Finishing How to Take a Chance (notes) led me to chase down the source of a few quotes from the book. The last post was a result of that distraction. Today’s post is another — and the last of that odyssey.
In 1902, a guy named Clemens J. France wrote a study called The Gambling Impulse. It’s interesting only in the sense that he took a biological and historical perspective of gambling and chance.
The summarized version is this. Gambling has been around forever, literally since the first utterance of “Wanna bet?” It can be traced back several thousand years — Ancient Egypt, Greece, Rome, and to 2100 B.C. China. Biologically, its a battle of hope and fear, to provide a level of certainty in life. If you plan to glance through the 44 pages, the section on luck, with examples of superstitious beliefs, offered a good laugh. This seemed relevant:
In London about Throgmorton Street (the paradise of stock brokers), there used to sit a man with a bag of nuts into which passers by thrust a hand, and if they guessed correctly the number, they would be paid a penny for each, if wrong, the guesser paid a penny. Many a speculator regulated his ‘bulling’ and ‘bearing’ by his successful or unsuccessful dip into the bag.”
To think that a trader’s (in)ability to guess the number of nuts determined their feeling explains a lot about irrational markets.
Anyways, just before that is a small section on investing, markets specifically, worth sharing. C.J. France explains the behavior needed to be a successful “gambler,” then follows it up with a warning from two periods of extraordinary excess when the masses ignored it.
There are many minor factors indispensable to the success of the gambler — the cultivation of a calm and passionate demeanor in moments of crisis, never displaying any emotion or hesitancy; the ability to recover quickly from defeat; being ever vigilant and attentive; acquiring the habit of studying your opponent most closely; few men being better ” sizers up” of men than the gambler; a sufficient degree of caution tempering your boldness; the learning how to bear sanely good fortune, as well as bad. These fit closely the essentials of any active, exploiting life…
The phase of gambling known as betting is important. The practice is very ancient. At one time in England it became a mania. It has its basis in the tendency to make dogmatic statements on the outcome of uncertain events and the strong inclination to throw your lot in with one possibility. Dr. Small in his monograph on certainty, in which he showed the tendency to make strong assertions regarding certain events, only stated half the truth. The whole history of partisanship, dogmatism and fanaticism is in point, for these are but an outcrop of this tendency plus some interest at stake. Its simplest form is the “I’ll bet you” one hears a dozen times a day. A man often will take either side, but after backing one he is apt to believe in it. The wide pedagogical and ethical bearings are evident.
The possibility of getting something for nothing, and that quickly, is another of the salient features in gambling. It is the basis of the stock exchange, of many exploring expeditions, the explanation of such phenomena as the Keeley motor, the Miller syndicate, Mrs. Howe’s bank, the Rev. Mr. Jernegan’s scheme of obtaining gold from sea water, etc. The credulity of people in the presence of such frauds is most wonderful. This speculating tendency has two or three times in the course of history manifested itself in an extraordinary degree. Two of these, the South Sea Company, better known as the South Sea Bubble, and John Law’s Mississippi scheme, all but financially wrecked England and France, respectively.
John Law, who in 1817 was in control of the French finances, issued bonds on large tracts of land along the Mississippi River. The paper was in the shape of stocks, bearing interest. The scheme worked so well, Law issued a second large amount. The whole French people went mad in speculating. McKay says: “People of every age and sex and condition in life speculated on the rise and fall of these bonds… There was not a person of note among the aristocracy, except the Duke of St. Simon and Marshall Villars, who was not engaged in buying and selling stock. Gamblers with their roulette tables reaped a golden or rather a paper harvest from the throng.” Wood says: “The frenzy prevailed so far that the whole nation — clergy, peers and plebians, statesmen, princes, nay, even ladies, turned stock jobbers.” It is worthy of note that Law was a Scotch adventurer, and had been for many years a gambler.
About the same time in England the South Sea Company began to sell stocks, claiming the company had rich lands in the South Seas, and promising enormous dividends. McKay writes: “It seemed as if the whole nation had turned stock jobbers… The inordinate thirst for gain affected all ranks of society. Besides the South Sea, innumerable other companies started up everywhere. There were nearly a hundred of these projects or bubbles — extravagant to the last degree, yet the people were hypnotized by the craze of speculation. It has been computed that nearly one million and a half sterling were won and lost by these practices… In the heyday of its blood, during the progress of this dangerous delusion, the manners of the nation became sensibly corrupted… It is a deeply interesting study to investigate all the evils that were the result. Nations, like individuals, cannot become gamblers with impunity.”
- Looking for Easy Games in Bonds (pdf) – M. Mauboussin
- Investment Strategy in an Uncertain World – L. Swedroe
- Warren Buffett: The Greatest Factor Investor of All Time? – Enterprising Investor
- Ten Behavioural Advantages Amateur Investors Hold Over Professionals – Behavioral Investment
- The Will To Survive – Of Dollars and Data
- Neverland – Epsilon Theory
- When You’ll Believe Anything – M. Housel
- Your Author’s Mistake: Rushing to a Conclusion – J. Rekenthaler
- The Elegance of Nothing – S. Godin
- 2018 Amazon Letter to Shareholder (pdf) – J. Bezos
- How the Boston Marathon Messes with Runners to Slow Down – Wired