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And Now For Something Completely Different: Are You Gambling With Your Portfolio?


When I was a kid, growing up, in California, one of the things that I would look forward to every year was our two week family vacation. Every year, my mother would plan a trip for us. Months before we would all load up in my dad's car, she would be studying travel brochures and AAA maps.

By the time we were ready to go, she had planned out our entire itinerary from day 1 to day 14. She already knew how far we were going to drive each day, what sights we were going to visit, where we were going to eat and where we were going to sleep. It was a logistical exercise, worthy of Alexander the Great and his conquest of the world.

Every year, it was the same thing. We went to the Grand Canyon, Carlsbad Caverns, Mount Rushmore, the Little Big Horn, all of the California Gold Rush sites, and we even went to Canada one year. She left no stone unturned. She had this down to a science. She was an expert at travel arrangements and second to none.

My favorite trip of all and one that we would do pretty regularly was the trip to Las Vegas. The first time we went, we toured Hoover Dam and Lake Meade. But, the casinos. With all those lights, the noise, the smoke, the men and women yelling and carrying on-now that was something special.

As I got older and was able to enter the casino, I have to admit, I was hooked. My dad was a Craps player and I would watch him play-but never really understood the game. He would try and explain it to me, but it seemed so confusing and I thought that learning how to play well, would be an impossible task.


One day, I came across a book.

It was written by a man named, John Scarne and it was called "The Complete Guide to Gambling." For those of you who have never heard of John Scarne, he was the greatest card manipulator that ever lived. If you have ever seen the movie, "The Sting" there is one scene where Paul Newman is sitting in his cabin on a train. He is warming up for the card game with Doyle Lonnigan, by handling a deck of card. The hands manipulating those cards in the scene belong to John Scarne.

In his book, Scarne breaks down every game of chance and tells you everything that you need to know about playing it successfully. His explanation of the game of Craps is the best I've ever read and if you follow his line of thinking, it will improve your game, Like every casino game, Craps is all about probabilities otherwise known as "the odds."

Now, regardless of your opinion, "the odds" are what they are. You can't change them, you can't ignore them. The odds are nothing more or less than mathematical probabilities. For example, if you toss a coin, the odds say that heads or tails is an even bet. That is, the coin will turn up heads just as many times as it turns up tails. But, you say, it is possible for the coin to come up heads 10 times in a row. Well, yes it is. But if you toss that same coin enough times, it will come out 50-50 heads and tails.

Just as I didn't totally understand the game of Craps, before reading Scarne's book, didn't stop me from playing. I didn't do very well, because I was taking bets that were sucker bets and taking chances that were not in my best interest. There is a reason that a particular bet pays 20 to 1 or 15 to 1. That's because those bets operate heavily in favor of the house. They can "afford" to lay those odds, because most of the time, they will be picking up your bet and putting it in their bank. After reading Scarne's book, my success at the game of Craps increased 10 fold.


Now the point here is that there is a direct comparison to gambling and stock market investing. I am not saying that investing in the stock market is gambling. What I am saying is that in the world of gambling and in the world of the stock market, there are mathematical laws of probability that you have to take into account.

If you are going to play the game, then you need to understand the "rules" of the game. Each investment strategy is a seperate game. Dividend Growth Investing has rules to follow.


Understanding how to play your game and the rules involved in maximizing the results of your game are the most critical factors in your success, playing the game. You don't want to deviate from the rules and you don't want to be making up rules as you go along. Instead, trust the experts and don't be trying to reinvent the wheel.

Now John Scarne looked at the world of gambling and he looked at the people who gambled. He classified them into a group of 7 different types. I found his categories to be very interesting and wanted to share them with you. There are some very interesting characters in the world of gambling and many of these same "types" can be found in the world of stock market investing. This was just as much of a look at player's mindsets as they played the game and in many cases speaks volumes about the way many investors approach gambling as an enterprise.


1. The Occasional Gambler who knows little or nothing about the hard mathematical and psychological facts of the games on which he now and then wagers some money. The vast majority of America's gamblers fall into this class, and it is their losses which make gambling our biggest industry.

2. The Habitual Gambler who plays constantly and who knows considerably more about gambling but is not smart enough to know that he can't beat adverse odds. He craves action, any kind of action, and he lives in a dream world in which he hopes someday to make a big killing and then quit gambling forever. When he does win a bit, he almost always gambles it all back and, like most players, winds up broke.

3. The Skilled Gambler or the Gambling Hustler who knows a lot more about any sort of gambling than the Occasional or the Habitual gambler, plays a much better game than they do and consequently wins more often than he loses. He is usually on hand to start the game, and he specializes in games which contain some element of skill, such as Poker, Gin Rummy, Bridge or Black Jack. The hustler plays for blood: he seldom gives another player a break because he believes that is no way to earn money at gambling. He usually knows where the favorable percentage lies in most private games of chance, such as Craps, and he makes the most of this by offering the Occasional and Habitual gamblers sucker odds, which, not knowing any better, they usually accept.

4. The Professional Gambler or Gambling Operator who earns his living, or most of it, by operating some gambling scheme. He is called a gambler because he runs a gambling operation, but he doesn't really gamble. He is a businessman (or woman) who runs a gambling operation and understands his trade, and either makes direct levies on the play or receives a percentage because the odds are in his favor. The Professional Gambler, like the legitimate banker and insurance operator, acts as a middleman in risks which the players voluntarily take or wish to be rid of, charging a commission for the service. He is not betting against the players; they are actually betting against each other. His top aides are also in this category.

5. The Gambling Cheat or Crook who makes money by cheating at cards or dice, running a fake lottery or raffle, operating a fixed carnival game, punchboard, slot machine or any other gaffed (crooked) gambling device. Also included in this category are any employees of a crooked gambling house or any participants in crooked schemes, whether or not they do the actual cheating themselves. The cheat's gamble is not so much in winning or losing as in whether or not he will get away with it.

6. The Gambling Chiseler who is really only a petty crook and sneak thief. He knows that he needs an edge to make money by gambling, and he gets it by inducing a friend at a racetrack or casino game to give or loan him money with which to gamble. He usually bets only part of the money and pockets the rest, and if he wins, he conceals all or part of the winnings. This is a favorite racket of women chiselers.

7. The System Gambler who lives in a dream world all his own, believing that it is only a question of time until he finds an infallible betting system which he can use to amass a fortune. He is a perfect mark (sucker) for racetrack touts. He buys tips and most of the advertised systems, and although they fail, one after another, he buys more, always hoping to find the one that is perfect. The system horse player usually spends as much money on worthless tips and systems as he bets on the horses, and he wastes many hours trying to figure out a system of his own.


John Scarne lived in a time before political correctness. In reading what Scarne describes as the 7 Gambling Types, today's sensibilities may be offended. In Scarne's time, though, he wasn't being critical of the different types of gamblers-he was just telling you how he saw it. He wasn't being judgmental. Remember, he lived in the time of the gangsters and mobsters. Those are the characters that he observed.

Now, I don't know if you want to be any of these 7 types. I know that you have probably come across one or more of these types in your stock market experience. I know that I have. One of the types that makes me crazy is The System Gambler.

In my way of thinking, he is the guy who has first-hand knowledge about the coming doom to America and he has a video for you to watch that will change your life forever. The best part of his video is that it gives you enough information but not the entire package. You get that for only $49.95.

I guess I would prefer to see myself as The Skilled Gambler. One who is a student of the game, who tries to go to the games that offer up the best odds for winning. For me, that is Dividend Growth Investing.

What about you?