Leaving Las Vegas: How to Beat the House as the Stock Market Turns Into a Casino

In an interview with CNBC last week, Liz Ann Sonders of Schwab said it. And I thought to myself, “Now I know I’m on the right side of this debate!” 

I consider Sonders to be one of the sharpest minds and best communicators on Wall Street. We actually met once, too, at a Train concert at the Schwab Impact conference in Denver about a hundred years ago, when I was part of an RIA whose asset custodian was Schwab. 

But more importantly, she is one of the strategists with whom I consistently find myself nodding my head in agreement when she is on TV or in print. Especially on this subject.

What was the topic of our intense agreement? The idea that gambling and investing are increasingly difficult to separate. 

The retail investor era has been characterized by a massive rise in the popularity of trading, as well as unprecedented access to data and resources – but very few in the investment industry are truly incentivized to teach the new crop of retail traders how to use these tools that were once kept behind Wall Street’s velvet rope. 

As a result, we’ve bred perhaps two consecutive generations of investors who have only known bull markets and the endless pursuit of dopamine hits.

Which brings us back to the generational expertise of Liz Ann Sonders. Here are the two lines from her CNBC interview that really spoke to me:

I’ve been very focused on the blurring of the lines between gambling and investing and some of the casino-like behavior we’re seeing in markets. 

From an investor standpoint… there’s a way to remain a participant in the equity market… but heed the old line of ‘no one ever went broke taking profits.’ 

To my mind, the takeaway from Ms. Sonders is simply to consider rebalancing. That is, bringing your position sizes back to where you originally wanted them. 

Because the simple math works like this: if you own 20 stocks and they are each 5% of your portfolio allocation, but then one “pulls a Micron (MU)” and nearly quadruples in about two months, that position will now be closer to 15% of your portfolio, maybe even 20%. 

Which might make you feel like a genius, but also brings to mind the old mobland expression: it would be a shame if something happened to it…

What Doesn't Stay in Vegas…

If you’ve been waiting patiently for the part of this article where Las Vegas makes its entrance like Elvis – but with a mobile trading app instead of a microphone – thank you for getting this far. This one’s for you. 

Whether you’ve never been to Vegas, been there a few times as I have, go there often, or are currently in residence there (I’m talking to you, Donny Osmond, J. Lo, and however many Backstreet Boys there are), you know it's like no other place on Earth. 

Once a vacation spot that attracted gamblers who benefitted from deeply discounted hotels and meals as a way to lure them to bet big, today it is a more of a rainbow of activities. The shows, the high-end restaurants, the highest-grossing CVS (CVS) store on the planet, and some incredible views. 

One of the most memorable parts of the trip was when my wife, Dana, and I visited the Mob Museum. Among other things, it contains the actual wall (bullet holes and blood included) from the St. Valentine’s Day Massacre, which was the 1929 murder of seven Chicago gang members. 

Vegas and the mob have a storied, dovetailed history. Some would say the mob essentially built the place. The museum guides disagree. I’ll stay out of that one. You know, keep my nose clean.

While I readily admit that three days there was enough for me, I could not help but want to capture the narrative thread of what happens in Vegas but doesn’t stay there – which, to my mind, includes this decade’s confluence of money, thrill, risk, colorful characters, and yes, some shady activities. 

And that malfeasance is not at all limited in scope, either to Vegas or modern markets. 

Not when a former US Senator, George Santos – already having marginalized his reputation – “diversifies” into insider trading in the prediction markets. 

Or, in this summer of the US World Cup, when a soccer team decides that 107 years post-Chicago Black Sox scandal is still “too soon.”

Wall Street Turned Into a Casino. You Can Still Play and Win.

"I'm shocked, shocked to find that gambling is going on in here!"  

– Captain Louis Renault, top cop in the 1942 film Casablanca

The old-school Chicago Outfit and the modern casino bosses understand human psychology flawlessly. They don’t need to beat you in a fair fight. They just need to keep you hooked on the adrenaline of the action. 

The slot machine, the craps table, and the card rooms are deliberately designed to remove any reference to reality… which is why you will never find a clock or a window on a casino gaming floor. And as the saying goes, the stock market increasingly is like a casino with better lighting. 

Legendary investor Warren Buffett recently provided the ultimate metaphor for this setup, noting that Wall Street has effectively turned the stock market into a “church with a casino attached.” 

The "church" represents the foundational, wealth-compounding reality of American business. That’s the place where companies build factories, employ workers, and grow cash flow over decades. 

The "casino" is the hyper-active, derivative-fueled betting parlor built right on top of it, designed to entice people into making high-frequency wagers on daily price movements.

Just like the real casino floor, it wants you focused entirely on the immediate, short-term dopamine hit, trading away sustainable, useful knowledge for the cheap thrill of the next tick of the tape.

This is exactly how the modern financial grift has evolved. The mob used to skim cash directly from the counting rooms in the dark. 

Today, Wall Street corporate suits use sophisticated financial engineering to do the exact same thing legally in broad daylight. 

The explosion of complex financial products – like single-stock 2X leveraged ETFs, 0DTE (zero days to expiration) option chains, and synthetic daily covered call funds – serve the exact same structural purpose as the micro-wagers on a modern sports-betting app.

And as I couldn’t help but notice in the marketing for Absinthe – the most popular show in Vegas – it seems to be a fine, blurred line between a “hit show” and… well, something else entirely.

Leaving Las Vegas, With a Value-Added Story

On the plane ride home, while high above which state I do not know, I logged into one of my online horse betting sites just for kicks. By some miracle, it allowed me to handicap a few races before the wifi disappeared as fast as a mob rat. 

Despite the Vegas trip, I’m not a big bettor. For me, though, thoroughbred handicapping isn't a mindless slot machine. It's a pure information game of analytics, tendencies, and above all else, risk management. 

Horse players call it “bankroll management.” Same thing. Try to make money, but don’t lose it all along the way. 

And since the odds are set by the public, just like stock prices for 6.5 hours a day during regular market hours, a structural edge can actually be calculated. 

I increasingly see this gambling/investing dichotomy play out in my other daily activities, too, even when no racetracks are involved.

Case in point: In my options trading, where I “take big shots with small amounts of money,” I will – without hesitation – risk $100-300 in a moving market. I’ve been known to purchase out-of-the-money Invesco QQQ Trust (QQQ) call options expiring in a few weeks. Or even this week. 

I could make those trades while picking up Starbucks (SBUX) on my way home from a workout, just as easily as sitting in front of my three screens at home. 

For most people, the thought of trading “on the fly” would be intimidating. But to me, after decades of experience in the market, it is more of what athletes call a “twitch response.” 

Once you have played enough baseball, you can flip a ball a few feet in the air while standing and catch it with very little focus required. It becomes innate. 

There’s just one problem:

Between the algorithms on our phones, the headlines about politics and influencers, and the increasing stress on consumers outside the top leg of the “K-shaped” economy – who actually has the time to learn anything anymore?

Where Retail Investors Are Still Locked Out

“You can’t stop them, you can only hope to contain them.”

– Sportscaster Dan Patrick

The former ESPN legend was not talking about bear markets, spiking interest rates and other market maladies and “surprises.” But as with the pro athletes he was referring to in that oft-mentioned quote, investing risks CAN be contained. 

When you step back to look at the market from 30,000 feet, as I did on that long eastbound flight home, you realize that investing, gambling, and even “this thing of ours,” as Tony Soprano would say, are all trapped in the exact same behavioral feedback loop. 

They are all businesses built entirely on the monetization of action, the exploitation of illusion, and the absolute existence of a structural “house edge.” 

But in both investing and trading, you can learn how to cancel out that “house edge.” 

You can create your own advantages, and your own breaks. 

But not until you learn the “game” you are playing. And all the reasons it is not a game at all.

When I first pitched this article idea to my editor, Elizabeth Volk, I realized I needed to tie a lot of ends together. 

So I cobbled together a few words, in a very caveman-like fashion, on the plane ride home. With the extremely inconsistent wifi, that was about the most I could get done without writing in offline mode. 

To try and express coherently the increasingly strong ties I see between investing and gambling, I wrote down the following to start the brainstorming process with Elizabeth: 

• Gambling
• Action
• Illusion
• Organized crime
• Options
• Sports tie-ins
• Modern mechanisms to wager

Now, you’ll note that in the list of words and phrases above, I purposely did not include:

• Stocks
• ETFs
• Bonds
• Asset Allocation
• Portfolio management
• Risk management
• Performance analysis
• Humility
• Learning curve

That’s because these are the missing puzzle pieces to me – the topics that today’s investor has, frankly, been denied unfettered access to. 

I hope a segment of the population still does seek out this kind of knowledge. At least, I think the audience here certainly does. 

And my editors here – Elizabeth, Sarah Holzmann, Lisa Dammeyer, and the whole crew – are seeing to it that you have every opportunity to combine Barchart’s impressive hoard of data; the visual learning that charting can add; and the expertise from a wide-ranging group of us analysts who have been there and done that, and now want to use this phase of our careers to share that insight in open conversation with the new crop of retail investors. 

Where Most Investors Fall Off the Learning Curve

My point is that investing, even trading, is a learned skill. If you are early in the learning curve, it might all seem like it is easy or exciting. But boring and methodical investing is underrated. Even the rebalancing concept mentioned above doesn’t have to be devoid of intrigue, challenge and competitive juices. 

I use this graphic frequently in coaching DIY investors. To me, the words are perfectly chosen and aligned. We all start out as curious, and quickly become dependent on “experts” – without really knowing if they are “all that,” or just trying to thrill us into parting with our money. 

Like a slot machine, or a two-armed bandit, if you will.

Many newer investors today will sadly not advance past the yellow section. A bear-market wipeout will occur in markets, to match the one we just saw in crypto, and they will never realize the confidence-building pride of getting through the blue and green levels you see above. 

Others will make it through, and I suspect many already have. They are sharp, ambitious students who tend to pick things up quickly. 

But again, if these investors begin to gamify the process too much, or fail to prioritize avoiding worst-case scenarios as part of their learning, they will fall into the category of what I call “all beta, no alpha.” 

That is, if the market keeps going up, they’re bound to crush it on the upside. However, since so many stocks and markets are now highly correlated, they risk mistaking a bull market for their own genius.

And I’m not trying to be like the red section (i.e., arrogant) in suggesting this. I’m just pointing out that the market environment we’ve lived in for years has been roughly equivalent to playing poker in a deck that has no picture cards. 

That means the chances of you busting with a card value of 10 on top of your 12-16 showing has been reduced by 75% (10s are still there, Kings, Queen, Jacks are not). 

Frankly, you’d be more likely to hit on 17 with those odds. 

But hey, don’t listen to me on that. I’m the guy whose biggest “win” in the casino earlier this month was not getting lost after my fifth guided tour. 

Another way to try to separate the temptation to confuse investing with gambling is to start setting rules. And I don’t mean broad concepts like “don’t lose big.” I’m talking about real, tangible guardrails. 

That includes things you can do right now, even if all you do is invest in an S&P 500 Index ETF (SPY) (VOO) and cash to right-size the level of risk you take. That helps you “stay in the game” longer, which is the ultimate investing challenge.

And if you want to get even more aggressively defensive, there are two more steps you can take to reclaim your edge.

2 Steps to Beat the House at Investing

Surviving this environment requires a shift from impulsive trading to learned behavior – the disciplined, institutional way, not the reactive, algorithmic way. True investing requires a total refusal to play the house's game. 

That’s why learning to think like a model portfolio manager is so valuable. Gaining this knowledge remains elusive, though, since arming DIY investors with that deeper insight would create fee competition. (As in none paid by you, and none received by them.)

I mentioned rebalancing above, and it’s a core piece of my own approach to investing. 

Case in point: the ROAR 10 ETF portfolio I’ve written about here a few times. Ten ETFs, all held at all times. But once a week, I methodically review all positions, and if any adjustments up or down among them need to be made, I act. If not, I don’t. 

This is a core aspect of investing, and a feature I created for my subscribers in part because it coaches them on portfolio construction and rotation as a vital part of regular money management.

Now, rebalancing is one step you can take. But bear in mind that the casino wants 100% of your net worth out on the table, exposed to the elements. To break the house's spell, you can also explicitly remove a portion of your wealth from the gaming floor entirely. 

As I’ve written in this space before, I execute this by constructing a conservative, sequential bond ladder. 

By mapping out high-quality fixed-income securities that mature at predictable intervals, you create a fortress of guaranteed liquidity. This ensures that your real-world liabilities are fully covered by a reliable stream of income, leaving you completely unbothered by whatever headline-driven whipsaw the equity market is undergoing on a random Tuesday.

Skip the Slots. Take the Money and Run.

The modern market is a beautifully engineered illusion designed to keep you in a perpetual state of play. Don't be a tourist. Leave the high-frequency dopamine hits to the suckers, enforce strict portfolio hygiene, and remember that the only way to beat the casino is to walk away from the table when the math says you're ahead. 

Because as they say – in Vegas, Chicago, long-ago Train concerts in Denver, and everywhere else – you never go broke taking a profit. 

– Find more from Rob Isbitts at ETF Yourself and ROAR.PiTrade.com.