The more I’ve observed various areas of life, the more I’ve come to believe that life operates as a science. The role of a scientist is to conduct research and uncover the principles that govern their specific field—and the same is true when it comes to investing.
Each Investment Field Has Its Own Laws
I first noticed this in the world of finance. Each investment category—stocks, real estate, oil and gas, land, commodities—operates like a distinct scientific discipline with its own rules and principles. As I mentioned in my last column, when I started my practice many years ago, I began observing several wealthy individuals to identify common threads in their behavior. One clear pattern emerged: each had developed deep expertise in the field responsible for their wealth.
The Misunderstood Law of Risk vs. Return
Most investors readily accept the “Law of Risk vs. Return.” In nearly every investment opportunity, risk and reward are correlated. But what many people miss is that this is a one-way relationship. High return generally implies high risk—but high risk does not necessarily imply high return.
Is Investing Just a Fancy Word for Gambling?
Here’s one way to define investing:
Putting your money at risk, releasing control of it for a time, during which you might gain more—or lose some or all of it.
Viewed this way, investing is essentially a form of gambling.
Using that definition, the riskiest place to invest would be a roulette table in Las Vegas. It fits all the criteria of an investment—except maybe for prudence. Place $10,000 on red, and in 30 seconds, you’ll either have $20,000 or nothing.
Why the House Always Wins
Let’s take that absurd example further to make an important point.
I would personally sell everything I own and borrow as much as I could—and go with anyone to Las Vegas. I’d let them pick the casino, the game (blackjack, craps, baccarat, whatever), and even the specific table.
I’d wager every penny on that table if I could do one simple thing first.
What would that be?
I’d walk around the table and stand on the side reserved for the house.
The Science of Risk Removal
Why? Because in Las Vegas, the house isn’t gambling.
Casinos don’t wake up each morning wondering how “lucky” they’ll be.
The house has removed risk through knowledge and analysis. Every game is dissected, modeled, and statistically reverse-engineered. With that information, the casino then restructures the rules and payouts so that the odds always favor the house.
Stacking the Odds in the House’s Favor
For instance, a craps table might pay 10-to-1 on a hard eight—but the odds of that outcome are actually 32-to-1. For every $10 the casino pays out, it takes in $32. The only ones gambling are the players, who take those unfavorable odds hoping to get in and out before the math catches up with them.
To me, this is brilliant.
The Winning Formula for Investors
Limit the risk through knowledge and structure, then adjust the game so only positive outcomes remain.
That’s exactly what the most successful investors do. They don’t rely on gut instinct, intelligence, or even logic alone. Instead, they either acquire the necessary knowledge themselves—through education and experience—or they pay an expert who already has it.
The Hidden Transfer Behind Every Return
That’s why I’ve come to interpret the Law of Risk vs. Return this way:
The novice investor takes the risk and usually loses, creating the very returns that go to the experienced investor.
How to Gain the Edge Over Uncertainty
Experience gives you 20/20 hindsight. It teaches you to ask the right questions—and often, the seemingly irrational questions that a purely intellectual analysis might overlook.
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