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NEW YORK (MONEY Magazine) -
The first rule of successful gambling, says Pearson, is to not gamble (in the strictest sense of the word) at all.
No, he's not condemning all games of chance as hopeless. Instead, he means that you should only bet when the odds are clearly in your favor. Or, as he puts it, "You got to know when you have the best of it. A little bit or a lot. I like a lot."
If your odds are too good, of course, no one will take your bet. So even the best situations afford only a small advantage -- at best, by Pearson's reckoning, a 60 percent chance of winning vs. a 40 percent chance of losing (thus the name of the rule).
You won't win every time. But if you are disciplined enough to wager only on advantageous odds, and you do so repeatedly over the long haul, the chances are very good that you'll come out ahead in the long run.
How do you know when you have the 60 end of the proposition? In poker, the starting hands that give you the best odds are those with the biggest number of "outs" -- cards that, if dealt, will likely make you a winner. The more outs, the more chances you will win.
One hand that Texas Hold 'Em players love because it has a lot of outs is "Big Slick," the starting hand of an ace and a king. It's not much on its own -- even a pair of twos beats it -- but Big Slick morphs into a formidable hand if another ace or king hits the table.
John Rogers argues that good stocks, similarly, have a lot of "outs" -- factors that can potentially make a company's shares appreciate.
A longtime proponent of value investing, Rogers looks for stocks with depressed price-to-earnings ratios or other similar measures of value, as well as companies going through so-called turnarounds, management shake-ups and new product launches. Investors don't expect much from them, so a lot of things can happen to make such companies perform better than expected.
Take Caesars Entertainment, which Rogers bought in late 2001. With investors fearing fewer people would travel to Las Vegas after the Sept. 11 attack, the stock of the casino company had fallen from a high of $15 to $8. Meanwhile, the company brought in new management and announced plans to refocus on its more profitable properties.
Tourists eventually returned to Las Vegas en masse, and Caesars' earnings rebounded. In July of last year, Caesars accepted an offer to be acquired by Harrah's Entertainment. The deal is likely to net Rogers a 150 percent return.
"You need the will to make creative calls," says Rogers. After that, it's a matter of "patience and discipline -- you need them in both investing and poker."
Rule 2: Manage your money
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Should you invest in casinos? Click here.
Want to know more about casino-builder Steve Wynn? Click here.
Playing poker online? Better watch out.
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