Lessons from Investment Failures

4/9/24

I’ve always been intrigued by the idea of beating the system. I’ve tried quite a few times but never actually succeeded. I suppose my first effort was back during the summer between my junior and senior years in college when I traveled across the country and made a stop in Las Vegas. My game of choice was craps. At least at the time, craps had the most favorable odds — or, I should say, the least unfavorable odds — relative to all the other casino games. (Newer games may have been introduced since, but I’ve not kept up.)

To cut to the chase, I came away realizing that, given the house advantage, gambling in a casino is a loser’s game; and gambling lost all its charm for me. Obviously, people can win at these games; but those are people who walk away before the inevitable long-term outcome is realized (i.e., losing). In any case, following my Vegas experience, I redirected my effort to beat the system away from casinos and toward financial markets.

My professional life brought me to the world of derivative markets. My focus was largely on the use of derivatives for hedging purposes, but trading and speculative uses were inescapable as the other side of the coin. For a time, I traded options on individual stocks pretty aggressively. Buying an option gives you the opportunity to make virtually unbounded gains, with risk limited to…