Investing: why you don’t have to win to win
In 2003 I won a trip to Mauritius after taking part in the office’s fantasy rugby competition. We were each given a budget of £100m and had to select which players we wanted on our team.
The best players were worth £50m, leaving little leftover to buy the rest of the squad, so I needed to plan my team carefully and get the balance just right.
As a lifelong rugby fan, I took it all very seriously. With a holiday at stake, I became even more preoccupied with The Six Nations than I would’ve been previously. Italy beat Wales in the opener to secure their first every tournament victory, who saw that coming?
By the time the tournament leaders England and Ireland made it to the final weekend, my own team were in second place on the fantasy rugby leader board. The fact my side was made up solely of English and Irish players might’vehad something to do with it. Genius.
Putting so much faith in those sporting the Red Rose and the Men in Green could only get me so far. With both teams going literally head-to-head for the Grand Slam and Triple Crown, I found myself with a dilemma. If I didn’t change my team, the points I’d gain from the winner’s success would be cancelled out by the loser’s defeat. I took a gamble and dropped all the Irish players from my team. It paid off: England ran in five tries and won 42-6 in Dublin and a few months later I was sipping a Mojito on a shimmering beach.
The emotional rollercoaster of placing a bet
I’ll never forget how happy I was when I won. I didn’t need a trip to Mauritius and would’ve been perfectly fine without it, but simply winning something made me feel on top of the world.
Gambling itself can have a profound impact on our bodies, even before we win or lose. When we gamble, our brains produce more dopamine, the ‘feel-good’ hormone that creates feelings of pleasure and reward. This in turn triggers our adrenal glands and helps to produce adrenaline, giving us the ‘rush’ sensation we might feel when placing a bet.
Once the high has subsided, we might gravitate to the same source of dopamine again, hoping for another fix. Unfortunately, unlike other sources of dopamine such as exercise, good food or seeing our favourite comedian live, winning (at least in the gambling sense) isn’t something that happens very often.
And it just so happens that humans are prone to something psychologists call ‘loss aversion’. It’s a phenomenon where a real or potential loss is perceived as psychologically more severe than an equivalent gain. For example, the pain of losing £100 is far greater than the joy we experience when we win the same amount.
That’s why gambling can feel like an emotional rollercoaster, whether you’re buying a Lottery ticket, enjoying a day at the races, or building a Fantasy Rugby team.
The problem with treating the stock market like a casino
Sometimes new clients are hesitant about investing. They might be comfortable with savings accounts and cash ISAs, but when I suggest a stocks and shares ISA, they worry that it’s akin to gambling. I can see why some might feel this - particularly the risk-averse. Investing involves risking capital to make a profit, there are no guarantees, and you could lose money, particularly in the short term.
During the pandemic an increasing number of young people in particular began buying and selling stocks online, or even more speculatively Bitcoin or other digital currencies. Many factors were at play, including lockdown boredom, a fear of missing out, fee-free trading apps, and a surge of social media influencers turned day traders promising to teach ordinary people how to get rich from the comfort of their bedroom.
But there’s a difference between investing and day trading. Day trading is fast-paced and focused on short-term profits. A professional trader might make hundreds of trades a day. The process can have the same neurological impact on our brains as gambling, causing euphoric highs when things go well and devastating lows when things go badly.
Day trading is simply speculation.
Investing, however, is something you do with a long-term vision and strategy, and optimism and a belief in the future. You might buy a stock or fund and keep it for years. Unlike trading and gambling, investing is boring. Get rich slowly, perhaps. No wonder it’s so difficult to market to people!
The dull but reliable world of investing
Done properly, investing is the opposite of gambling. You aren’t competing with anyone, you don’t have to be the best, and you don’t have to win to win.
Investing also doesn’t need to be complicated. You don’t have to review company balance sheets or read The Financial Times with your coffee each morning.
With the help of a diverse portfolio, tax-efficient accounts and most importantly time, it’s easier to make money from the stock market than it is to make money at the bookies.
Consistency and patience is the name of this game. You ‘win’ by paying into your pension every month, making the most of your ISA allowance, and getting on with your life while the money grows in the background.