You may be wondering how horse racing can be linked to investing and especially trading stocks …. Hold your horses I am about to tell you ! Those long time readers know EVERYTHING to us has an investment/stock market parallel.
No matter if it is Beanie Baby’s, Tulips or Dot com stocks, its human nature to herd. Sometimes that is good, running for safety, but in this case, it may be bad.
Bad Bets and Investing
A Bloomberg betting interview last week set this post in motion. Here are the highlights from the interview on horse race betting with my market parallels:
- Odds on Lighter Colored Horses are bad because they attract attention and money, skewing the bet. This is an easy one, and relates to almost any HOT stock or company you may see on the cover of a magazine or even worse, being talked about by groups of people.
- Do No bet on the long Shot, as again too many do and pull the odds from where they should be. Stay away from Penny Stocks, they are one of the worst areas of the capital markets.
- Do not bet on Number 7, it’s too frequently done, again rendering the odds inappropriate. Classic herd mentality here in capital markets. Let’s use the dot.com bomb as our example.
- While we congratulate California Chrome and look forward to the next race, the bet is not a good one according to the odds maker, as most favorites again attract too much money (herd) tossing the true odds off. Similar to our earlier parallel, when everyone is talking about the company or stock, it’s highly likely it is nota a good investment.
Congrats to California Chrome we wish you the best, but will not be betting with you!
Have a Great Day!
John A. Kvale CFA, CFPhttp://www.jkfinancialinc.com http://www.street-cents.com 8222 Douglas Ave # 590 Dallas, TX 75225