Winning is a hard thing. It’s hard enough when the odds are in your favor. Give somebody a head start at losing, whether it’s the takeout at the track, a bookmaker, the vig in Vegas, the unknown opponent across from you at the poker table, or the commission on 10,000 shares of a stock, and then you got your hands full. That's one wheel you don't want to fall asleep at.

Just like gamblers, some traders and investors are addicted to losing. They repeat the same patterns of mistakes over and over again. They complain about their losses, they bemoan their luck, and then they go home, rest, and start all over again doing the same losing things the next day.

Still others are like the gamblers who have simply  fallen in love with risk itself. Winning and losing for them are separate things, irrelevant things. For them the action alone is where it’s at.

The Numbness of Winning

There can be a certain numbness that comes with winning, something akin to inevitability, and a certain numbness that goes with losing as well. Both can be disappointing in their own way. But risk, well, risk is always there. If you're looking hard enough for it you can find risk as easily between your desk and the door as you can between the open and close, or the first card and the flop. 

Until it's made manifest, risk is nothing but a word kicked around like an empty can on the way to the playground. Risk is subtext, a promise made over and over that fails to follow through, again and again and again. 

"If you keep it  up, one of you is going to lose an eye," my mother warned me and my brother when we were kids. Yeah, right. We're not going to lose any eyes, we thought.  And sure enough, we were right. Firing BB guns at each other at near point-blank range never did cost us an eye.  Risk is nothing until it finally decides to shake off the cobwebs and show up. It's nothing. It was nothing. Until today. Now the entire financial system has been re-introduced to risk, and the effects will be longstanding.

Gods of Risk

I've been thinking about how things looked back in 2005 because in many respects that was the high watermark for our collective risk appetite. The cycle began its long-coming rollover about then. Most of us are looking for a return to that golden moment when risk appetites peaked and the euphoria of it all overwhelmed any reasonable sense of understanding about just what we were doing, why we were doing it and what it all would mean in the end when it came undone. It was almost as if pure adrenaline were coursing through our veins as we stood at the crest like immovable Gods of Risk.

We're probably not going back to that peak wave moment anytime soon, perhaps not in our adult lifetimes, because cycles are ever-changing, and that cycle took 20 years to build and complete. We've just experienced the first and second wave of this change.

Believe it or not - ironically - that’s something I learned in a book about gambling. In “Secrets of Professional Turf Betting,” Robert Bacon more than 50 years ago, wrote, "The collective “mind” of the public imagines that if it could only once find the “combination” for beating the races, it would be set for life... But, if the public play ever did get wise to the facts of life, the principle of ever-changing cycles would move the form away from the public immediately.”

Bacon might as well have been talking about financial markets, or poker, or even real estate for that matter. No matter the game, the target is always shifting. Just when we think we’ve found the key, the target suddenly moves, and only those who can adapt survive.

Risk management requires an understanding of this dynamic. Survival depends on it.  But the secret is there is no secret, there is only risk management, and once we come to terms with that we also must come to terms with the fact that risk can never be eliminated, only managed.  And frequently, even managed risk leaves us with undesirable results.  It's better than ruin, but beauty is always in the eye of the beholder. One man's reward is another man's ruin. That's why the market is waiting for us each day in the first place. 

Of course, there's the other side of the risk game; the Stu Ungars of the world, the stars who burn so bright and scorch the earth with their talent, raw, unfiltered, unmanageable. Ungar is a fascinating figure, but a tragic one really. Risk is nothing until it shows up.

And so here we are this morning, staring The Bailout in the eye. The Real Bailout. This is it. This is The One that re-ignites the wave of risk-taking and speculation that finally crashed over the course of a week in October 2008. Or so it is hoped. More likely it's the last act of the Desperate Chancer; the gambler so addicted to losing he can't focus on anything but just getting back in the game to feel what it's like to risk and lose just one last time. Only keep in mind, for the Desperate Chancer, winning is the least satisfactory outcome.