Wise investing or just chancing it?
Traders on floor of the New York Stock Exchange
TEXT OF INTERVIEW
Lisa Napoli: Is making money in the markets luck, or skill? Engineer Stan Mazor thinks it's a bit of both. The co-inventor of the very first silicon chip set his mind to playing the markets. Then, he wrote a book about it. It's called "Stock Market Gambling: Turning On A Dime."
Stan Mazor: Well, when I retired a few years ago, my friends said that I should get a hobby, and I decided to take up gambling as a hobby. I didn't know much about poker or horse races, and I'm not too interested in casinos. So I thought I'd try gambling in the stock market.
Napoli: And it's interesting, because you mention in the book, "Don't try this at home unless you're prepared to lose."
Mazor: Well, I think one of the problems in gambling is to be under-funded. Putting it another way: If you sat down to play poker with just one chip, you're probably not going to be in that game very long. So one of the things from a scientific viewpoint, it seemed to me, is that you're better be well-funded and prepared for several losses. Each gamble that I'm trying is to make $500 on the bet, and the capital required for that bet is $15,000. And then again, if you're going to go in to play, I think you'd need about 10 chips, and so that represents $150,000.
Napoli: And know that some people will freak out when they hear you say that you make these decisions based sometimes on the tossing of a coin?
Mazor: Well, if you think about the stock market in general terms, someone says, "Gee, I think XYZ stock is going to go up," so he goes and buys the stock from someone who's selling the stock. They're both intelligent people, they both have access to the same information, and they've come to the opposite conclusion. Well, when we talk about stocks, sometimes they compare with a dart-board method, which means throwing darts to pick a stock. And actually, the people who do that theoretically do pretty well.
Napoli: We look at the markets as they open every day and there's some sort of analysis from some writer somewhere who says "It's going to go up because of X, and it's going to go down because of Y." But you seem to sort of say there is no science really here in terms of why it moves.
Mazor: Well I think as humans, we're always looking for reasons, and we often see reasons where there aren't any real reasons. But when you actually stand back and do some analysis, it turns out they're not very well-correlated. In an engineering term, if I was speaking to an engineer, most engineers are looking at some signal that has noise in it, and they say, "How can we filter out the noise to look at the signal?" And from the engineering sense, I take exactly the opposite viewpoints: I ignore the signal, let's just look on the noise, the little vibrations, as if there's no meaning behind it.
Napoli: Silicon chip pioneer Stan Mazor's book is called "Stock Market Gambling: Turning On A Dime." In Los Angeles, I'm Lisa Napoli. Have a great weekend.