As if all that’s going on in the world wasn’t enough to worry about, Bloomberg News reports that young people are seeking mental health treatment to break all-consuming cycles of cryptocurrency trading. Those profiled complained that frantic trading in the hopes of scoring quick riches in a rapidly growing, $2 trillion asset class led them to neglect ordinary life and destroyed their peace of mind.
Q1 2022 hedge fund letters, conferences and more
This calls to my mind a conversation I had years ago with Ed Thorp, the mathematics professor who invented blackjack card counting and developed or refined most of the classic quantitative hedge fund strategies used today. His books in the 1960s, Beat the Dealer and Beat the Market, inspired many people — including me — to embark on lifetime journeys using mathematics to succeed in high-stakes gambles. I asked Ed whether he worried about people who came across his books and ruined their lives in unsuccessful emulation. “No,” he replied, “I think they would have gotten in trouble without my help.”
Like it or not, life is full of high stakes gambles. We expect high-school graduates to decide whether to bet hundreds of thousands of dollars in college expenses and missed wages in the hopes of increasing lifetime earnings by tens of thousands of dollars per year. We know many of them make poor choices. And that’s just one in a long series of future risk-taking. Choosing careers, getting married, starting businesses, making investments, joining the military, cheating on taxes — all are gambles.
How do young people learn to make wise risk decisions? Lectures and book learning can help, but mostly they learn from experience. Games are good for this, both sports and games with cards, dice or other randomizing elements. To understand risk, however, the stakes must be personally meaningful and the players must really care about the outcomes. And one of the most important qualities imparted is the courage to play games with meaningful stakes in the first place.
A necessary consequence of this is some people will hurt themselves. Training accidents in the military kill twice as many people in the service as combat. It’s not unreasonable to suggest a similar ratio for gambling — twice as many people require mental health treatment or lose all their money or ruin personal relationships, gambling or day trading or speculating in crypto, as face similar problems with “responsible” risk taking. A young person who makes these mistakes can get some rehab and restart life sadder but wiser, with no permanent damage. Those making their first serious investment decisions in middle-age may not recover so easily.
Read the full article here by Aaron Brown, Advisor Perspectives.
