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3 Lessons From A Slot Machine

Slot machine.
Image via Wikipedia

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The slot machine, it is an iconic symbol of decadence that prevails throughout the world. From the Las Vegas Strip to the St. James Club in Antigua, from Atlantis Resort in the Bahamas, to Casino Baden-Baden in Germany, few people in the developed world haven’t seen the shiny lights of a slot machine.

While it may be iconic, us personal finance buffs have a less than happy view of these machines, but is it possible that you can learn financial lessons from a slot machine?  The answer to that is yes, and we’re going to show you 3 of them.

Someone Will Always Be Willing To Take Your Money

This is a guarantee in life.  There will always be someone willing to take your money, and they will be more than happy to take all of it.  Take a $100.00 bill out into public and offer it freely, and come back to tell us how long it was available.  You will be hard-pressed to find a slot machine that cries out “No More!” as you keep pumping in your quarters, $1 bills, $5 bills, or $20 bills (for you crazy ones).

Someone will always be willing to take your money.  Do not invest with the idea that the person helping you has your best interests at heart.  If you’re willing to give out money, someone will be willing to take it.

Looks Can & Probably Will Deceive

All of those bright, shiny lights, happy sounds, and friendly cartoon characters seem so nice and innocent.  It’s especially tantalizing to hear the bells and crash of the coins for a person who just won!  But is everything as it seems?  No.  The not so secret “secret” about slot machines is that they are designed to take in more money than they pay out.

How often do we see people displaying the outward appearance of wealth, but we know they are broke?  How often do we hear about these great money-making schemes that turn out to be a fraud?  How many times will we allow ourselves to be fooled by the bright and happy lights and sounds of these sales people before we decide to really look at what is under the hood?

Looks can and will deceive you if they are allowed to.

Luck Doesn’t Constitute Skill

So often, people become bloated with self-importance.  They allow their confidence to turn into outright cockiness.  Slot machines are an equal opportunity betrayer, and teach us that regardless of what one time results might say, it doesn’t mean things must stay that way.

I’ve heard of people referring to slot machines as being “hot.”  It’s almost like the machine has turned into a broken ATM spitting out money, this is simply luck and mathematical algorithms working out in their favor.  That mutual fund may have returned 35% in the last 3 months, but what is its 3-year, 5-year, and 10-year yields?  What about its yield since inception?

Despite popular belief, mutual fund managers can be bad at their jobs and do get lucky.  Just because a 3 month yield looks good, doesn’t mean that you should neglect past performance.  Luck does not constitute skill!

There you have it, 3 lessons that you can learn from a slot machine.

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