Young Gamblers Are Following In Warren Buffett's Footsteps

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To investors,

Bloomberg’s Eric Balchunas wrote about young people’s propensity for risk and gambling yesterday: “Gen Z is moving money from stocks to sports betting in wealth plans, 52% of them have redirected investment funds to sports betting and quarter of them treat sports betting as a deliberate part of their long-term financial plan, according to survey from Betterment. Wow.”

This new development is going viral online because older people are mocking these young people and their perceived stupidity. How could young men (it is mostly men) take hard-earned money out of their investment accounts and place sports bets instead? Why would they do that? Don’t they realize how bad of a strategy this is?

The answer to these questions, and my personal opinion on the topic, are more nuanced than you might think.

For example, I could easily argue that selecting single name stocks and betting on who wins tonight’s baseball game are different forms of gambling. Traditionalists don’t like to hear it, but the stock market is just a casino for the white-collar crowd. Zero day options are the most popular options by a long shot and most young people who are “investing” are really just speculating on random tickers they believe can go parabolic with retail participation.

It is not like these young people are choosing between being the next Warren Buffett, full of patience and long-term thinking, or becoming a gambling-addicted risk-taker. They are merely moving money between different risk-taking venues with the hopes of hitting it big.

A big reason for this trend of speculation is the broader macro environment. The government has destroyed the US dollar and ensured purchasing power will continue evaporating like water on a hot summer day. If you see cumulative inflation rising 30% over the last 6 years, along with gas, grocery, and home prices skyrocketing, some portion of people are going to conclude they have to take as much risk as possible.

This is a common story throughout history. Destroy the currency, increase gambling.

But there is another side to the story that most people don’t want to acknowledge: young people mature over time. When I was younger, I took significant risks financially. I never sports gambled in a meaningful way, but the first real investments I ever made were day trading foreign currencies. I would sit in class during college and obsessively watch EUR/USD. I ran ~$9,000 up to over $60,000 in the matter of months, but then succumbed to the classic laws of gravity and gave back about half of the profits in a few weeks.

I was essentially gambling and didn’t even realize it. That experience taught me an important lesson in risk management, speculation, and what not to do. I am glad it happened when I was young and just starting out.

The thing about this experience is that I could easily blame the fact that I was 21 years old and my brain wasn’t even fully formed. Of course I was making bad decisions. I was uneducated and driven by adrenaline and/or greed. As I matured, so did my investment approach.

Warren Buffett did something similar. For those that don’t know, Buffett actually started off selling horse picks and handicap odds in what would be a modern-day newsletter. Yes, the definition of value investing literally started off as a young man interested in gambling.

I suspect that many of these young men who are swapping funds back-and-forth between their investment accounts and sports gambling apps will do the same. They were learn hard lessons, have their brains fully form, and eventually realize that long-term optimizations outperform short-term speculation.

This reality shouldn’t discount the very serious epidemic of sports gambling in America. I think it will only worsen and we will have a national crisis on our hands. That is why I purchased a minority stake in Nothing’s Off The Table, a media platform focused on helping people overcome gambling addiction.

But my main message is the following - young people are going to be young people. They are going to do dumb things. They will touch the hot stove. They will drive too fast. And they will speculate with their money.

We don’t have to like it, nor do most of us think it will end up successful as a strategy. But let’s not look down our noses and pretend like this is a new trend.

Hope everyone has a great day. I will talk to you tomorrow.

- Anthony J. Pompliano

Founder & CEO, ProCap Financial (Nasdaq: BRR)

Reihan Salam is the President of the Manhattan Institute.

In this conversation, we break down what's driving New York City's affordability crisis — from decades of rent control and restrictive zoning to a failing public education system. We also discuss the burnout crisis in law enforcement, immigration and assimilation, the rise of the DSA and socialism among young Americans, and how AI, bitcoin, and capitalism can restore opportunity and rebuild the American dream.

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