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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Rolling The Dice...and the Proof of God

In Today's Daily Reckoning:
*** Seeking the family roots in Ireland...
*** Dow's worst day in two months... AMZN beats 
*** No more freebies from Napster...

*** As you know Bill's floating with his family on a 
painfully slow ferry somewhere between Cherbourg, France 
and Waterford, Ireland. I'm told by his son Will, who's 
still with me here in Paris, that the family's off seeking 
distant relatives in the Irish town where Will's great 
grandfather lived... before he fled to the more stylish 
digs of a Pennsylvania steel mill. 

*** In the meantime, here's what I propose: I'll run the 
numbers for you briefly, then treat you to another rousing 
edition from the vast supply of Daily Reckoning Greatest 
Hits, 1999. Sound good? If you're interested, stick around. 
If however, you've got more important things to 
wash the family cat... this is your cue: skeedaddle.

*** Mr. Bear took the day off from sunning himself at the 
beach when he heard yesterday's earnings reports: "Stocks 
Punished for Disappointing Results" is how a Reuter's 
headline scribe phrased it. The Dow fell 183 points... a 
loss of nearly 2%, and its worst day in two months... 
finishing the day at 10,516. Down 8.5% for the year.

*** Less than impressive earnings in the semi-conductor 
industry are being blamed for the losses. But one analyst 
in the Reuters article thankfully stated the obvious for 
readers of the Daily Reckoning, at least: "Everyone is 
suddenly realizing that the last couple of years of profit 
growth we have seen cannot last forever." Really.

*** That startling revelation weighed heavily on the 
Nasdaq, too. The great incubator of optimism and New Era 
exuberance gave up 41 points to close just over 3,987. 

*** 1363 shares advanced, while 1474 declined on the NYSE.
*** The S&P 500 also fell 22 points to 1,452. 
*** Bad news for Will and his CD burning friends, too. 
Napster, Inc. - the website where young techno-wizards have 
been congregating to pirate music from their favorite rock 
bands - was ordered shut down by a federal judge. No 
worries though, Will assures me, once I get my own 
"burner," I'll still be able to find plenty of Grateful 
Dead bootlegs out on the 'net absolutely free, gratis... no 
cover charge needed.

*** On the other hand, reports filed by Amazon were 
optimistic. Although Bezos and crew are now losing 91 cents 
a share - double the 43 cents/share loss reported a year 
ago - they're not losing as much money on each sale as 
analysts had predicted. Good news. Still AMZN fell... down 
nearly $4 in after hours trading to settle at $33. 

*** Meanwhile, "if you can show a monthly income of as 
little as $1,000...or $2,000 from investment income... you 
could retire next week," writes Kathy Peddicord from 
Belize. A law recently passed there allows you to 
"virtually retire," live better than you ever have - even 
pay no taxes. (see: Mick and Lucy's Oasis in the Jungle

*** On this day in 1866, Cyrus Field helped usher in one of 
the "first order" innovations of the communications age. 
After two failures, he succeeded in laying the first 
underwater telegraph cable between North America and 

*** Look for GDP numbers... they come out tomorrow. We 
expect more fuzzy logic and hedonic measures. 
(see: Instant Gratification Trumps

*** Allright then... onward and upward: "Rolling The 
Dice... and The Proof of God" below... was written over the 
course of several days during the first week of August, 

Thanks for sticking around... Bill will be back soon - I 


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"Never invest on a level playing field," Doug Casey told 

This advice came back to me as I read Peter Bernstein's 
book, Against the Gods. It is a history of the mathematics 
of probability. And one of the first things we learn is 
that toting the odds on anything is not a simple 
matter...and that figuring out investment probabilities is 
particularly difficult. 

Even when the odds are even, for example, it is not 
rational for you to play the game -- at least, not from a 
strictly financial viewpoint. This is because of something 
known as the Petersburg Paradox developed by Daniel 
Bernoulli in the early 18th century. His cousin, Nicolaus, 
had proposed an idea which is the equivalent of the 
principle of declining marginal utility of money. That is 
"the utility of any small increase in wealth will be 
inversely proportionate to the quantity of goods previously 
possessed. " 

This insight led to the realization that when you win at a 
game of chance...the amount won will be worth less to you 
than the equivalent amount lost. You can see this by 
imagining yourself with $5 million. In a single hand of 
liar's poker you have the chance -- with even odds -- of 
either winning another $5 million, or losing the $5 million 
you already have. It would be great to win another $5 
million. But it wouldn't change your life very much. On the 
other hand, going from a net worth of $5 million to a net 
worth of $0 would be a major change. is 
irrational to play the game. If you win big. But 
if you lose bigger. 

Even when the playing field is tilted in your favor, you 
can still lose. A remarkable experiment proved this. A 
group of PhDs were given $1,000 in play money and asked to 
play a game in which they could bet whatever amount they 
wished...with a 60% chance of winning each time. Despite 
the huge advantage, only 2 out of 40 of them had more money 
than they started with when the game was over. They bet too 
much. Betting $10 each time would have resulted in about 
$1,200. But even though they had a 60% chance of winning 
any individual bet, it was only a matter of time before a 
series of games went against them...from which it was hard 
to recover. 

I have opined that investors don't understand the game they 
are playing. They think that because they are "investing" 
and because "stocks usually go up" that the odds of success 
are in their favor. In fact, they are wrong on both points. 
First, the activity they are engaged in could scarcely be 
called investing. It is much more like gambling. But it is 
gambling in a casino where the people you are gambling 
against are accomplished card counters, the decks are 
stacked and the drinks are $20 each. 

I sat next to a woman on an airplane recently who advised 
me to buy stocks. It was the ticket to wealth, she 
explained. She was a member of an investment club and had 
become the group's oil and energy expert. She recommended a 
particular oil company (I can't remember which 
one...unfortunately I didn't write it down...I'm sure it 
was a winner) because she had noticed that "they seem to be 
opening new gas stations all over the place." It must be a 
growth company. 

This level of analysis could hardly qualify a stock 
purchase as an investment. Similarly, anything that 
involves a guess about the future -- whether it is the 
future of the Internet or the future of the gold price -- 
is not really an investment. It's a speculation. A gamble. 
But it's far from a 50/50 bet. The "house" in the Wall 
Street Casino takes a huge cut. Someone has to pay for the 
brokers' yachts...the homes in the Hamptons...the SEC...the 
lawyers...the accountants...and the people who call you at 
dinnertime and ask you if you want to give Warren Buffett a 
run for his money. 

Warren Buffett, Graham & Dodd, and countless others have 
found that if they work hard enough -- doing enough 
research and study on individual companies -- they can tilt 
the playing field a very little bit in their direction. 
That's the idea behind Buffett's margin of safety. And 
that's exactly what Mark Hulbert discovered when he 
analyzed the investment returns of newsletters. Most don't 
do better than the market. But a very few do a little bit 

Another way to tilt the playing field is the way Doug Casey 
does it. He's worked for many years to become an expert on 
a particular industry...and a particular type of 
speculation. He's become an industry insider, with a well-
developed sense of not only where and how the money moves 
around, but also the psychological influences on the 
market. In fact, in his most recent issue, he quotes Keynes 
on this point. "My success in the market was in recognizing 
that the critical issue was not the business or economic 
cycle, but the psychological cycle." 

This insider's knowledge of the mining industry and the 
psychological forces that drive mining stock speculation 
raises Doug's end of the playing field just enough to give 
him an edge. 

In either case, whether it is Graham & Dodd analysis or 
insider-style knowledge, the key to success is to exploit 
the small advantage over time. This is just like betting 
$10 each time in a game where you have a 60% chance of 
winning. Eventually, your winnings add up to big money and 
people come to think you are a genius. This is far 
different from what most "investors" do. 

But what should investors do...when they have no edge in 
the market? 

Well, here's what I propose.since you can't know whether 
the stock market will go up or are in a position 
not too different from Blaise Pascal when he tried to prove 
that God exists. 

Ultimately, there was no way to know. But there were, like 
the difference between bull and bear markets, only two 
answers -- either God exists or doesn't. So, Pascal looked 
at the costs of one decision or the other. If he believed 
that God existed, and he led his life accordingly, he may 
be disappointed. But if he led his life as though God 
didn't exist...and it turned out he was wrong...he would 
surely roast in hell. Since the latter cost was higher than 
the former...and the odds were 50/50...he had little 
trouble deciding the issue. 

The hope of heaven is the hope that people will get what's 
coming to them. Maybe the market will go up...maybe it will 
go down. But I see a lot more to lose than to gain. Even at 
the fantastic rate of 15% upside profit...there's a lot 
more than that on the downside. 

And even if it were a 60% probability that the market would 
go up rather than down, as we saw in the example of the 
gambling Ph.Ds, you would be crazy to put all your money in 
stocks. But that is exactly what people are being urged to 

Surely, if there is a God he will make sure that the people 
who urge you to put all your money in stocks roast in hell. 

Your correspondent,

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 02, 2001

Published By Tulips and Bears LLC