"The Theory of "Double Down"; The Math of the Double Down

(Ed.note: This piece was written on a Tandy 1000 almost 20 years ago. Nothing like a declining stock market to bring back the nostalgia. )


Some years ago, in high school, right after Algebra II was completed in the semester, we had a time to study probability. Or more specifically, studied how probability is expressed in gambling and algebra.

The very first class, I remember the instructor asking whether if one rolled a dice, and had lost, whether the odds of winning on the second roll were increased. Most of the kids in the room, including myself, felt that the odds got better with each passing loss. What a blow to learn that it was not so.

Over the years, beginning in the 1960's, I remember some whispered discussions within our family on whether, even though Control Data stock had been falling, whether one should "double down" to lock in the magical "basis" and thus be prepared for a large win if and when-- and of course it must-- go higher ---eventually-- if one lived long enough.

What we learned in the 60's, it seems has to be learned all over again each decade. I know that even though I learned it well, I promptly forgot it in a moment of optimism later.

I even went further. It was not good enough to "double down"----the numbers did not work out fast enough. One had to be prepared to "Triple Down" in cases where the bold could win. Yes. That theory had flaws too.

The problem. In declining markets, in the 60's, 70's, 80's, 90's and on, if a stock goes to ZERO, nothing works. And indeed, if funds go down, and even seemingly slowly, diversification alone does not work....at least for stocks. Make a note of it.

Posted by Evansville Observer at 9:41 AM