Years ago, I went to a Tony Robbins seminar. I’m not a fan of most of what he preaches, but one thing stuck with me.
He said, “Success leaves clues.”
He suggested that if you want to achieve a specific result, find someone else who’s achieved that result and model their behavior.
I decided I wanted to become a successful investor in the stock market, so I did a Web search for “most successful investor.”
After reading a couple of articles about Warren Buffett, I decided to learn as much as I could about Buffett and how he invests in the stock market.
I had a lot of fund and made a lot of money when I was in the market, and I attribute this to the dozen or so books about Buffett that I read.
I’ve taken what I’ve learned then and since then to put together this guide to how to invest in the gambling industry:
Why Invest in the Gambling Industry?
Warren Buffett is a billionaire. In fact, he’s one of the richest men in the world.
What’s his most important piece of advice for investors?
He says they should invest in companies doing business in areas they know and understand.
Those areas are your “circle of competence.”
In Buffett’s case, his circle of competence includes the insurance and financial industry, as well as various retail businesses.
He and his partner, Charlie Munger, have avoided high-tech stocks because they don’t understand it.
So, why should you invest in the gambling industry?
The answer is simple:
If you’re reading this blog at all, you probably have some knowledge and interest in gambling.
On top of that, the gambling niche is huge and hugely profitable.
Invest in Businesses
Casinos and other gambling companies – even publicly traded ones – are businesses. A share of such a business represents a (tiny) percentage of ownership in that business.
If you wouldn’t buy the entire business at the price it’s selling for, you shouldn’t buy even a single share.
This is another fundamental aspect of Buffett’s strategy.
Here’s a story from my early days investing in the stock market:
I spent a year in the market, carefully buying shares in about a dozen companies, all of which were profitable. I felt like all of them were selling at a reasonable (if not better than reasonable) price. I had shares in companies like Harley Davidson, Netflix, and Marvel Comics. (Marvel got acquired by Disney.)
I only made one exception. I bought shares in MGM, and at the time, they’d been losing money consistently for a couple of years. I thought surely their stock price would eventually go back up.
After all, how does a major casino company in Las Vegas lose money year after year for any length of time?
I more than doubled my money in the market that year.
Despite losing 90% of the money I invested in the MGM.
I resolved at that point to never invest in a company that was losing money again, regardless of the industry.
Looking at Stock Prices, Earnings Per Share (EPS), and P/E Ratios
The MGM is an example of one kind of company operating in the gambling industry. It’s a casino/resort company. I haven’t looked at the company’s financials in years, but when I checked it today, I saw that their EPS (earnings per share) were listed as 0. I’m not a financial advisor, but I still can’t see much sense in investing in a casino business that makes no money.
The Las Vegas Sands Corp, on the other hand, is in the same niche and is profitable. Their ticker symbol is LVS. One way to look at the price of a company is by thinking about the company’s P/E, which stands for price divided by earnings.
Basically, if you divided the company’s profits by the number of shares available, that’s how much profit it made.
When I looked at LVS today, the share price was $69.74, and the EPS was $2.45, making the P/E ratio 28.43.
If I bought an entire business for $69.74, would I bet satisfied with $2.45 in profit?
Would I be happy taking 28 years to make my money back on my investment?
Of course, this provides only a limited look at the value of the company. If you expect the company’s earnings to grow rapidly, that 28.43 P/E ratio might look good.
Some More Examples of Gambling Businesses and Their P/E Ratios
Another example in the same niche is Wynn Resorts (WYNN). When I looked today, they were selling for $141.47 per share. You might think this makes their stock more expensive than LVS, but you’re not accounting for how many shares of the company are out there. You’re also not looking at it in terms of P/E.
In other words, a stock price has no meaning by itself. You need to look at the other factors.
In the case of Wynn Resorts, earnings per share are $6.16, making the P/E ratio for the company 22.97.
The lower the P/E ratio is, the better the price for that stock – generally speaking, ignoring all other factors.
Another company worth thinking about is International Game Technology (IGT), which is the largest manufacturer of slot machines in the world. (When I was in the market, I had shares in Shufflemaster, which was acquired by IGT years ago.)
You can buy shares of IGT for just $15 at the time I write this, but guess what.
The earnings per share were -$0.37.
In other words, the company is losing money.
How a company in this industry and that niche is losing money baffles me. I’d be unlikely to invest in that company.
Scientific Games Corporation (SGMS) is in the same niche – the manufacture of casino games, but it’s profitable. The price per share is $25.90, earnings per share is $1.29, and the P/E ratio is 20.05.
I’m not crazy about any P/E ratio of 20+, but we’re in a bull market right now, so all companies are trading at higher valuations than usual.
Smaller Ways to Invest in Gambling
Greg (Fossilman) Raymer is looking for investors in his poker action in 2020. He’s done this before. It’s a way to invest a small amount of money into the performance of an individual poker player.
Here’s How That Works:
He wants to raise a bankroll of at least $60,000 for the year, and he’s selling shares at a price of $500 each. He’s also buying 20 shares with his own money. He doesn’t deduct any expenses from his bankroll; it’s used exclusively to buy into poker games. In exchange, Raymer gets 40% of the profit. If he has a net win this year, he gets 40%, and he splits the other 60% according to the number of shares he sold.
If he has a net loss, that loss is divided equally across the shares. Unless he loses his entire bankroll, you’d get some of your money back.
Greg Raymer also emails a report several times a year with results, stories, and hand histories. This is a popular feature for this investment among poker players, because Raymer’s a solid player.
You can find other poker players selling pieces of their action on a poker site called YouStakes.
Financing Your Local Gambling Business
If you hang out at a local bar that has some kind of gambling machines in it, you might try to buy the bar or just a percentage of the bar. I used to hang out in a bar in Dallas that had a row of 8-liners (a type of slot machine).
Those 8-liners had to make plenty of profit, although I could never get the manager of the bar to share specifics with me. This is, of course, illegal, so it’s a high-risk investment opportunity.
My advice is to obey the laws where you live.
Investing in Your Own Gambling Career
If you’re a good poker player, you could just invest the money you would have invested in a public company into your own poker bankroll instead. You should track your return on investment. It’s an aggressive play, but it’s more fun for a lot of people.
You could also invest in your own career as a blackjack card counter at the blackjack tables.
You might also join or start a team of advantage gamblers. You need to know what you’re doing – in terms of expecting a profit – before embarking on such an endeavor.
Playing negative expectation games like roulette or slot machines isn’t investing, though – it’s speculation at best, and gambling at worst.
There are lots of ways to invest in the gambling industry. The least risky way is to find a profitable gambling company with good long-term prospects that’s traded publicly at a fair price to earnings ratio.
A riskier but possibly more exciting way to invest would be to stake another gambler or just invest in your own gambling career.
Those decisions are yours to make, but please weigh your decisions carefully.
Michael Stevens has been researching and writing topics involving the gambling industry for well over a decade now and is considered an expert on all things casino and sports betting. Michael has been writing for GamblingSites.org since early 2016. ...
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