Invest Like a Horse Racing Bettor.

OK, maybe bettor isn’t the right word. But when you think of horse racing, you don’t think of investing. You think of betting, gambling, taking chances, getting some “action”.

But on today’s TheStreet.com, Scott Rothbort wrote a great article about what investors can learn from horse racing.

According to Scott, there are 5 things from racing that can help investors become better investors. Here they are.

1. Don’t Bet Every Race.
Just like in horse racing, many investors are tempted to always be “in the game” and always have at least one trade going. But this temptation can ruin you - if you’re a horse racing bettor or a financial investor.

2. Do Your Research.
This seems obvious, but just like the many bettors who pick a horse on a “hunch”, a lot of investors pick an investment on a “hunch” or a “guess” or a “tip”. All of these will just take more money out of your pocket.

3. Eliminate the Losers.
There are obvious losers in any horse race/investment class. So, if you do your research, you’ll be able to highlight them. Then, all you need to do is steer clear of them.

4. Not All Favorites Are Good Favorites.
Favorites are not always graded on the same scale. You need to go deep into your investment/horse to find areas where you can judge it rigorously.

5. Be Aware of Derivatives.
In a horse race, they’re called exotic bets. In investing, they’re called derivatives like options, swaps, convertible securities and futures. In both areas, these bets/investments are highly risky. And are best left to experienced and sophisticated bettors/investors.

So, if you want to become a better investor, maybe you should approach it more like a bettor.

Buy & Hold? Quit & Fold? What Can You Do?

“Stay the course.” “Stick to your plan.” “Don’t make emotional decisions.”

No matter what type of investor you are, the advice given above is usually pretty solid. And will usually keep you on track toward your goals.

But then, in a down market like this, even those of us with the strong intestinal fortitude have to take a step back and look at what’s going on. And what we can live with.

This is the basis of a very eye-opening article I read on today’s NYTimes.com.

The author, Paul J. Lim, explores some important questions – such as: “Should buy and hold investors think about selling some of their lagging stocks?”

He goes on to tell us that the S&P 500 has basically gained nothing over the last 10 years. So, what does that do for buy-and-holders?

But then, what about those investors who sell at the first sign of despair? Aren’t they hurting their long-term prospects? Yes and No and Maybe. It all depends.

And that’s the big phrase here “It all depends.” There are no hard and fast answers here. But Paul and his interview subjects reveal a few options that can help all of us get thru this economic downturn.

So, if you’re wondering what you can do now, check out the article. It could help you make some important decisions that can help you not only now, but also in the long run.