How to Focus on Investing: Don’t Put All Your Eggs in One Basket!

How to Focus on Investing: Don’t Put All Your Eggs in One Basket!

There are all kinds of investing you can do online and if you have been a regular reader of my blog, you should have learnt by now that I consider internet gambling, such as online poker or sports betting, an investment like forex or stock trading. In my last post about how video games have improved my investing skills a commenter wondered how much profitable investing can be, when you try making money in all those areas at the same time. So today I’ll show how to focus on all those kinds of investing, why you need to diversify your portfolio and why you shouldn’t put all your eggs in one basket.

focus-on

Focus on one investment at a time

Joe decides to focus on stock trading. He focuses on studying the markets every day and reading a couple of books per week, so that he improves his trading skills. Undoubtedly he will become a better stock trader, although that doesn’t mean that he will be a profitable one. Yet, there will be a time when he knows stock trading inside out. He is now an expert in stock trading and spends most of his time and money, searching for stocks to buy. He rests in weekends and works during the week.

By the time he has learnt so many things about investing in general, he figures out that the same principles apply to other kinds of trading, such as futures or forex trading. If he is to focus on just one investment, he should avoid them. However his portfolio isn’t diversified and his entire bankroll is used for buying stocks. Although he may have been profitable, he surely misses investing opportunities that arise in foreign exchange or options exchange for example. Wouldn’t it be great if he spent one third of his bankroll on buying some tech stocks, one third on predicting an uptrend of EUR/USD and one third on gold or oil futures? That way his bankroll is more protected against a downtrend occurring at the stock markets.

Meanwhile, Bob decides to focus on playing blackjack as a card counter. He learns basic strategy and practices card counting for days before he takes his money to the local casino. Eventually he is making a killing there and the casino prohibits him from entering the premises. He begins travelling to other casinos, but his name is soon found in all casinos’ black lists. His blackjack career is over. Now what? Focusing on blackjack has left him unemployed. Yet, instead of trying his “luck” at casinos abroad, he is in a much better position than he appears so.

He has already studied about bankroll management, expectancy and mathematical simulations. Risk of ruin calculations and expected value sound too familiar. Thus, he moves on to online poker, where all that define a winning player. He doesn’t have trouble finding his way at poker tables, and perhaps during the breaks of live poker tournaments, he counts cards at the blackjack table nearby. Making some +EV bets when the true count is over 5 would add some more dollars to his bankroll. His bankroll is now used for both poker and blackjack.

Focus on multiple investments

Joe meets Bob and quickly conclude that making money on stock and forex trading is pretty much like making money by playing blackjack or poker. Kim, a professional sports bettor, overhears their conversation and joins them, by making a point that:

[box type=”info”]Value betting is exactly the same as value investing or placing bets on Blackjack tables with positive expectancy.[/box]

By exchanging information the following days, the three investors have all become experts in online trading, sports betting, online poker and blackjack! Now, which one should they focus on?

Focus on the investment that makes you the most money, but don’t neglect others.

Joe continues making his living at the stock markets, Bob takes the money from the fish at poker tables and Kim constantly searches for value bets at sports. Joe occasionally sits down at low stakes poker tables. Bob heard from Joe that Google stock is about to hit new 52-week highs and invests some money for a quick win. He is not interested in long term trading, but he will take advantage of such information. Kim in the meantime let others know that Rafael Nadal’s betting odds are falling lately and recommends a value bet as long as the odds are still generous. Kim also registers at poker tournaments and also took a shot at the Google stock.

Now imagine Joe, Bob and Kim are all the same person. You. You know how to trade stocks, forex and futures, you know how to count cards at blackjack, you know how to exploit a loose passive player at poker and you know how to spot value bets at sports events around the world. It’s not that hard as it sounds, they are all based on the same mathematical formulas and concepts. Granted you need to become an expert in any of those, if you really want to make a lot of money. Still, placing value bets from time to time while trading wisely and playing poker, only whenever the tables are soft, wouldn’t hurt your capital. In fact as long as you remain disciplined, you’ll be profitable in all those areas of investing and diversify that capital.

Focus on success and collateral rewards

focus-on-successWhere should you, as an investor, focus on? Trading, poker, blackjack or sports betting? Well, you should really focus on success. If you can make X money at trading and 2X at poker, obviously you should risk more money on the felt, but don’t forget to load your broker’s platform once or twice a day. Don’t forget that you still are a successful trader. Since you apply proper bankroll management, your money isn’t tied to poker and you have money to invest away from the poker tables. Take advantage of some uptrends or breakouts and return to online poker. If by trading you begin making 3X money, time to take your business to finance. If you can no longer beat the opposition at online poker, withdraw that money and increase your positions at trading or spend some time at sports betting. In the end, your winrate and success will tell you where most of your money and time should be spent on.

At the same time, you might feel exhausted by all that investing and you discover the creative side of yourself. You create a blog and begin sharing some of your experience there, whenever you want to take a break from the frenzy world of online investing. Suddenly your blog becomes more popular than you expected. People comment on your articles and you receive a lot of emails, some of which are by advertisers willing to buy some space in your blog. It’s time to form a company for your blog and accept their money, providing yourself another source of income! At that time stock brokers, bookmakers and poker rooms contact you offering writing jobs due to your popularity. Now you’ve become a blogger and author in addition to an investor! Who knows, maybe you’ll quit gambling and start blogging professionally!

At first I focused on playing blackjack, then on sports betting, then on online poker and lately on trading and blogging. You never know what the next step will be and you can’t predict in which field of your expertise the next opportunity will come. It’s up to you to decide where you should focus on and what makes you more money. But it’s not the money that counts.

Focus on finding the joy in your life.

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  • Tomasz Wnuk

    I have a question for this multi-investment strategy. Let’s say I have X amount of money. I make a bank deposit with 0,5*X to have money for living expenses. Other half 0.5*X, I would like to invest in my stock speculations, Forex speculation, sport betting, sport arbitrage and poker.
    Should I have different bankroll for every of those areas? So, my bankroll would be 0.1*X for Forex, 0.1*X for Stocks, 0.1*X for Poker… etc. and then bet 1% (or Kelly*1/2) of 0.1*X on every position/game I make (assuming EV+)? That would be 0.001*X.
    Or, should I have one bankroll of 0.5*X for all of those areas and bet Kelly stake depending on my EV in every of those areas?
    Basically should I have common bankroll for all those areas of investing or should i treat them separately.
    Is there any literature or studies on this?

    • Thank you for your comment @tomasz_wnuk:disqus!

      Yes, you need to have a separate bankroll for each of your endeavors. You don’t need to have exactly 0.1X for each, you may divide it as you like. However, try allocating more bankroll to investments where your edge is significantly lower and less money for investments where you know your edge is substantially high.

      For instance, say you had two investments, where you bet on a coin toss. In the first, you are offered 2.10 odds whereas in the second you are paid at 2.50 odds. Your edge is much higher in the second case, thus your variance will be a lot less than in the first case. Hence, you need a smaller bankroll to withstand the minor drawdowns. Since the drawdowns and variance will be a lot more fierce in the first scenario, you need to put more bankroll to keep you into the game.

      I hope this makes sense!