LMSM 79 | The Gambler's Fallacy


The gambler’s fallacy, also known as the Monte Carlo fallacy, occurs when an individual erroneously believes that a certain random event is less likely or more likely to happen based on the outcome of a previous event or series of events. In this episode, Frank and Ian dissect this cognitive bias that prevents many people from making quality career and investing decisions.

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The Gambler’s Fallacy

The gambler’s fallacy is basing your decisions on short-term data and recent information. The same reason why casinos will show you the last twenty rolls on a roulette wheel, even though it has zero impact on what the next roll will be. Frank and I dive into this psychological bias and all the little biases that come with it in this episode, which is fun for us to look at because we are both terrible gamblers but relatively good at making decisions that involve gambles in the business world.

We talk about how this applies to a career, investments, and everything. I am going to go with our standard disclaimer of these are opinions of things that have worked for us. It is not financial advice. If you are coming here for financial advice, you are in deep trouble but we love you anyway. Thank you for being here.

Frankie, you gambling fool.

Ian, you son of a bitch.

March madness, and nothing brings out my competitive spirits like March madness. How is your bracket doing?

For those of you that are reading, Ian is also trying to emulate in his office the feel of a casino. If you have never set foot in a casino, it’s a little bit darker. He’s got moonlight going. We are going to talk about gambling. One of the things that Ian and I will tell you we are both great at but if you have ever been to Las Vegas or a riverboat cruise, they do not build those things on the shrimp cocktail. They build them on jackasses like us and feel like we are going to get lucky.

I took a little game of chance by buying these new ring lights for the show, and I’ve got hosed. I don’t think the ring lights are as good as I thought they would be.

Keep sticking with them. It’s going to go black eventually. You are going to keep rolling those dice.

The topic of this episode is the gambler’s fallacy. Not that Frank and I are experts in any of this,but we are experts on the assent of losing on bets on a regular basis. A couple of quick stories. With our little fantasy football group, we are doing a March Madness bracket, and I always fill out a bunch. Frank, this year, because he is an unorganized dolt when he doesn’t delegate things, forgot to put his bracket in.

It’s not completely true. I filled out the wrong bracket. I have 30 different competitions.

You sold out Warren Buffett, who won a $1 million spot.

I put four brackets in that one. I did not make it to fill out yours.

You didn’t put it in but the other three guys that filled out their bracket and completed theirs for our gambling bet all went to Purdue University. A little-known fact, Purdue has its highest-ranked team going into the tournament that we have had in for many years. None of the three of us have Purdue doing shit in this tournament, even though they have now won their first two rounds. The reason is Purdue crapped out of the tournament in the first round in 2021.

The illusion is really set on the past is an accurate predictor of the future. Click To Tweet

The three Purdue fans have Purdue doing the same thing this 2022, and it’s because we are heavily influenced by what we saw. Our recency bias is kicking in. I have a second awesome story about how cool I am. A good friend of mine sends me a text. “I’m in Florida with my son. I’m enjoying a little boys’ weekend with my son. I should be enjoying the sun and spring training.”

He sends me a text saying, “Unders have been incredibly hot in Women’s NCAA.” I should be able to ignore this. I’m 45 years old. I’m not 22. I don’t fall for these kinds of schemes anymore but it hooked me in. I’m like, “Really? What do you like? What’s going on?” He gives me some names of some unders this plan. I play four unders. I bet $100 all for four. Every one of them hits the over. Gambler’s fallacy crushed me on this. The gambler’s fallacy, also known as Monte Carlo Fallacy which we should get to that. At some point, you and I should make a trip to Monte Carlo and record live on the location.

The fallacy is that the human brain has difficulty understanding probability and large numbers. You are naturally inclined to believe that past events can somehow change or impact future probability. The gambler’s fallacy is why if you go into a casino, a roulette table will always show the trailing twenty outcomes.

If it’s random, the last twenty outcomes should have no bearing on the future but by posting those numbers, they get more action because people are looking at trends either you have some people that are looking at, “It has been black six times in a row. I’m going to bet black. That’s hot.” You also have the other side of it where people are saying, “It has been black six times in a row, no way could be black again. I’m betting red.” That draws in gambling addicts like Frank, and I like honey to bees.

If you are going to bet the under, the best under you can possibly bet is still joke a turnout.

He had a good five-year run there where it was like it didn’t matter what Vegas set the number at. He was coming in under.

It was incredible. They were the best two underbets in a long time. The woman’s tournament is hysterical but everybody thinks that they’ve got an inside scoop on stuff. You love to have it.

You are always looking for any edge you can get.

The poorest I have ever felt in my entire life was the one day I spent in Monte Carlo. I was 25 or 26. I literally stood next to a lotus and felt like, “What plan am I on because I do not belong here.”

How are the casinos out there? Were they nice? Did you have to wear a suit and tie at every casino or is like a couple, and they market it?

It’s a couple that they market. I assure you, I didn’t have a suit or a tie at that point in my life. I certainly hadn’t had one back.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: Psychology plays such a big role. You can make sense of any group of numbers and try to convince yourself there’s a trend.


Did you gamble?

I walked through a casino, and my major takeaway from that event was that it was beautiful. I would love to go back now. We hung off the side of a cliff. It’s a small place, and I felt poor because it was so rich. All these things feed into these things, and we all think we have an edge. We think we know something, and it capitalizes on emotion.

What I hope to accomplish in this show is it’s not just gambling. With algorithms nowadays and with how smart businesses are like YouTube. YouTube is incredible at this. Amazon is great at this. Uber Eats is great at it. They show you these trending things. You put your money on the roulette table. Amazon does that. You buy something, they use their algorithms and put at the bottom like, “You might like this.”

It’s all of these breadcrumbs and trails. It all plays into your psychology. The biggest thing with psychology to me is every single person has a fear of missing out. I asked my three-year-old son something over the weekend, and he picked his brother. He’s like, “Old nanny,” and like, “No, it’s you.” Every human being, even at the small age of three, it’s inherent that it’s not us. It’s them. We are going to miss out.

You put the last twenty rolls up and you think, “I have missed on that.” This is the lucky moment, and it plays into this fallacy in your head. It’s the reason why Vegas makes tons of money. It’s the reason why casinos are popping up all over the world, and it’s also, if you play it right, it can give you an unfair advantage against other people. You can use it in the business world.

The illusion that is set on the past is an accurate predictor of the future, and to an extent, I believe that in some ways. The best way to look at a market is to go look at past markets that are similar. They can teach you things. Having been through a couple of recessions, I’m a little calmer than I was in the first two because I know how it’s going to play out and how to expect it with some warning signs. The big part of the solution is most people don’t have enough. They would take these small events and try to extrapolate them into a straight line when they only have a data point or two. They don’t have the numbers.

The math of the whole thing is if you flip a coin, the odds of a head or tail is 50%. If I were to ask you the odds of flipping five heads in a row before I have flipped anything, it’s about 1 in 32. It’s about 3%. That’s 50% to the fifth power. If I already know four flips have already occurred, and now you ask me to fifth toss, it’s not 3% anymore because the first four are certainties. The fifth toss is back to 50%.

A lot of people think about streaks as a total combined, instead of looking at the past doesn’t matter. Now in this decision I have to make, what are the odds? That’s why, in roulette, it’s a foolish game to look at what’s happened in the past. It doesn’t have anything to do with what’s going to happen next. It is similar to a craps table that gets loud and crowded. Everyone rushes to the craps table. That’s silly.

The odds of a seven had not changed. That’s not loaded dice. They are moving the dice all over but you see craps tables get incredibly busy because they hear some cheering, and so they assume, “This table is rocking.” Based on what’s happened in the past, the odds of them hitting numbers are much higher, so, “I’m going to go to this table.”

I’m going to deviate slightly from the math and talk a little bit about where we started with the gambler’s fallacy. The math is the math because it all plays into human emotion. I’m in the process of reading Ray Dalio’s book, The Changing World Order. It’s a good book. There’s a 40-minute video that goes with it if you want to watch it. It’s very interesting.

What he talks about is if you go back, and it’s one of Ian’s and mine’s favorite books, this time is different. They go back 800 years. Dalio goes back between 500 and 600 years and talks about the changing world order. It’s happened multiple times. Dalio argues that it’s happening now. China is going to become a superpower. America’s falling. This is the argument. He goes, “We have never seen this. We haven’t lived through it.”

The math is the math but this all plays into human emotion. Click To Tweet

It usually happens about every 250 years, so none of us was alive, and this is how it goes. What you do is focus on what never happened during my lifetime so it can happen. I have had conversations with people before, and they are like, “That’s never happened before.” That’s not good evidence. Just because it hasn’t happened doesn’t mean it’s not going to happen, and this comes back to the math.

You were like, “It can’t happen. It’s improbable because it hasn’t.” Maybe you haven’t gone back far enough to research it or because it hasn’t happened doesn’t mean it can’t. Those are things that come up over and over again with this. You are going to be more surprised if you think things can’t happen because you haven’t seen them or you have rolled 7 sevens in a row. It’s still a 50/50 chance for number 8.

I agree with all of this. Psychology plays such a big role and what comes out of it is hope. You want to make sense. You can make sense of any group of numbers and try to convince yourself that there’s a trend. You can take a baseball hitter. He could be in an 0 for 32 slumps, and you show up to one game, and you see him go 2 for 3. If you take that day, he’s killing it. He’s on an all-star tier, and he’s going to go off the next few weeks but those could just be outliers in a longer trend that is downward.

It’s called the representative heuristic. It states that people evaluate the probabilities of future events based on their own small sample sizes of experiences. That’s the illusion of small sample sets. I will give you an example of this. With Keep, with our car alarm company, we rolled out this geotargeting campaign, and geotargeting means you tell Facebook to only send it to people in a ZIP code within a certain radius. We picked ten cities, and I made an individual advertisement for each of the ten cities. It would say, “Detroit, are you sick of people messing with your car? What’s up, Odessa.”

We picked ten, not random but cities that have high car theft. We run it for a week, and in that week, three orders came in from Springfield, Missouri, no other city. Three orders right out of the gate. We spent $50 on advertisements and got $600 in revenue from Springfield, Missouri, geotargeted ads. Zero from the other nine. I get all hyped up, and we hardly spend any money on any of them.

Illusion is a small sample set. I’m like, “Something is going on in Springfield.” It must be the ad. I’m resonating with people in Springfield. The advertisement is like me with a beanie on trying to break into a truck in my voice. I’m like, “People in Springfield must like my voice.” I tell our marketing firm, “I want to go 10X to spend on it. Let’s spend $600 on Springfield.”

You could probably guess what happened. We 10X the ad spend and get zero more orders out of Springfield. It has now been six weeks since we have been running it. We have ten different cities, and we have about 3 or 4 sales out of all 10. They came at different times. I’ve got excited too early without letting enough data play out, and I went and spent like a drunken sailor.

That was silly when it was resonating in all the cities. That has been an ROI-positive campaign in general but it wasn’t anything specific about Springfield. It was a small sample set where we’ve got lucky where a few of the first orders happened to hit in Springfield. My thought that there was a clear path wasn’t statistically significant.

I remember the first time I came head-to-head with this. I was in my mid to high twenties. I was in the C-Suite at the time. I walked in, and the CEO of the company was there. I was an imposter at the moment. I hadn’t made it to a vice president level.

I remember the bars with the ladies back then. You were not an imposter at the bars.

I might have been there too. In this scenario, we walk into the big conference room. Ian used to work in that office. The CEO and CFO are there. The boards and division managers are there. They tell you basically, because I’m a runt at this moment, “Don’t say shit. Close your mouth. Listen and watch.” I remember the vice president who I worked for was very excited because they sold two luxury condos overlooking the Harbor in Washington, DC. The CEO looked at him and said, “What if the market is only two?” Our vice president is like, “No way, it’s only two.” It turns out the CEO is right. We sold two condos, and that was it.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: That’s everything about sample sets in business. You can get too excited about a data point until you’ve seen it enough.


You saturated the market on the first day of sales.

That was it. There were two people with pent-up demand, and then ultimately, we unraveled that community. We didn’t even do it but that’s the story. We started with guns blazing with two huge dollar sales. That was the market and what you want to do is you want to see, “Is this market sustainable?” You realize it isn’t because you go into it with that same thing. You see this and like, “I knew it.” You did but there is no sustainability to it.

I still remember that now because what it taught me at that very moment was, “What do I believe to be true that isn’t?” I had never thought to ask myself those questions. Like, “I’m positive of this but are you?” The first word that came to mind later when I reflected on it was split testing. You do that nowadays with the internet. You can do that with Springfield and Cleveland and selling your Keep devices. It’s hard to do that with housing but those are the things you can get to give yourself more security and not be all-in with something.

Next for us, now that we have seen one ad has worked in all the cities, we are going to run three different ads in each city and see which one does best, performs best, gets the most clicks or sells the most. You split test but you need a ton of data to do it. It’s an illusion of small sample sets. I will use a different example that has nothing to do with sales but has everything to do with a startup. When we first started running ads on social media with our device, The Night was the name of the car alarm. We ran some demo ads. When we started putting it out there, a few of the first people would say, “I don’t want to give up my cup holder. You need something on the windshield.”

The first few people to say that, I was like, “We’ve got the anchoring location wrong.” David and I are talking about like, “Do we need to get out and design that right away?” Someone would say something random about the power charging or that your key fob is too big. All these things would overly influence us because we didn’t have enough feedback. We have been running our ads for a few months.

I have seen hundreds and hundreds of comments. Now, when I get one that’s outside of the norm, it doesn’t influence me anymore because I have a bigger sample set that I know the top five things people are bringing up. People want to talk about monitoring. They want to talk about what if a thief pulls it out and throws it out the window.

I have seen that so many times that I can stay with a high level of confidence that I shouldn’t overreact to anything outside of that top five until we can solve it. Even now, you brought up where we charge the power. That’s great feedback because I listen but it hasn’t been in my top 5 or 6 from customers. I’m going to keep it in my head, and I’m not going to run and overreact to it yet until I hear it from a lot of people. Everything was sample sets in the business. You can’t get too excited about a data point until you have seen it enough.

We did an episode about the Gig Economy, and I was going to use a different example here but I thought of a better one. When you go and hire a virtual assistant like if you use Upwork or Yelp, what do you look for when you go to any of those services? What is the first thing you look for?

The reviews.

How many stars and how many.

How much money have they made? What are the reviews that people give them? I read reviews.

Just because it hasn’t happened doesn’t mean it’s not going to happen. Click To Tweet

I use Upwork as a sniper shot. I need to take care of something that I don’t have someone on staff for, and I’m typically in a fucking rush. With those things, I like, “I’m willing to slightly overpay for what something might be valued in the market but I need accuracy and speed.” I use the opposite of a small sample set when I shop. I look for someone who has high star ratings and a lot of reviews.

On Upwork, if you find someone who’s got well over 1,000 reviews, you found the pro. You can find them depending on what you are looking for but somewhere between 50 and 250, and they are nearly all fives, it’s like our show. We have 150 reviews, and there are 5 or 6 people who rated us 4 through 1 but mostly, it’s overwhelmingly a five. It’s the same way it is with people that you are shopping for.

What you can do in this society is there are Google Reviews, Yelp, there are all these things, and what you can say, “Is it a small sample size? Am I taking a chance or am I doing the opposite? I’m baking something in here.” In the decision-making matrix, “Are we going to sell two condos? Is it one comment? How do you get certainty?”

You are fooling yourself if you think anyone has given us 2, 3 or 4. We are either a 5 or a 1. We are a very polarizing show. If you sit through an episode, you either like us or you’ve got five minutes in thought, “That’s the worst shit I ever heard in my life. I’m going to crush these guys in review.”

I tend to agree with the people who think this is awful. I have been trying to quit.

I like all of them. Anyone who crushes us and trolls us, I usually respond to them. “Thank you very much. We agree. We suck.”

“If you want to crush us, please go to TikTok to crush us. We have fun there.”

You are a good example of a real estate operator. You have now bought enough houses in Richmond, hundreds and hundreds of them, that you can say, “I know what works. I know what doesn’t work.” When you see something that makes a lot more money than you assumed, you are smart enough to say, “That’s an outlier. Something is going on in the market. I’ve got lucky.” You are smart enough to say, “I’ve got lucky.”

You don’t do what I did like playing the unders, because someone else did it. If you go make it, you don’t, then go change your pro forma to everything is going to be that in the future. You are smart enough to say, “That’s an above-market win that we took but I’m going to take some else too if I try to base everything on my future on that.”

I’m a human being. I’m susceptible to these things as well. I’m not perfect, and I make plenty of mistakes doing this. The way my business model is set up is I bet every deal as two types of deals if I get a deal that comes in the door, and we have explained this before. If I get 123 Main Street under contract for a price, I bet it both ways. Could it become a rental or a fix and flip, or could it become a wholesale?

In the old days, if I could make $50,000 doing all the work and selling it, I would take 50% of that number now and wholesale it. Now, I can get 70% to 80% of that number without touching it because the market is so hot. It’s my job as the CEO of this company to remind people that it has nothing to do with us and everything to do with the broader market. I need to stay humble in that.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: The just-world hypothesis is a mistaken belief that some people have that chance, a fair process that self-corrects. It’s just another way of saying people who believe in karma.


I work with a ton of people. I interact with people who literally believe it’s them that’s causing this, and I believe that’s the problem. They have a turbulent road ahead if the market does change, and it will at some point. These are the moments to be incredibly cautious and to realize, “It’s not me.” Ian and I, one of our favorite people, are Warren Buffett.

He always says that when people are greedy, be fearful. When people are fearful, be greedy. It’s how you have to do this properly in your head. If they have rolled sevens in a row, they could roll an eight but they probably won’t because that’s how math works. It’s the same thing here like, “Am I getting lucky or am I creating something different?” You need to be honest about that.

In 2018, over a twelve-month period, I bought three industrial properties. These are big properties. They are multimillion-dollar properties but they were the first three industrial properties I ever bought. I did a lot of homework on the ones I bought but I was 100% novice at what I was doing. All three have worked out incredibly well.

I’m getting offers that are significantly higher than what I paid. There are a couple of them where I could more than double what I put in on the deal. It’s way better than I ever would have thought. It’s way faster. I was expecting to hold these for ten years. Cap rates have gone from 7% to 4%, which means some of these properties have literally doubled in value. I talked to Frank about this almost every other week where we are like, “Frankie, do I need to sell?”

This is one area where I’m always very skeptical. Warren Buffett is always in my head as if I’m getting called by realtors every week, and they are giddy about trying to buy my properties. They are so hungry to buy more, and they think it’s never going to end. I should start being fearful at this point. This is the point where I’m starting to get nervous. I’m not a 30-year commercial real estate investor. I’m a dude who bought some properties and they did well.

The gambler’s fallacy would be, “I’m good at this. I’m going to go buy three more. Let’s go get six industrial properties and load up.” If I’m buying at the wrong time, it could wipe out all the profits I potentially have on paper with the first three because all I know is I bought in a good market. I bought when prices were good and in a certain economy but if I buy more next year, the market, prices, and economy are different so it’s not the same thing. You were telling me a story about some friend who sold a lending operation and an incredible premium. It’s enticing to think, “I could do that.” You talked about that. You are like, “When did he buy it?”

Even the most disciplined, successful people, and Ian and I certainly think we are successful or we wouldn’t be doing this, the point is anybody can be lured in, and it’s important to have wise counsel. Ian and I do this together but we talk a lot and I have got other friends that I bounce things off. I have coaches I have talked to.

You guys met Alastair on this show, who I believe in. Ian has a network of people he talks to because every once in a while, we are like, “Crypto. Tech stocks.” We have all been lured to these things like penny stocks and flying private to Vegas. There are all of these things you can be lured into and what I have started to learn as I have gotten older is I’m going to get lured. I’m going to feel that emotional pull but I also have something that’s good.

I have something where I have a little bit of an advantage over many other people because this is all I do, and I do it in a small window. I feel that emotion, and maybe if you get to a point, it’s like, “I will make a small investment in it.” Most of my stuff is in real estate. I invested in Keep. I invested a significant amount of money in something that’s a bit of a risk.

Who are the people involved? I trusted. I believed in the product. The amount of money I wrote that check for in college was astronomical but the point is, it’s a bit of a hedge. I have done enough research, and I have enough of my stuff in these places where it’s like, “This isn’t taking it to a casino and plopping it down. I’m putting it in something I believe in. There’s something going on with it.” You do get these pulls, and it’s the difference between getting pulled and pulling out your wallet and getting pulled and being like, “Interesting. Let me step back and watch it.”

There’s a psychology behind it, too. Frank is talking about an under that’s making this huge premium. They sold it for a lot of money. Part of you was like, “I could do that. Why am I not getting a piece of some of that?” The other point of it, and I talked to Frank, I’m like, “If you went and started it, would you be underwriting and taking risks out of loans like they were years ago?” In my opinion, just about every lender that was involved in real estate in the last few years made money. You would have to be bad at lending to have lost money in a market that has been going up 15% to 20% in price a year. You don’t have anyone defaulting. No one is missing payments. No one is getting in trouble.

Just because it worked for one person in a different market, doesn’t mean it’s replicable today in today’s market. Click To Tweet

Try running a lender when there’s a recession and people are losing their jobs, and home prices are dropping. It’s a totally different story. This is a great example of the gambler’s fallacy of just because it worked for one person in a different market, it doesn’t mean it’s replicatable in this market. The way you learn from that, as you say, “When did they buy? They bought three years after a recession.” That’s the time to go start a lending operation, not several years into a massive bull market at the top. That’s how you end up getting crushed.

Let’s talk about something else from it. We are talking about the gambler’s fallacy. Let’s talk about gambling. When you pull up to a casino, anywhere in the world, it’s a pretty nice place. The way it feels in the desert in Arizona, the way that it feels in Atlantic City, is not as nice as when you pull up to Vegas. When you pull up the Vegas, and you walk into the Bellagio, the air and smell hit you. Everything is incredible.

Look around the floor. Most of the people gambling are men. They lure you in. It’s an incredible place. You feel invincible. You walk in, and the carpet is nice. It makes you feel taller. What do they do when you get to the table? Is it a bunch of dudes who are servers? Absolutely not. It’s mostly the beautiful women because there are serving men.

What do you get when you stand at a table in Vegas, free booze? What free booze does is it lowers your ability to contemplate and think. You walk into this incredible environment. You feel incredible. You are surrounded by beautiful people. You feel like an altered version of yourself, and they are going to lower your senses by giving you free booze.

What you do is you chase because you chase, and that’s how you do it. Thankfully for people like Ian and me, we don’t have problems with this. We don’t have to go to Gamblers Anonymous or anything like that. For us, it’s a bit of recreation. If you get lured in the way, Vegas lures you in, in business, job decisions, other pieces, and things in your life, what happens is you don’t need the booze. You are doing it to yourself, and you are diluting your decision-making.

What we are trying to say is the gambler’s fallacy works in Vegas, and it works in business. It can give you something that you get lured into. Having strong counsel, being able to say, “Nope. I’m putting blinders on. I’m going to say no to this.” It’s harder to do it in Vegas but the good thing is usually come with a couple of bucks and it’s like, “When I lose that, I’m gone,” but you can make big risks in business, and people do it because you get lured into this process.

A lot of what we have been talking about is the emotional side of it. There’s also a component of gambler’s fallacy that is supernatural almost. The term for it is the just-world hypothesis, which is a mistaken belief that some people have that chance to have a fair process that self-corrects. Just-world is another way of saying people who believe in karma. It’s the belief that people get what they deserve. If you believe that karma is there. If you see something bad happen to someone, you immediately think, “That had that come into them.”

These are people that say, “What goes around, comes around. Chickens come home to roost. You reap what you sow.” It’s a supernatural belief that all things balance out. If I’m on a bad streak of luck, my luck is coming. I will have my day. Every dog has its day. The problem with some of that is it takes away that growth mindset of ownership.

The universe is fair, and everything will work itself out, and that’s bullshit. If you are on a losing streak, work harder, go take control and do things differently. Change your behaviors. If I see that the Detroit Lions haven’t covered the spread in five weeks, they are not going to cover next week because of the last five weeks. There is no just-world. If you are a Lions or Dolphins fan, you know the just-world is not true because goddammit, we had a few playoffs wins by now.

You get what you sow. You get what’s coming to you. The chickens come home to roost or whatever.

Curse of the Bambino. How long did that curse go? Was it 100 years?

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: This hot hand fallacy is where believe that someone that just had a little bit of luck is able to replicate that.


It was 86 years.

People in Boston believed that because we traded Babe Ruth, we will never win a World Series. Theo Epstein was like, “We didn’t have good enough players. I’m going to go use data, and I’m going to bring in a better team. Use money ball, and we are going to go win a few championships.”

I live in Richmond, Virginia. It’s the South. People often say, “I need to go pray on it.” It’s part of the culture here. I remember working in sales in this market, and that was a big thing. Especially people that came in on the weekend are like, “I will talk to you on Monday. I’ve got to go to church. You’ve got to pray on it.” That’s cool if that’s your decision-making process but that doesn’t solve the problem for you. It’s like these other things. To me, it’s part of a fallacy, and it’s not going to get solved just because of diction and what you think. That’s it.

A lot of this stuff has been made worse or at least made more prevalent by social media. In a world with influencers. People being more accessible to talk to lots of people. You get into this hot hand fallacy where you believe that someone that had a little bit of run of luck is able to replicate that, and I need to listen to everything they say. They now become my spiritual mentor that you went from rags. Everyone loves to tell their online rags to riches story. “I was making nothing. I was living out of my car, and now I’ve got this mansion,” and it’s this hot hand fallacy.

In 2010, they had people that had to make a choice between a series of investments. They could either go with a risk-free alternative that didn’t have a lot of upsides or they could choose an opinion from an expert but it had a higher upside and a potential for a higher downside. When the expert was correct, 78% of participants chose the expert’s opinion again as opposed to 57% when the expert was wrong. People believe that hot hand that because they were right once, they have to be right the next time. This is the oldest boiler room trick on Wall Street.

Before we get into the boiler room trick, let’s talk about how this manifests in the casino. If you have ever played craps, what happens is you have to establish a number in craps. Someone gets a dice, and they throw a number out. If there’s crap, you lose your money but you keep the dice but by and large, what happens is you establish a number. You establish this number. Let’s call it five. What happens is that person didn’t crap out. Immediately you are like, “Good start.” What you do is you reach your stack of chips and start loading up. You put money behind the five because he threw a five, so he’s probably going to throw another five.

Have you heard me say, “This guy crushes fives? We’ve got to get it out on it? Frankie, gets your odds out,” and he crushes fives.

Usually, it’s after our 33rd Bud Light premium at the pool. What you do is you lean into it because, as the study said that’s 78%. If they hit that number, they are going to hit it again. That’s the emotion. What happens is if you are a seasoned gambler, you are like, “I will put a little bit of money out to see if this guy gets this point.” If they hit that point, that’s what I’m usually like, “The dice are going.” Invariably, they crap out.

It’s worth talking about. That’s the smart way to gamble. That’s how I gamble when I’m sober. What you are talking about is, “I’m not going to load up the table until I have got my initial investment back.” It’s all playing with house money. I’m going to put a little bet out there, a small one. I will wager my money, and if I win it, I will take my winnings, play with my winnings, and take my initial investment off the table.

That concept of playing with house money applies in any investing. It applies also in a business. You are like me. If I make some money with the 5 and 4 groups, with Keep or if we get some revenue in, we are not keeping all our revenue at Keep. We are piling it back into marketing because we want to grow our market share.

In my view, we are using our first customers’ revenue to fund the next group of customers we come in. We are playing with house money. Instead of, “That marketing campaign didn’t work. Let’s go do 10X of what it was.” We try to go pile money back into marketing campaigns that are working. We go use that house money to reinvest in the business. It’s the same with anything. You didn’t take a salary for 7 or 8 years after starting Cava Companies. You took any winnings you had and hired more employees. You took out office space and bought more real estate. You didn’t pay yourself right away. You let the market reinvest in yourself.

You could have the best product in the world but if you spend nothing on marketing, what does it matter if no one ever finds out about it? Click To Tweet

That’s the smart way to do it. The key scenario here that we are talking about is the difference between being sober and not sober at a craps table. At a craps table, you think you can tackle the world, so you go blind. The smart strategy is to start slow but the numbers that you talked about didn’t bear out. In any scenario, I started to get more confidence when I started having wins in my business.

I knew I had a track record and started to make more investments. It’s not like I didn’t lose but I had more of a track record. When you are doing it blindly, just because something won, it doesn’t mean it’s going to continue to win. I think that’s where it gets into the boiler room scam because it goes in plays into people’s heads.

Here’s the boiler room scam. People still do this scam all the time. Let’s say you send out 1,000 postcards and 500 of the postcards say, “General Motors stock is going to go up in the next 30 days.” The other 500 postcards say, “General Motors stock is going to go down in the next 30 days. We are sure of it.” Send those out. In 30 days, you look at whether GM went up or down. Let’s say it went up. I now throw out all the names of the people that I said it was going to go down because I have no credibility with that group and those 500, I resend out a postcard, but now, I split them 250 and 250.

I take the ones that all think I was right once, and I do the same thing again, 50/50. Half here that it’s going to go down, half here is going to go up. At the end of that time, 250 out of the initial 1,000, we will have got two perfect predictions from me. Now I have someone call you on the phone and say twice, “We told you exactly what was going to happen in the market and we have the biggest investment yet. We need a quick investment of $10,000 of your money, and we are going to put it in so-and-so.” Now, you believe this person is an expert because you believe that they sent that postcard to everyone without selling 2 different stories, telling 2 different lies.

It’s a scam and you never knew anything in the first place. You purely played the coincidence that, “If I send this out twice, I will be right twice.” It’s like a broken clock that is right twice a day. That’s that whole idea, and now people feel very strongly like, “I’m talking to an expert with a hot hand. I need to invest in what they are saying,” when they only played chances. If you don’t know the scam, it’s incredibly compelling and hard to say no to because you feel special. It’s like you know an expert who has an edge that no one else has.

There’s not much I can add to that. It’s unscrupulous in some ways and brilliant in others because what you are doing is you are like, “I will throw away 87.5% of the market to get 125 true believers.” How many true believers do you need to make something happen? It’s a scam that’s still used and works because it’s incredibly effective and everyone is susceptible to this.

You could scale that up to 10,000 to 100,000 postcards at first. You can scale that scam all the way up to 300 million Americans that you want to send it out. It’s easy to fall into that. Crypto has been hot in the last few years, so you know a friend who literally is telling you, they put $1,000 into crypto, and they made $25,000. That’s hard to resist the pull to say, “I should get into crypto.”

A couple of things fall into that. One, you’ve got the hot hand. You are talking to someone who is telling you, “I am raking it in this investment area,” and then you also have the just-world where you are like, “I’m a harder worker than this person. I’m smarter. I deserve it. They don’t deserve it. They are not working as hard as me. This isn’t fair. Life’s not fair. They made 25X their investment, and I was left out. I’m getting in this because if this is a just-world, my investment will also pay 25X.”

The problem is you are buying when the price has gone up 25X. The odds of you doing what they did are incredibly low at this point. The same people that bought GameStop, bought all these mean stocks. You missed it. It’s not a just-world. The only thing just that’s going to happen is you just bought at the top, and you are going to lose your ass. You had to be very careful because a number of these biases all play into the gambler’s fallacy in the same area.

I’m going to come back to Nate, Denton’s dad. I’m going to continue the theme we are talking about here. I see it all the time in real estate. We have talked here multiple times that I helped run a mastermind and ask people questions like, “Is now a good time to do this?” The answer is a hard no, but there are no deals anywhere else, so people are chasing it.

They are not being rational because they are thinking about what’s being missed. Everybody is telling me the only reason real estate isn’t going to fall is because of inventory. That’s not a reason. Inventory can be adjusted pretty quickly if demand drops. If interest rates go up and demand drops very quickly, there’s going to be a shitload of inventory and that’s not going to be your problem. It’s not a driver. It’s an effect of a driver.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: You’re only due for a promotion if by you getting promoted, the company will do better. That’s the only way you’re due, you have to always tie it to performance.


It’s a function of the economy.

You start to believe these things. I’m like, “I have made not a nickel on crypto.” I haven’t lost any money. I have avoided it. I have watched it from the sidelines like I have watched and avoided Russian stocks or other things in the market that have risen incredibly well like most of the dot-coms stocks in the ‘90s. I missed it. I did okay in real estate but I miss those things.

The point I’m driving at with it is this. I remember in the ‘90s, there were commercials on TV about how easy it was to pick something that was about to IPO, and we were going to make money. They made fun of it in television commercials, and that market popped. I might have said it here. I was on a playground with my kids several months ago and Bitcoin is at $67,000. I heard someone say on the playground, “We all know it’s going to a $100,000.”

Within days it plummeted. It’s half of that value. When it’s a sure thing, that’s usually the time it’s not a sure thing. When people like your plumbers or cab driver are telling you, “Now is a great time to buy stock, it’s usually a great time to sell stock.” There’s a quote that Rockefeller has somewhere about, “When a man is doing my shoe shine is telling me it’s a good time for me to buy something, that’s usually the moment where I sell it.”

I don’t even know if I ever told you this story. I was in Northern Virginia. This was in late-2005. I had started with the company six months before. I had to go present at one of the Ryan Homes meetings, and we were out at the bar afterward. One of the sales reps, who I considered to be a deplorable human, was drunk. He had been married three times and had terrible stories about things. I didn’t like him at all. I didn’t like being around him. It made me feel dirty. He’s talking at the bar about how he had bought a model home nine months before and got it on a 100% financing model home.

He pretty much didn’t put anything down and flipped it for $100,000 already. I remember thinking, “I didn’t have any respect for this person because of his values and morals.” I thought he was dumb as a box of rocks too but it clicked in on me. I was conflicted. Part of me was like, “This is bullshit. I’m working sixteen-hour days. I need to be buying investment properties.” That’s the first side that clicks in. The other side clicks in of, “If it’s that easy for a dude like that to make $100,000, something is too good to be true. This thing is going to blow up.”

I remember feeling very strongly when I came home that day about how conflicted I was. “Do I buy a model home because I make more than this guy? I’m in a higher-level position, so I should be in on these sweet deals.” The other side of me thinking, “That’s the dumbest idea you could have, Ian. Just wait it out,” but it’s hard because when you see these things happen, it’s not like the market fell apart the next week.

It took two more years for it to fall apart. This idea would probably flip this thing two more times in the next year and a half. I have to sit and watch it. It’s easy to sit here and look back on those things and say, “That was obvious but I would be lying if I said that.” Part of me was thinking, “Maybe I should be buying a model home.”

Let’s stay here for a minute. I did buy a model home, and I sold it. I sold it in 2004 or 2005. I did that. I do remember people coming into my model because I was a salesman at the time and watching them make money. I remember like, “I am missing out.” You’ve got to realize that at this point in time, I’m somewhere between 25 and 27. I do not have a lot of money. To me, $100,000 back then is probably more than my net worth.

It’s still a lot of money.

It’s a ton of money but it was even more money when I had none. $100,000 now moves the needle. $100,000 back then was hitting the freaking lottery. I remember thinking about this and this comes back to my dad like, “This can’t last. This doesn’t seem sustainable.” I know myself well enough to know that maybe this goes back to one of our things where we were talking about just-world. My reality in the just-world is, “I’m not a guy that gets lucky with flyers.”

When it’s a sure thing, that’s usually the time it’s not a sure thing. Click To Tweet

Maybe I’m not a guy that gets lucky with flyers because I never took the flyer and was always raised to be conservative but I remember 2003 to 2005. There was a two-and-a-half-year window where I watched that market tick and saw this story 30 or 40 times. I’m pretty organized. I have 4,000 contacts in my Outlook. When I started my business in 2009, I went back and called 25 investors that I met in Northern Virginia that are all making $100,000 by buying a model home and flipping it. Not one of them had filed for bankruptcy or lost the house.

They were all out of the business.

I called every single one of them to see if they are interested in buying some of the stuff that I had and every single one of them had gone through a short sale or foreclosure. I was raised conservative, the way Ian was raised. I was raised to realize that the hot hand fallacy is going to come down. If you walk to the craps table, pretend you are going to lose the money you sat down. Those were good lessons that I was taught as a young kid because I didn’t chase the dot-com bubble. I didn’t chase the 2003 to 2005 bubble. I didn’t chase crypto. I decided instead that I’m going to take the slow and steady approach, and it has been something that’s benefited me tremendously.

There’s another side to this. The opposite side was when we led this off, we talked about how in roulette, some people bet black when they see eight blacks in a row, and some people bet red. It depends on some of your upbringings a little bit but some of it also is an emotional state of mind you are in. The opposite of the hot hand fallacy is the disposition effect, which is we tend to sell winners and hold the losers.

We have talked about that a lot here. It’s some cost.

The Noah Stoffman Group did a study of retail investors from 1995 to 2008. They found that investors were twice as likely to trade a stock or to sell a stock when it was up 18% to 22% than a stock that was down 18% to 22%. When you hear that on the front end, it seems silly.

What you are doing is getting rid of your best-performing assets and keeping your worst-performing assets. A lot of people are more influenced by fear of loss than they are by gains. People don’t like to admit they made a mistake, so they double down. If you buy 2 stocks, 1 company’s fortunes turn up. One company’s fortunes are not as good as you initially thought they were when you bought it.

One is down 20%, one is up 20%. You hold the one that’s down 20% because your ego says, “You weren’t wrong. You just timed it terribly.” Now that it’s down, let’s say average if I liked it at a $10 stock price, I love it at an $8 stock price. I’m going to double down and buy more of it, I have to sell my winners.

The problem with that is winners tend to keep winning, and losers tend to keep losing. The fallacy here is this disposition effect of all things must balance out. Life doesn’t work that way. There is no fairness code. Some companies are better than others and sometimes you make a bad decision, take the loss and put that back into your winner, that’s the way Warren Buffett invests. When he has a loser, he gets out and holds his winners forever.

I’m going to go a little deeper on this and in a slightly different direction. We interviewed Alastair on this show, and then I have another business coach, his name is Daniel Marcos. He had a job and went bankrupt in ’05, ’06, ’07, ’08 or something like that. He went to work for a guy who had access to $500 million, a significant amount of money.

The guy told him, “What we are going to do is when the market turns, we are going to buy the best stuff. We are going to buy winners.” What happens is this. I’m a real estate investor. My best stuff has equity and low debt, and it’s in the best parts of town. When COVID happened, and I panicked, I was afraid that I was going to go broke, and I talked to Ian about it. What did I do? I sold a couple of my charities.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: If you focus on results and you get yourself trained to talk about the things you did to make the company better, that is when promotion follows. That is when good things start to come in behind you.


I sold it right off the bat to make sure I didn’t drown. The reason for it is I could sell 3 or 4 houses, and I could liquidate a significant amount of money. They were all charities. They were great or I could sell 30 and maybe get the same amount of cash but selling 30 is hard. A lot of coordination, moving pieces, and parts.

What my friend Daniel told me is someone knew that when the market turns, people will sell their best stuff first. They will sell their winners. They will sell those stocks that are winning because it’s going to bail out all their lovable losers that they can’t get their arms away from and they want to hold on to. There’s an emotional attachment to it somehow.

This person who had this $500 million has taken that to be more than $4 billion in a fifteen-year period because they kept sitting back and being patient. We talked about Buffett. He made a huge purchase, an $11 billion purchase. He’s always doing that. He’s always buying things when others are fearful or there’s something down on it. When Wells Fargo went through all the BS that went through several years ago, he invested more money. He didn’t pull back because the fundamentals were strong, and they had piss poor management over a certain aspect of the business.

These are things that, if you see them, something else happens. You start to see these patterns and then you don’t capitalize like the people who are fly-by-nighters that were buying model homes. You capitalize like people who are industrious and ended up in history books. We don’t have those kinds of desires. We don’t need to own islands but it’s the type of thing that if you do it properly 3 or 4 times in the history of your life, you can lead a pretty incredible life.

I have a story here of doing something stupid. Have you ever heard of Lemonade Insurance?

Are they owned by Sunshine State Insurance?

No, but we need to tell that story at some point. They are not owned by Sunshine State Insurance. That’s for another episode.

Perhaps they are a subsidiary.

They are considerably higher tech than Sunshine State Insurance based on stories you have told of lure. Lemonade is a tech company but they are an insurance company. They have an app that makes doing insurance easy. The reason why they came into my world is I switched offices. I moved from one executive suite to a bigger one that’s a little closer to my house. I went from one that was 1.2 miles from my house to one that was 0.9 miles. I wanted an easier commute.

How often do you walk to work?

It’s commonsensical. You are getting a little too aggressive.

There's no real justification for just-world hypothesis. It's simply just a trope. It's something you believe in. It has no factor or cause on what's coming. Click To Tweet


With gas getting higher, I might start riding my bike. It saves some cash. I had to use Lemonade for renter’s insurance. I had to get office insurance as part of my lease. I found this. You download the app and it was the easiest insurance process I had ever gone through. I didn’t have to call anyone. I didn’t talk to anyone. It was five minutes. I had renter’s insurance like that on this app. I’m like, “This is cool.” It made me do some homework and Lemonade as a company was growing unbelievably. It leaps and bounds, new user growth, and lots of everything. What did I do? I bought the stock and bought it in increments, and it was going up quite a bit. I ended up with $100,000 in Lemonade.

I was excited. It was growing a lot. Half of the investment had almost doubled. The downturn hit, and they started coming out with worse quarterlies. At first, I started buying a little more. My ego got involved. It’s the disposition effect. The stock market has been crappy, and I had to ask myself. I was talking to my broker and he’s like, “What do you love so much about this company?” I had to be honest with myself. “I hadn’t done shit for research on them.” I had read 5 or 6 articles. I looked at the quarterlies but did I know them like I knew some of my winners that were holding up in this market?

Lemonade is down like 70% to 80%. Long story short, I lost 30% some percent on that investment. I lost $35,000 and I thought, “I’m out. I’m taking that money and putting it back into the same ones I always talk about like Google, Airbnb, Amazon or Microsoft who are winners. Big strong companies with lots of cash.” I put it back into winners.

Even though those were down 10% to 15%, not down 70% but there was a strong pull for me to say, “It’s down 70% to 80%. What a deal.” I had to be honest with myself. “You didn’t do much homework. You bought it because you liked working with it. You’ve got caught up in some euphoria because it was killing,” but I decided I’m going to sell this loser and put it into strong companies even though they are not as perceived as good a deal but I still think they are a good deal.

Is this where I should weigh in and say all of our investment advice is just opinion?

Your standard disclaimer is there’s probably something we should say about legal advice here. There’s a disclosure of some kind we should make.

Harry Doyle says it best. “You are the best colorman in the business for nothing, folks.”

I am giving good advice here, which is don’t buy a random insurance company that is a high-flying stock because you used it once for renter’s insurance. It’s very stupid of me.

Alastair said this to us like, “You go have a great weekend with a date.” You are like, “Let’s buy a dog.” We are all susceptible to these emotional highs, a good experience, and you allow that to let it color you. Every single person on Earth is gullible about this but the best marketing and advertising companies are the ones who know how to capitalize on it the best.

Let’s finish this up by talking about a few ways that this might impact a career. Common things that people say are tied to the gambler’s fallacy. “I’m due for a promotion.” The question that Frank and I would ask is, “Says who? Who in your company thinks you are due? Are you so self-centered that you believe that the leaders in your company are walking around saying, ‘It’s about time we give that person something.’”

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: What it comes back to is “I’m not willing to take the chance,” and you’re not using the right vocabulary around the real reason. You’re not owning up to the real reason you’re loyal because you don’t want to go out there and see what’s going to happen because you’re afraid.


There’s no one thinking about your career in the terms that you do. You might think it has been 2, 3, 4 or 5 years since you have been promoted, so you are due. No one else is thinking about that. They are thinking about themselves. They are thinking about running a business. They are thinking about making money, and no one has some running clock of when your career should make its next leap forward on a ladder. That’s your job to go talk about it. There is no just-world that says, “You get promoted because you have put your time in, and you are due.” If you think that way and someone else is going and asking for the promotion, they are getting the promotion, whether you were due or not.

You are not talking about this offline. I know someone who was fired, and the first argument the person had was, “You are firing me. I have been here for 21 years.” That’s like saying, “You are arresting me for murder? I have done it fifteen other times. I had never gotten arrested.” One thing has nothing to do with the other. You just hadn’t gotten caught. There’s no real justification for that. It’s simply just a trope. It’s something you believe in, and you want to believe in, and you say it but it has no effect or cause on what’s coming.

The idea of, “I have been here for twenty years.” That’s the just-world. “This isn’t fair. I have given 21 years of my life.” That doesn’t matter to any manager. What matters is, if I have to cut my team, who are the people that I keep that will deliver the highest return because all I care about as a manager is, “Am I performing? Is my team getting results? If I don’t perform, I will lose my job.” If I were the owner, if this team isn’t good, I will lose all of my money.

I’m going to dive into this one. “I have been here for twenty years.” That’s a so, that’s a feature. So what? “I have raised revenue 15% annually. I had beaten company projections for twenty straight years. I have added this. I have grown this. I have built this. I have helped with this.” If you focus on the twenty years, you are going to find yourself on the backend of the barrel of the gun. The opposite is, “If I focus on what am I doing to improve, to make better. I have lowered this by doing these things. I have worked on this. These are results.”

The feature is the so, and nobody cares about the so. The, “So what is the benefit?” When you talk about yourself, and your career, you talk about promotion and focus on the so what. What’s in it for them? Nobody cares about you. Nobody cares about me. I care about me. What people care about are themselves and the company. If you focus on that and you get yourself trained to talk about the things you did to make the company better, that is when promotion follows and that is when good things start to come in behind you.

“I have been here twenty years,” and what that means to the company is I have a stronger network than everyone else, and that’s why I routinely am in the top five and sales. That’s why I’m routinely running circles around everyone else in production because my experience helps me get things done faster and more efficiently.

Based on all of that, you are also getting those results and getting a person, you don’t need to worry about leaving. I will stay and continue to deliver. You have turned, “I’m due for a promotion,” you are only due for a promotion if by you getting promoted, the company will do better. That’s the only way you are due. You have to always tie it to performance.

Before we go off of this, I want to say one last thing. As a manager, don’t get seduced by, “This person has been here for twenty years.” Ian and I were in our high twenties. We were friends. We were working together but we weren’t as tight as we are now. It has been a long time. I remember I had a woman who reported to Ian who everyone loved. She was a loan officer. She was great and everyone was like, “She’s the best.”

Ian goes, “No, I pulled her numbers,” and she isn’t. She’s friendly and nice. She’s fifth. I went back and looked at numbers and was like, “You are right. She is.” We all get seduced by these things but there’s someone behind you in a capitalistic world that’s measuring. That’s why we talk about sabermetrics. It’s why we talk about Moneyball. It’s a fun way to talk through what is happening in analysis. It was analysis is what’s driving it. It’s not that I have been here for X number of years. It’s the other side of it is what’s the production.

Another one that’s comparable to, “I’m due for promotion,” is when you hear people say, “I like to let my work speak for itself.” Maybe that works if you have a very conscientious boss who pays a lot of attention. I’m a numbers guy. I’m into results. I’m into a lot of things but you made a very good argument for why this doesn’t always work out.

Let’s say there are two loan officers there and they both want to get promoted. One is number one in results. One is fifth in results but the one who is fifth in results is very friendly, friends with everyone, and finds ways to market herself much better than the person who’s number one, who doesn’t show anyone. You guys have no idea that your favorite loan officer was crappy when it came to customer service, capture rate, and the things that we measure.

Any decision could be a good decision with the right timing. Click To Tweet

If your approach is, “I’m going to let my work speak for itself.” There’s a good chance the person who’s better at marketing is going to make more money than you and they are going to get more opportunities because they are taking the time. I could have the best product in the world. If I’m starting a company, if I spend nothing on marketing, what does it matter if no one ever finds out about it? What does it matter if we make a better car alarm but we don’t tell anyone about it? That alarm is not going to speak for itself in Atlanta. It’s a bunch of plastic with components in it. It can’t speak. We’ve got to speak for it. We’ve got to market it.

I love to add to this but I’m going to let my work speak for itself.

You are very good at that. It’s phenomenal.

I do want to say something further on this. This happens in interviews. If you work with someone in your company who’s not seasoned as an interviewer as you and there’s someone who comes across, that’s polished or tells a better story. This happens a lot. Someone worked with home investors, who are basically the only corporate franchise in our business.

They have all the vocabulary, and these people come back and tell me, “I want to hire this person.” “Why? Is it because they have a working vocabulary of what we do? Why did that person fail? With this much marketing spend, why were they only doing twenty deals a year? That’s horseshit. On that marketing spend, they should have been there on 80%.”

Those are the things you have to dive into. We are talking about careers here. Don’t be someone who’s susceptible to the saying, “I deserve it because I deserve it.” If you are interviewing somebody, you are getting judged from the top-down. Interview people with what is the, “So what? What’s the benefit? What do you bring to the table? Do you want that person on your team because they make you feel good or because they can produce?”

How about someone who says, “I can’t leave this company even though it’s a terrible environment because I’m loyal.” That would be the disposition effect. This is holding onto a loser, and it’s also a little bit of some costs. The idea is I have waited this long. It has to get better. It has to turn around. I can’t leave it at its lowest point but the truth is, it can get lower. I left GE after six years. During the time I was there, the stock went from a high of $60 to was maybe $40. It was down quite a bit. A lot of good people left. I had seen a lot of bad things happen. I could have taken the approach of, “I can’t leave while it’s at its lowest.”

In the next ten years, that stock went down to $6. I don’t even know what GE is anymore. It’s a shell. It’s not in the Dow Jones anymore. They split off so many businesses. There are only two core businesses. It’s a small business that’s still not going anywhere. It has been many years since when I was at the peak before Jack Welch left. This idea of, “I need to be loyal.” It’s going to turn around. If it has been losing that long, it’s probably not going to turn around. You might be playing for a loser for a long time.

You and I have been talking about this a lot offline. I’m dealing with this with someone that I’m close with and I’m going to stick around because I’m loyal. It smacks, to me, as laziness. It smacks it, “I’m not willing to be uncomfortable for something better.” It smacks at, “I’m going to stay put because it’s safe.” Google it. There are tons of examples of what Jim Carrey has talked about his dad played it safe and got fired from the job he wanted to do because he played it safe.

There are all these examples of those things but that’s what it comes back to is, “I’m not willing to take the chance.” You are not using the right vocabulary around the real reason. You are not owning up to the real reason. You are loyal because you don’t want to go out there and see what’s going to happen because you are afraid, and that’s what it comes down to.

What’s incredibly sad is I would bet 50% or 60% of people are like this. They only changed jobs when they are absolutely forced into it. The disposition effect is where they hang on to a losing company or a losing career and then one day they get laid off, get fired, have to move or something happens where they can’t work there anymore. They are completely forced out of it.

LMSM 79 | The Gambler's Fallacy

The Gambler’s Fallacy: Before you make a decision, ask yourself, “Am I overly influenced by a small sample set of my own personal experiences?” Widen your lens. Look at more data. Look at more people.


A new manager comes in and forces them out of it. They then pick their head up and look around and there are opportunities everywhere that excite them. They wasted 10 to 15 years of their life doing a job they thought was miserable because they thought they couldn’t leave that company. They thought there was nothing else out there for them when the truth is it was there all along. They needed to be forced out of their comfort zone to go find something that was much more exciting. The number of opportunities is infinite for everyone. Every background, every college degree, every bit of experience, there is so much opportunity now that you only need to be forced into looking.

You and I are perfect examples of this. We had great jobs when we left for uncertain futures because we thought there was something else that would be better suited for us, and we found them. This show is clearly an example.

It’s clearly an example of our meteoric ascent into the gig economy.

With your incredible palatial office where you use Lemonade for insurance.

It’s fantastic. You should try it. It’s a nice app. It’s very smooth and has very good UX and UI and user experience.

Let’s bring this thing home.

The big takeaway that I have in delving down this rabbit hole with you is before you make a decision, ask yourself, “Am I overly influenced by a small sample set of my own personal experiences?” Widen your lens. Look at more data. Look at more people. Any decision could be a good decision at the right timing. Ask yourself, “Is my timing right? If I’m making a decision that I’m influenced by a previous decision, how much did timing play into that being a good decision, and how much is timing different now?”

Look at more data. Look at the timing in the data. Instead of thinking, “It’s a just-world,” if you are on a losing streak or even if you are on a winning streak, ask yourself what behaviors are creating that losing streak, not what the universe is doing for you. There is no supernatural help coming to help you. If you are losing, it’s probably because your behaviors need a major change.

Do you have any idea what my summary is? It’s time we go to Vegas.

All that talk about gambling has made me want to go to Vegas again, even though I went to Vegas twice the last time. If you want to go to Vegas, I will go to Vegas with you. I will fall for everything we talked about now, and that’s okay. Frankie, you gambling fool, it’s great hanging out with you.

It’s always good to see you, Ian.


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