The stock market game

It's definitely hard for me to move on after the February 9 vote. The source of this disturbance, beyond my political opinion, is undoubtedly the uncertainty with which Switzerland (its economy in particular) will have to move forward (if all goes well...) over the next few years and the impact this will have. I don't think I'm the only one who's disturbed... even Toni Brunner, farmer and vice-president of the SVP, the political party behind this initiative, went on the offensive the day after the vote to call for quotas for agriculture (I'll leave you to judge the hypocrisy, irony and even comedy of the situation).

But this column and this site are about dividends and the stock market. What's that got to do with anything? Well, I'm always amazed at what uncertainty can do to people when it comes to making difficult economic and political decisions. But when it comes to their own money, most investors are willing to risk it financially, having no idea what the outcome will be, and especially not knowing the probability of the outcome! Let me explain: the clearest example is the lottery. Near-zero probabilities ('but you never know' says a little voice), possibilities...the ones you want to believe in! The appeal of gambling can be attacked on the front of rationality, not emotion. Talking to people like me who have money invested, I've come to realize that, more or less consciously, they're constantly balancing between the rationality of the investor and the irrationality of the gambler.

The good thing about the lottery is that things are clear. In the stock market, on the other hand, most investors have no such clarity at all, as their ability to distinguish between the "rational self" and the "gambler's self" is limited. This implies an apprehension of real risk that is virtually non-existent. And when you realize that you should always demand a return on investment that is positively correlated with the risk taken, you realize how absurd certain investments can be. And it's always changing! So what should we do? If you're aware that you're gambling and you're happy with it, then you're in the clear. If you're not (and you're losing money, which is statistically impossible otherwise), it's best to adopt a clear strategy and stick to it. The dividend approach is a good one, although there are others: passive strategies based on (quasi-) institutional funds with broad market coverage and low cost, for example. But the gambling part of investing will quickly disappear if everything becomes rational and square... why not start buying lottery tickets? Or better still, at least make yourself useful to the economy and invest in start-ups!