Are You an Investor or a Gambler?

by Duncan Hood
Oct.18-2008
MoneySense

When life was good for Ritchie, it was very good. Twenty years ago he was 33, working as a bond broker on Wall Street in New York, and making loads of money. Then he switched firms and started making even bigger money as a stockbroker. That's when things started to go wrong.

For Ritchie, the stock market glittered like the world's biggest casino and there was no such thing as enough. "I was a Vince Lombardi kid - I had to win at any cost - and when I played with money, I played to win," he says. "I was completely out of control. I would bet on everything - stocks, indices, gold, silver, currencies. It was incredible."

When he began dipping into his clients' accounts to cover his losses, the end was near. "In the early 1990s I got to that day when I knew that a bunch of my clients' statements would be wrong. So I put on my jacket, walked over to my two secretaries, and wrote a note for my boss telling him I resigned. Then I walked out and never came back."

What went wrong with Ritchie? It turns out he was a compulsive gambler. According to psychologists who study gambling behavior, it's all too easy for an innocent investing habit to swell into a gambling problem if a person is so disposed. Both investing and gambling let you wager big money and win or lose huge sums within minutes. Indeed, it can be difficult for even a professional to know at what point a sincere interest in investing edges over the line and becomes something darker and more compulsive.

What ultimately distinguishes gamblers from investors, says Dr. Marvin Steinberg, executive director of the Connecticut Council on Problem Gambling, is a lack of control. Smart investors may decide to occasionally make big bets on a stock. But they can also go for months without buying a stock or even shuffling their portfolio.

"With any kind of compulsive behavior, you wind up being out of control," says Steinberg. "So if you tell yourself that you're going to do one thing and you wind up doing more, you have a problem. An alcoholic says he'll just have one drink and winds up having 12, a problem gambler goes to the casino with $100 in his wallet and winds up spending $3,000 on his credit card. In the same way, if you put more money into risky investments than you can afford to lose, that's a sign you have a problem."

Other symptoms include an inability to stop trading stocks, even while on vacation, using lots of borrowed money, and indulging in superstitious behavior, such as buying a stock because the symbol reminds you of your dog's name. Steinberg estimates that as many as 5% of investors have a mild to serious gambling problem. "There are Gamblers Anonymous meetings in New York and Chicago that are attended almost exclusively by stock market gamblers," he says. "It's a problem that needs to be taken seriously, but it's not well understood. Brokers don't want their clients to think of the markets as a place where you could become a problem gambler."

If you suspect you might have a problem, you can take Steinberg's questionnaire at CCPG.org. If you decide you need help, consult a mental health professional or contact Gamblers Anonymous, which has groups in many Canadian cities. You can also get referrals from Arnie & Sheila Wexler Assoc. (ASWexler.com), which is run by Arnie Wexler, a former compulsive gambler.

Ritchie only realized his investing was out of control after he lost his career. Thanks to Gamblers Anonymous, "I haven't made a bet in over 10 and a half years," he says. "And now I have a terrific life. I'm raising a child and taking care of my wife and running a business buying and selling art." But Ritchie knows he can never be fully cured. "I have to continue to go to the program, because I am what I am, and that doesn't change," he says. "So I'll never work for Caesars Palace - and I couldn't work for Morgan Stanley, either."

If you display five or more of these 11 traits, you may have a gambling problem, according to Paul Good, a clinical psychologist in San Francisco:

1. You engage in high volume trading,where the "action" is more compelling than the objective of your trade.
2. You are constantly preoccupied with your investments.
3. You need to invest more and more money or increase your leverage to feel excited.
4. You have repeatedly tried to stop or control your market activity and failed.
5. You become restless and irritable when you try to cut down or stop investing.
6. You invest to escape problems, relieve depression, or distract yourself from painful emotions.
7. You sometimes increase your position in an investment after a loss - that is, you chase your losses.
8. You have lied to conceal the extent of your involvement in the market.
9. You have committed illegal acts, such as forgery or fraud, to finance your market activity.
10. You are jeopardizing significant relationships or your job because of excessive involvement in the market.
11. You have relied on others to bail you out when you got into desperate financial situations.

Investor or Gambler?