When investing becomes a random punt

Asset allocation is a technique rooted in the steady accumulation of small gains and losses to slowly realise long term compound gain, at relatively low risk.

I think that this is the basis of investment, but there’s a fine line between investing and gambling. It’s a matter of risk perception and probability; professional gamblers know the value of the safety play.

There’s always the temptation to take that single large punt on a risky investment in the hope it’ll pay off big… against all rational odds.

If it succeeds, we’ve a tendency to take on greater risk in the future. Eventually probability will catch up with us, and those risks generate a single crippling loss: the hallmark of a bubble.

If we failed at the first attempt, we’re left sitting on a massive loss, so what have we got to lose? Things can’t get any worse, right? This is probably what a lot of financial stock investors were thinking whilst they averaged down.

This is a slippery slope: do you give up on these risky practices, and try to slowly walk back into profit, or take one last risk in the hope that you can make it all back at once?

Personally, I prefer to think of myself as an investor, and the slow, steady, and above all balanced approach best suits my conservative tendencies.