This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
Gambling is a zero sum game: the proceeds of the winners are offset by the losses of the losers. That statement is not quite true because typically there is someone between taking a margin on each transaction. Patrons leave a casino with, on average, with less than they entered, the casino operator taking the difference to run the business.
Providing one understands that, no great harm is done. You go out for a night’s entertainment and whether it’s housie, the races or a casino, you go home with a little less (on average) but, hopefully, with good feelings.
Of course, whatever the entertainment, you should not spend more than you can afford. It is especially important that you don’t borrow (or steal) to finance your flutters. Some gamblers do not follow commonsense. The outcome can lead to personal and family tragedy and even the bankruptcy of a business if there is embezzlement.
This is all pretty obvious, unless you ignore that some financial investments are also zero sum or less. Less because somebody is taking a margin. It is in their interests to convince you that you can surely be a net winner, so there will be much mysticism to promote the scam.
The classic scam is the Ponzi scheme in which early investors are paid generously out of the deposits of later investors. The smart early investor takes the profits and runs but many unwisely reinvest their…
