This article appeared originally in the June 2013 Levitt Letter.
In February, New Jersey gambling regulators fined Caesars Entertainment Corp. $225,000 for the casino giant’s role in a 2007 gambling spree in which a self-confessed gambling addict lost more than $120 million at Caesars casinos in Las Vegas. A related Wall Street Journal article, posted at http://wp.me/pieUD-1Gl, inspires comparisons of gamblers playing with poker chips and investors striving to stretch their retirement savings.
Who loses more? Who is better protected? More people “play” on Wall Street than in Las Vegas. Vegas doesn’t hide the fact that dealers work for the house. On Wall Street, the action is in broad diversification over the long run, but it’s imperative to minimize the “vig,” which is the percentage taken by the house.
Consider too the WSJ MarketWatch article “Mutual Fund Casinos Still Skimming Billions.” One of its highlights: “Welcome to the world’s biggest casino! Vegas? No, the mutual fund industry.” Also, a Scott Burns article tells us “How We Lose in the Mutual Fund Casino”… by allowing the [brokerage] house to take too much. Burns’s “What Las Vegas Can Teach Us About Mutual Fund Investing” is worth reading. Do yourself a favor: scan his blog topics at http://assetbuilder.com/blogs/scott_burns.
Back to Caesars’s spectacular victim. “Industry insiders believe the gambling spree, by former toy entrepreneur Terrance Watanabe, to be the single largest continuous binge in Las Vegas history.” Mr. Watanabe claimed that he was intoxicated on casino-provided alcohol and painkillers. (Many stock investors are more “intoxicated” than they realize with fear and/or greed.) The casinos argued that they provided Mr. Watanabe with top suites, security, limos, and food. (Stock brokerages ply their prospects with … um … prospectuses and warm, fuzzy promises about caring, and veiled representations about being able to select solid propositions with optimal timing. Balderdash!)
The WSJ article makes reference to a Caesars “Compliance Committee.” Stock brokerages have compliance officers too. That unfortunate euphemism soothes too many into visualizing a legalistic nerd who is dedicated to ensuring that the casino/brokerage complies with the law. Based on Zola’s and my own experience with A.G. Edwards and substantial reading about other stock brokerage scandals, that position too often would be better termed Plausible Deniability Officer.
The Nevada Gaming Control Board investigated the incident but didn’t fine Caesars. I hereby deem them just as ineffective as the U.S. Securities and Exchange Commission was at timely catching Bernie Madoff.
I sincerely hope that this article (and prior Serpent installments which you can see at www.levitt.com/essays) awakens readers to the necessity of becoming wise as serpents (Matt.10:16). After all, the world of investment advice is a snake pit.