Changing Mindsets: Stop Being the Gambler and Become the House

PUBLISHED Sep 19, 2021, 1:08:30 AM        SHARE

imgChaster Johnson
Change Your Perspective and Become the House

The Stock Market sure feels like a slot machine. All the flashing colors, fast money, and rapid speak. If you were standing by a Roulette table instead of a financial media show, you may not even know the difference. "Mark the Point", "Put Spread", "Little Joe", and "Iron Condor"... if you heard these terms, would you know if you're talking investing or Craps?

This is not a coincidence. The financial industry isn't really interested in your financial success. They just want you to keep playing, which means making a lot of trades. They are not fans of long term investments. These types of healthy investments don't pay Wall Street brokerage fees and when you Day Trade, the advantage is always Wall Street. However, with some knowledge, you too can become the house. Let me introduce to you the Sharpe Ratio.

The Sharpe Ratio

The most powerful part of the Stock Market is consistent returns. Its why everyone freaks out about a "surprise" earnings report. They don't want more or less, the Wall Street analysts just want consistency. The Sharpe Ratio is a way to measure how consistent your portfolio is. In technical speak, its the average return divided by the standard deviation of that return. Think of the standard deviation as volatility. This is telling you how much return you're receiving versus how much risk you're taking on. What does a low Sharpe Ratio mean in real life? It means that one day your stock pick is up 30%, then the next day its down 50%, and basically its moving in extreme ways but on average the stock price isn't going anywhere. That's a stock you want to avoid. Bitcoin, for example, actually has a high sharpe ratio. But even though its very volatile, the earnings more than make up for the this volatility. But the best Sharpe Ratio comes from a stock whose return is consistent. This is a stock whose price doesn't swerve up and down but just keeps going up. That will give you a very high Sharpe Ratio.

No Math Needed, the Stockbossup App does it for you

I know what you're thinking: great math stuff, but I don't want to go to all that effort. How do I even calculate the standard deviation? Fair points. That's why the Stockbossup App does it for you. We've been tracking the Sharpe Ratio on all portfolios made on the site and have added this analysis to how we trend posts (more money stocks, less risky stocks in your feed). Its just another way we trend performance on the site. However, we also track the sharpe ratio of all suggested portfolios. So when you see another suggestion from your bot, just know that we didn't suggest your friends stock pick because she's your friend, we suggested that stock pick because its the best stock for you to become the house instead of the gambler.

We take our mission to generate wealth at scale seriously, and that means sneaking in some serious data analytics into your stock suggestions.

...and by the way, it was "put spread" and "iron condor" which were investing terms. The rest you would hear at a Craps Table.

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