The Wrong Bet. This Isn't Investing.
Investing: laying out money or capital in an enterprise with the expectation of profit.
Gambling: any behavior involving risking money or valuables (making a wager or placing a stake) on the outcome of a game, contest, or other event in which the outcome of that activity depends partially or totally upon chance or upon one's ability to do something.
It's interesting how we can get our vocabulary all confused. Consider the revelation by Robert "Bo" Collins of MotherRock LP (a hedge fund ) that it was closing down after making the wrong bet on the direction of natural gas prices. Investors were told they were unlikely to get any of their money back (See: "Hedge Fund Takes Huge Losses On Bad Natural Gas Bet," WSJ, 9/18/06).
So, my question is: did the investors in MotherRock believe that Bo was investing their money or betting with their money? I'd be curious to know more about the "investors." Certainly, they were more substantial than the average Joe Lunchbox who isn't at all confused between making a 401(k) investment and buying a lottery ticket. No, these were likely folks of above-average wealth. Which then begs the question: why did they feel the need to take the risk associated with giving their money to Bo to bet on natural gas prices?
My definition of investing assumes a person has a financial objective or goal in mind. He or she is then willing to take just enough risk to meet that financial objective -- and no more. The name of the game is to maximize returns while minimizing risk.
Investors who gamble are a lot like those who participate in extreme sports. It's about maximizing risk. The risk is the thrill. The more exteme the risk the more the thrill. In neither case should the participant be surprised when the word 'demise' is used in connection with their name.
My theory on risky behavior is confirmed by a new study from U.C. Berkeley's Haas School of Business entitled "Power, Optimism, and Risk-Taking." Quoted in an article ("Power Tied to Risky Behavior, Study Says," Contra Costa Times, 9/19/06), one of the study's authors said:
"There seems to be this link between rising to an incredibly powerful position and engaging in incredibly risky behavior."
"We looked to a psychological theory that when people possess power, a lot of power, sometimes unmitigated power, they become blinded to the kind of risk involved in certain behaviors."
"They become more focused on the potential upside. They become optimistic that the risk can pay off."
Watch for more news in the weeks as more bad betting comes to light.
Gambling: any behavior involving risking money or valuables (making a wager or placing a stake) on the outcome of a game, contest, or other event in which the outcome of that activity depends partially or totally upon chance or upon one's ability to do something.
It's interesting how we can get our vocabulary all confused. Consider the revelation by Robert "Bo" Collins of MotherRock LP (a hedge fund ) that it was closing down after making the wrong bet on the direction of natural gas prices. Investors were told they were unlikely to get any of their money back (See: "Hedge Fund Takes Huge Losses On Bad Natural Gas Bet," WSJ, 9/18/06).
So, my question is: did the investors in MotherRock believe that Bo was investing their money or betting with their money? I'd be curious to know more about the "investors." Certainly, they were more substantial than the average Joe Lunchbox who isn't at all confused between making a 401(k) investment and buying a lottery ticket. No, these were likely folks of above-average wealth. Which then begs the question: why did they feel the need to take the risk associated with giving their money to Bo to bet on natural gas prices?
My definition of investing assumes a person has a financial objective or goal in mind. He or she is then willing to take just enough risk to meet that financial objective -- and no more. The name of the game is to maximize returns while minimizing risk.
Investors who gamble are a lot like those who participate in extreme sports. It's about maximizing risk. The risk is the thrill. The more exteme the risk the more the thrill. In neither case should the participant be surprised when the word 'demise' is used in connection with their name.
My theory on risky behavior is confirmed by a new study from U.C. Berkeley's Haas School of Business entitled "Power, Optimism, and Risk-Taking." Quoted in an article ("Power Tied to Risky Behavior, Study Says," Contra Costa Times, 9/19/06), one of the study's authors said:
"There seems to be this link between rising to an incredibly powerful position and engaging in incredibly risky behavior."
"We looked to a psychological theory that when people possess power, a lot of power, sometimes unmitigated power, they become blinded to the kind of risk involved in certain behaviors."
"They become more focused on the potential upside. They become optimistic that the risk can pay off."
Watch for more news in the weeks as more bad betting comes to light.
posted by Sherman L. Doll, CPA/PFS at
4:54 PM
