are in the lucky position to be able to save money every year, one way to experience the thrill is to set aside a (small) fixed share of those annual savings for impulsive, risky bets.
  - LurkingPenguin 5y ago
    Or, you could just take a vacation every year to some place interesting. Living a meaningful, content and exciting life doesn't require impulsive, risky behaviors. It's a shame our culture isn't very honest about this fact.
    - wombatmobile 5y ago
      > It's a shame our culture isn't very honest about this fact. That's an interesting choice of words - "honest". What is "our culture"? Is it the social relations that occur between people? The books, the plays, the literature? The songs, the music? The customs that date back to the founding of the nation? The politness? The assumptions? The courtesies? The fashions? The engineering achievements? The political framework? Or is it what we see on screens? The problem with what we see on screens, even when it is any or all of the above, is that screens are powered by advertising.
    - pjlegato 5y ago
      Perhaps others have a different value system than yours, where vacations are less interesting than risky bets. Is that not valid? Are they not grownup adults with full agency?
- xorfish 5y ago
  > Similarly Hugh Hefner has lived a more fulfilling life than Charlie Munger. How could you possibly know that?
  - adventured 5y ago
    They can't at all. They're projecting a strictly personal opinion based on their own value system and very distant perception of such disparate figures as Sinatra, Rockefeller, Munger and Hefner, which is rather spectacularly comical. Sinatra had severe problems with not being happy and was frequently suicidal for example: https://www.pbs.org/newshour/nation/8-things-you-didnt-know-about-frank-sinatra https://www.pbs.org/newshour/nation/8-things-you-didnt-know-... I'm sure a lot of people incorrectly perceived, at a great distance, that Robin Williams was consistently an exceptionally happy person also (based on his outward jovial disposition and the common reaction to his death by the public).
    - GDC7 5y ago
      It's not about value systems, it's about rumination vs. non-rumination. Sinatra and Hefner simply believed in their own mind that they were special and acted on it, whereas people like Munger , they ruminate for hours on end thinking about whether CPI would come out at 2.7% or 2.5% while already sitting on 5 billion dollars. Also constantly pricing the odds of every move and generally thinking about stuff too much instead of acting and let the chips fall where they may.
      - aerosmile 5y ago
        We get your point, but at least two of us are not buying it. Happiness is a much more complex system than something that's directly and exclusively controlled by impulsiveness.
      - pjlegato 5y ago
        It is clear that Munger and Buffett have a vastly different value system than you -- one where rumination makes them happy. They could easily be living in giant mansions in Monaco, feasting on gourmet food cooked by personal private chefs every day, on superyachts in the Seychelles, or any other lavish-wealth scenario you'd care to name. But they don't. They work in a modest office in Omaha, and eat McDonald's and drink Coke for lunch. Why would they do that, when they have so many other options? Because they like it. Their value system is different than yours. They enjoy their relatively modest middle class lifestyles, believe it or not. If they didn't, if they weren't happy, they could make a few phone calls and be on a private jet to the other side of the planet within an hour. But they don't do that, because they value that less than what they're doing now. They're happy ruminating on minute differences in CPI figures while eating an Egg McMuffin for breakfast.
- amelius 5y ago
  It's all survivorship bias. Probably none of these people would be as happy if they lived today.
- musha68k 5y ago
  That depends on your definition of “happiness”.
  - wombatmobile 5y ago
    When he says > You gotta live in the moment and be impulsive to be happy. I get the impression he equates happiness with being thrilled.
    - GDC7 5y ago
      There are countless of studies which link rumination to unhappiness. Being impulsive and in the moment is just the opposite end of rumination, hence is the safest place from unhappiness. Meaning it's also the place to find happiness.
      - wombatmobile 5y ago
        Being in the moment and being impulsive are quite different things. Being impulsive with money is another thing altogether, and a long way from being zen happy in a present moment.
      - aerosmile 5y ago
        You're also somehow trying to equate analysis with rumination. Two very different things.
      - bserge 5y ago
        Perhaps you're right. True happiness is taking a leap. Off the bridge.
- agumonkey 5y ago
  I believe that living this way you develop sense of risk. You know the world in more details, because you bumped into it. When to try a little bold move because nobody dared and it's not that risky. VS jumping from the 13th floor. Also with habits, you know what is failing, what is your insurance/mat, and how to size your bet. Traders often use a 1% rule, but they know if they won regularly and they have a hunch on an asset, they can go 5% maybe 10%. A newbie won't have that subtle gradient.
- bserge 5y ago
  Why would you think that? When you're happy, you're content. People who feel like something is missing usually take impulsive actions and ever-increasing risks. Chasing one thrill after another because otherwise you don't feel happy, or anything at all. That's unhappiness, something close to it or even worse.
titzer 5y ago
> At one time [Norm MacDonald] had $450,000 to his name. He bet $400,000 on some game, lost it, and then decided he may as well bet the remaining $50k. He lost that too. Wow! Suddenly, missing out on some stock market gains (but not losing anything in the long run) doesn't seem so bad.
- SamBam 5y ago
  FOMO on past investment bets that you missed out on is a great way to piss away money. Always chasing that disappointment of not having struck it lucky the first time. The number of people pushing large amounts of their money into totally new crypto, just so they can be in on the "ground floor" and not miss another Bitcoin is just staggering.
chubot 5y ago
This is a low quality article, making some facile analogies between gambling and starting businesses and pursuing a stand-up comedy career (huh?) It would be better if they unpacked this sentence, but it stops there: There’s a difference between gambling, trading and building your own business but there are also similarities. I also recall Norm MacDonald saying that some regulation against online poker "saved him", because he was playing all night and couldn't sleep. So he was clearly a gambling addict, and it doesn't help to draw bad analogies. Comedy is risky, but it's also a constructive pursuit. RIP.
- killjoywashere 5y ago
  I mean, at least I learned the name of Jesse Livermore.
  - chubot 5y ago
    That anecdote reminded me of Taleb's book "Fooled by Randomness". There are a bunch of people in the book who seemed successful and then "blew up", losing everything. One of them was a Harvard squash player / hedge fund guy as far as I remember. This seems like an extreme example of that, going from $100M to $10K and then committing suicide. It's a story that repeats itself throughout history. Taleb's argument is that those people were never skilled -- they were lucky. It is possible to "win" for 20 years mostly based on luck. Also he would probably argue (harshly) that at least this person accepted their consequences. These days the person who loses $100M based on an unsound trading strategy can socialize their losses.
    - hallway_monitor 5y ago
      The trick to being lucky in my opinion is quit while you're ahead. If you have a hundred million for God's sake pull ten out and keep it in a safe place.
      - e9 5y ago
        That wouldn’t have helped Livermore because he was trading on margin.
agumonkey 5y ago
What fascinates me is the paradox of enjoying something (in the case of a win) you were ready to lose.
- elliekelly 5y ago
  I think maybe there’s an aspect of “you don’t know what you’ve got ‘til it’s gone” at play? I wonder if there is anything interesting in the difference between those who gamble for the thrill of a loss averted compared to those who gamble for the thrill of a win? Is it a different “high” they’re chasing altogether or is it just a different magnitude?
  - toss1 5y ago
    The psychologists will tell you to look at the famous Skinner Box experiments, in which he showed that intermittent reward was the most powerful motivator; e.g., the rats will press the lever much more when they only get occasional random rewards after pressing the lever vs reliable rewards for pressing every N times. While there's definitely an element to that, I think you are more onto the right answer. From my experience (having tried a range but certainly not all), and those of many I know, there is no drug like adrenaline - not even close. I read about a drug-rehab program that showed extremely high success rates, and it was based around teaching former addicts rock climbing. Having experienced both the confidence that comes from climbing, and the adrenaline, this was no surprise. What also was, sadly, not surprising was that it seemed to go away, I'm guessing because it couldn't get consistent funding for what most people considered too high a risk (as if lower success 'normal' programs posed no risk...).
motohagiography 5y ago
When you live at the edge, losing is only marginally less satisfying than winning, and winning is just something you do to keep going. Probably not someone you want as a spouse, but that doesn't register. Imo, someone who takes risks with an eye to not taking risks anymore is not committed enough to be taking risk in the first place.
redelbee 5y ago
If you were intrigued by the headline and ultimately let down by this post (like me) then I highly recommend reading “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” by Nassim Nicholas Taleb. I think Taleb can be polarizing but I find his style approachable and interesting. I also laugh out loud frequently when reading his works, which is decidedly not the case for other books that cover similar topics (trading, probability, etc). https://www.goodreads.com/book/show/38315 https://www.goodreads.com/book/show/38315
toss1 5y ago
Humans are typically terrible at understanding risk. I've had a lucky path to learn a bit more about it than many, training and competing in high-risk sports - downhill ski racing, rock climbing, and sportscar racing. Among those groups, it is almost axiomatic to understand and chat about "smart crazy" vs. "dumb crazy" - everyone knew immediately what we meant, but no one really defined it. The best definition I heard was from an auto racing coach with a military background (another high-risk venture). He put it as: The difference between using knowledge, technology, and skill to manage risk vs getting away with something. We can use knowledge, tech, & skill to have entire careers in situations that will kill us in an instant, e.g., high-rise construction, steelmaking (after safety became a goal), deep sea diving, flying, etc.. Of course, there are many stunts that will kill you but not every time -and people get away with them all the time, until they don't, e.g., drunk driving, gambling. These are all essentially forms of Russian Roulette. And yes, sometimes knowledge, tech, & skill aren't enough, and you must just go ahead and yell "never tell me the odds". Knowing this early has definitely helped in life, but I'm not sure it has made me a good investor. I'm seeing a pattern where I had a great investment thesis, but didn't follow through as fully as I should - invested too little, sold too soon, etc.. Of course, easy to see in hindsight, but perhaps also too much awareness of how much the markets are too much Russian Roulette and too little skill. That said, I've also avoided many large potential losses. Perhaps the best advice I saw about this was tacked to the door of a rock & ice climbing school: Good judgement comes from experience. Experience comes from bad judgement. (The key is that you need to ensure that your bad judgement is never quite bad enough to take you out of the game) Good luck to us all.
micromacrofoot 5y ago
I thought this article about Norm Macdonald and his gambling habit was interesting. It's hard to say he was an addict, because I'm not sure how much harm this habit caused him or others. This quote stood out to me, and maybe it's how he justified it, but could also be a legitimate reason why (as far as I know) it didn't cause him much harm. “I did a good show and might lose the $40,000 that I earned. But stand-up is easy and I can always make more money.” https://www.gq.com/story/norm-macdonald-gambling-vegas https://www.gq.com/story/norm-macdonald-gambling-vegas
slingnow 5y ago
To save someone else some time: this articles deals absolutely nothing with its own title, and instead jumps around between famous examples of betting big and losing / winning big.
TheMagicHorsey 5y ago
One takeaway from this article, is that even though Elon Musk is widely admired as an inventor on this forum, perhaps his greater genius is in the financial engineering of his companies. It's no accident that he has almost gone broke funding ventures in several high-risk industries (space, solar, EVs) and still figured out a way to finance his bets. He is a master of raising money, doing PR for his ventures, and inspiring engineers to work for him for paychecks that are vastly under the market in cash (leveraging his stellar PR to substitute equity for cash at an astronomical forward valuation even in the early days).

64 points by RickJWagner 5y ago

GDC7 5y ago

Bottom line of the piece is: Nobody is as happy as the person who is both very impulsive and very lucky. I mean it's not some new discovery. It was obvious for the attentive observer that Sinatra had lived a happier and more interesting life than Rockefeller. Similarly Hugh Hefner has lived a more fulfilling life than Charlie Munger. You gotta live in the moment and be impulsive to be happy. But to sustain those levels of impulsiveness you need luck to go your way to somehow always manage to avoid the negative consequences of impulsivity. Whether it's some Mafia boss looking for a revenge after having been diluted from the record publishing partnership or some disgrunted Playboy bunny going on a media blitz aiming to gain a huge amount of money...both men needed a huge amount of luck to avoid being taken down.

cs702 5y ago
For individual investors who are in the lucky position to be able to save money every year, one way to experience the thrill is to set aside a (small) fixed share of those annual savings for impulsive, risky bets.
- LurkingPenguin 5y ago
  Or, you could just take a vacation every year to some place interesting. Living a meaningful, content and exciting life doesn't require impulsive, risky behaviors. It's a shame our culture isn't very honest about this fact.
  - wombatmobile 5y ago
    > It's a shame our culture isn't very honest about this fact. That's an interesting choice of words - "honest". What is "our culture"? Is it the social relations that occur between people? The books, the plays, the literature? The songs, the music? The customs that date back to the founding of the nation? The politness? The assumptions? The courtesies? The fashions? The engineering achievements? The political framework? Or is it what we see on screens? The problem with what we see on screens, even when it is any or all of the above, is that screens are powered by advertising.
  - pjlegato 5y ago
    Perhaps others have a different value system than yours, where vacations are less interesting than risky bets. Is that not valid? Are they not grownup adults with full agency?
xorfish 5y ago
> Similarly Hugh Hefner has lived a more fulfilling life than Charlie Munger. How could you possibly know that?
- adventured 5y ago
  They can't at all. They're projecting a strictly personal opinion based on their own value system and very distant perception of such disparate figures as Sinatra, Rockefeller, Munger and Hefner, which is rather spectacularly comical. Sinatra had severe problems with not being happy and was frequently suicidal for example: https://www.pbs.org/newshour/nation/8-things-you-didnt-know-about-frank-sinatra https://www.pbs.org/newshour/nation/8-things-you-didnt-know-... I'm sure a lot of people incorrectly perceived, at a great distance, that Robin Williams was consistently an exceptionally happy person also (based on his outward jovial disposition and the common reaction to his death by the public).
  - GDC7 5y ago
    It's not about value systems, it's about rumination vs. non-rumination. Sinatra and Hefner simply believed in their own mind that they were special and acted on it, whereas people like Munger , they ruminate for hours on end thinking about whether CPI would come out at 2.7% or 2.5% while already sitting on 5 billion dollars. Also constantly pricing the odds of every move and generally thinking about stuff too much instead of acting and let the chips fall where they may.
    - aerosmile 5y ago
      We get your point, but at least two of us are not buying it. Happiness is a much more complex system than something that's directly and exclusively controlled by impulsiveness.
    - pjlegato 5y ago
      It is clear that Munger and Buffett have a vastly different value system than you -- one where rumination makes them happy. They could easily be living in giant mansions in Monaco, feasting on gourmet food cooked by personal private chefs every day, on superyachts in the Seychelles, or any other lavish-wealth scenario you'd care to name. But they don't. They work in a modest office in Omaha, and eat McDonald's and drink Coke for lunch. Why would they do that, when they have so many other options? Because they like it. Their value system is different than yours. They enjoy their relatively modest middle class lifestyles, believe it or not. If they didn't, if they weren't happy, they could make a few phone calls and be on a private jet to the other side of the planet within an hour. But they don't do that, because they value that less than what they're doing now. They're happy ruminating on minute differences in CPI figures while eating an Egg McMuffin for breakfast.
amelius 5y ago
It's all survivorship bias. Probably none of these people would be as happy if they lived today.
musha68k 5y ago
That depends on your definition of “happiness”.
- wombatmobile 5y ago
  When he says > You gotta live in the moment and be impulsive to be happy. I get the impression he equates happiness with being thrilled.
  - GDC7 5y ago
    There are countless of studies which link rumination to unhappiness. Being impulsive and in the moment is just the opposite end of rumination, hence is the safest place from unhappiness. Meaning it's also the place to find happiness.
    - wombatmobile 5y ago
      Being in the moment and being impulsive are quite different things. Being impulsive with money is another thing altogether, and a long way from being zen happy in a present moment.
    - aerosmile 5y ago
      You're also somehow trying to equate analysis with rumination. Two very different things.
    - bserge 5y ago
      Perhaps you're right. True happiness is taking a leap. Off the bridge.
agumonkey 5y ago
I believe that living this way you develop sense of risk. You know the world in more details, because you bumped into it. When to try a little bold move because nobody dared and it's not that risky. VS jumping from the 13th floor. Also with habits, you know what is failing, what is your insurance/mat, and how to size your bet. Traders often use a 1% rule, but they know if they won regularly and they have a hunch on an asset, they can go 5% maybe 10%. A newbie won't have that subtle gradient.
bserge 5y ago
Why would you think that? When you're happy, you're content. People who feel like something is missing usually take impulsive actions and ever-increasing risks. Chasing one thrill after another because otherwise you don't feel happy, or anything at all. That's unhappiness, something close to it or even worse.

titzer 5y ago

> At one time [Norm MacDonald] had $450,000 to his name. He bet $400,000 on some game, lost it, and then decided he may as well bet the remaining $50k. He lost that too. Wow! Suddenly, missing out on some stock market gains (but not losing anything in the long run) doesn't seem so bad.

SamBam 5y ago
FOMO on past investment bets that you missed out on is a great way to piss away money. Always chasing that disappointment of not having struck it lucky the first time. The number of people pushing large amounts of their money into totally new crypto, just so they can be in on the "ground floor" and not miss another Bitcoin is just staggering.

chubot 5y ago

This is a low quality article, making some facile analogies between gambling and starting businesses and pursuing a stand-up comedy career (huh?) It would be better if they unpacked this sentence, but it stops there: There’s a difference between gambling, trading and building your own business but there are also similarities. I also recall Norm MacDonald saying that some regulation against online poker "saved him", because he was playing all night and couldn't sleep. So he was clearly a gambling addict, and it doesn't help to draw bad analogies. Comedy is risky, but it's also a constructive pursuit. RIP.

killjoywashere 5y ago
I mean, at least I learned the name of Jesse Livermore.
- chubot 5y ago
  That anecdote reminded me of Taleb's book "Fooled by Randomness". There are a bunch of people in the book who seemed successful and then "blew up", losing everything. One of them was a Harvard squash player / hedge fund guy as far as I remember. This seems like an extreme example of that, going from $100M to $10K and then committing suicide. It's a story that repeats itself throughout history. Taleb's argument is that those people were never skilled -- they were lucky. It is possible to "win" for 20 years mostly based on luck. Also he would probably argue (harshly) that at least this person accepted their consequences. These days the person who loses $100M based on an unsound trading strategy can socialize their losses.
  - hallway_monitor 5y ago
    The trick to being lucky in my opinion is quit while you're ahead. If you have a hundred million for God's sake pull ten out and keep it in a safe place.
    - e9 5y ago
      That wouldn’t have helped Livermore because he was trading on margin.

agumonkey 5y ago

What fascinates me is the paradox of enjoying something (in the case of a win) you were ready to lose.

elliekelly 5y ago
I think maybe there’s an aspect of “you don’t know what you’ve got ‘til it’s gone” at play? I wonder if there is anything interesting in the difference between those who gamble for the thrill of a loss averted compared to those who gamble for the thrill of a win? Is it a different “high” they’re chasing altogether or is it just a different magnitude?
- toss1 5y ago
  The psychologists will tell you to look at the famous Skinner Box experiments, in which he showed that intermittent reward was the most powerful motivator; e.g., the rats will press the lever much more when they only get occasional random rewards after pressing the lever vs reliable rewards for pressing every N times. While there's definitely an element to that, I think you are more onto the right answer. From my experience (having tried a range but certainly not all), and those of many I know, there is no drug like adrenaline - not even close. I read about a drug-rehab program that showed extremely high success rates, and it was based around teaching former addicts rock climbing. Having experienced both the confidence that comes from climbing, and the adrenaline, this was no surprise. What also was, sadly, not surprising was that it seemed to go away, I'm guessing because it couldn't get consistent funding for what most people considered too high a risk (as if lower success 'normal' programs posed no risk...).

motohagiography 5y ago

When you live at the edge, losing is only marginally less satisfying than winning, and winning is just something you do to keep going. Probably not someone you want as a spouse, but that doesn't register. Imo, someone who takes risks with an eye to not taking risks anymore is not committed enough to be taking risk in the first place.

redelbee 5y ago

If you were intrigued by the headline and ultimately let down by this post (like me) then I highly recommend reading “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets” by Nassim Nicholas Taleb. I think Taleb can be polarizing but I find his style approachable and interesting. I also laugh out loud frequently when reading his works, which is decidedly not the case for other books that cover similar topics (trading, probability, etc). https://www.goodreads.com/book/show/38315 https://www.goodreads.com/book/show/38315

toss1 5y ago

Humans are typically terrible at understanding risk. I've had a lucky path to learn a bit more about it than many, training and competing in high-risk sports - downhill ski racing, rock climbing, and sportscar racing. Among those groups, it is almost axiomatic to understand and chat about "smart crazy" vs. "dumb crazy" - everyone knew immediately what we meant, but no one really defined it. The best definition I heard was from an auto racing coach with a military background (another high-risk venture). He put it as: The difference between using knowledge, technology, and skill to manage risk vs getting away with something. We can use knowledge, tech, & skill to have entire careers in situations that will kill us in an instant, e.g., high-rise construction, steelmaking (after safety became a goal), deep sea diving, flying, etc.. Of course, there are many stunts that will kill you but not every time -and people get away with them all the time, until they don't, e.g., drunk driving, gambling. These are all essentially forms of Russian Roulette. And yes, sometimes knowledge, tech, & skill aren't enough, and you must just go ahead and yell "never tell me the odds". Knowing this early has definitely helped in life, but I'm not sure it has made me a good investor. I'm seeing a pattern where I had a great investment thesis, but didn't follow through as fully as I should - invested too little, sold too soon, etc.. Of course, easy to see in hindsight, but perhaps also too much awareness of how much the markets are too much Russian Roulette and too little skill. That said, I've also avoided many large potential losses. Perhaps the best advice I saw about this was tacked to the door of a rock & ice climbing school: Good judgement comes from experience. Experience comes from bad judgement. (The key is that you need to ensure that your bad judgement is never quite bad enough to take you out of the game) Good luck to us all.

micromacrofoot 5y ago

I thought this article about Norm Macdonald and his gambling habit was interesting. It's hard to say he was an addict, because I'm not sure how much harm this habit caused him or others. This quote stood out to me, and maybe it's how he justified it, but could also be a legitimate reason why (as far as I know) it didn't cause him much harm. “I did a good show and might lose the $40,000 that I earned. But stand-up is easy and I can always make more money.” https://www.gq.com/story/norm-macdonald-gambling-vegas https://www.gq.com/story/norm-macdonald-gambling-vegas

slingnow 5y ago

To save someone else some time: this articles deals absolutely nothing with its own title, and instead jumps around between famous examples of betting big and losing / winning big.

TheMagicHorsey 5y ago

One takeaway from this article, is that even though Elon Musk is widely admired as an inventor on this forum, perhaps his greater genius is in the financial engineering of his companies. It's no accident that he has almost gone broke funding ventures in several high-risk industries (space, solar, EVs) and still figured out a way to finance his bets. He is a master of raising money, doing PR for his ventures, and inspiring engineers to work for him for paychecks that are vastly under the market in cash (leveraging his stellar PR to substitute equity for cash at an astronomical forward valuation even in the early days).