We all know that saying: “Never gamble what you can’t afford to lose”. Yet some people don’t understand it to the fullest and don’t draw certain conclusions that are related. Let me tell you how I think in general about gambling and taking risks with a negative expected value. You will reach your gambling objective more often and you’ll do it like a boss.
You should either take risks for fun or to achieve certain financial gains.
Even when gambling for fun, you should have a “stop-limit” and be aware of the probability of attaining that limit. You should also have a “stop-loss”. In conclusion, three things are important when gambling for fun:
- Decide on your stop-limit (how much do you want to win?);
- Decide on your stop-loss (how much can you afford to play with?);
- Calculate the probability of attaining the stop-limit (being always aware of your negative return of investment will also improve your mental fortitude).
Why should you always stop? The more bets you make, the more your projected return of investment goes down. For example, if you had 1000 EUR and wanted to double it with bets carrying an inherent loss of 2%, it would be MOST profitable to make A SINGLE BET of 1000 EUR. With such a method, your long term loss would only be 2%. If you were to make bets of 100 EUR instead, you would need eventually 10 more wins than losses in order to double up. Keeping in mind that in the long term, after every 10 bets, you would have lost 2% of their cumulated stake, your actual return of investment would have to be increasingly higher in order to compensate. Think of it this way: after 10 bets, you would have 980 EUR remaining (as a long term average) but you’re objective would still be to reach 2000 EUR. Actually, the lower your stakes are, the more your chance of reaching the financial objective tends to 0%, even though each bet would only carry an inherent loss of 2%.
When trying to achieve a certain financial gain, you should be doing it because you don’t have the time or the desire to achieve it in another manner. You should calculate how much money you need in order to continue your normal flow of life and how much you need in order to improve it.
- You need 500 EUR for rent and 500 EUR for food.
- Your income is 1000 EUR per month but you actually have 1200 EUR at the moment (income + 200 EUR savings).
- You want to buy a website that would generate another 100 EUR per month. It costs 2000 EUR.
- Therefore, you can afford to risk 200 EUR in order to win 1800 EUR more and buy the website. Losing the 200 EUR would not affect your normal flow of life.
In conclusion, when trying to achieve a certain financial gain, you should:
- Decide how much you can afford to lose;
- Set your financial target;
- Decide the method in which you will take the gamble (with as few bets as possible and the lowest house edge you can find);
- Have the mental strength required to actually go forth with your plan and not deviate, especially if it fails. Do not continue gambling with what you can’t afford to lose.