Two gambling rules for the Cup, and three keys to long-term investing success, writes The Motley Fool.
Like millions of other Australians, we here at the Motley Fool will be having a flutter on the Melbourne Cup.
We fully expect to lose all our money. A 100 per cent loss. A total blow out.
As such, we'll be following two simple rules…
1) Only gamble as much as you can afford to lose.
2) Before you place your best, no matter what the result, make sure you are smiling after the race.
I am putting aside $50 to bet on the race. I earn a reasonable wage, have no credit card debt, and can most certainly afford to spend $50 in the name of entertainment. As a percentage of my total liquid assets (shares and savings), $50 doesn't even register on the radar.
Still, like most people, I don't like losing money. I hope to pick a winner. But I'm no expert. I don't follow the horses, the form, the weights, barriers, trainers, jockeys and so on.
3 Cup Tips
So I've outsourced my day's entertainment to someone who knows far more about racing than myself. My friend Lewis has been a full time "sport's investor" for 5 years. He knows a think or two about these things. Read Lewis' tips here.
Even though I've enlisted the help of an expert, I still expect to lose my whole $50. Lewis makes his money over the course of a year, not on just one race. He aims to make a 5 per cent return on investment. To make a living doing this sort of stuff, you have to turn over a lot of money.
Not every bet will be a winner. The Melbourne Cup is arguably one of the toughest races of the year in which to pick a winner. There are 24 horses, running over a 3200 metres, and with the internationalisation of the race, we are faced with unfamiliar horses, trainers and jockeys. It really is somewhat of a lottery.
As a punter, go into the race with zero expectations. You'll enjoy the race much more, before, during, and after. Numerous studies show that the pain of losing money is far stronger than the joy of making it. Don't make this a painful Cup.
Invest in the sharemarket
The Motley Fool aims to educate, amuse and enrich people about the sharemarket.
Played properly, investing in the sharemarket is different to betting on the Cup.
The sharemarket is made up of thousands of individual companies. Each of those quoted companies is trying to generate and grow their profits, over the long-term.
Over time, good to great companies will create economic value. Woolworths (ASX: WOW) generated around $300 million profit in 2000, and over $2 billion profit in 2010. That's what I call economic value.
Undoubtedly some share market investors do lose money. People have even lost money investing in Woolworths shares, despite the supermarket giant having generated all that economic value over the past 10 years.
How?
They've sold the shares at the wrong time.
With investing, and particularly when investing in companies as great as Woolworths has been, time is on your side.
But if you treat the share market like a casino, focussing on the ever-swinging share prices and not the underlying business, you can and likely will lose money.
The 3 Keys To ShareMarket Success
There are many mistakes share market investors can and will make. But if you stick to these 3 simple rules, you should be able to rack up a decent nest-egg in the decades ahead.
1) Invest for a lifetime, not for a few weeks, months or years.
2) Keep investing regularly, ideally monthly.
3) Avoid speculating, and instead concentrate on the economic value created.
We wish you happy gambling on the Cup, and joyous, prosperous investing profits from the sharemarket in the years ahead.
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