Back in the days of high school I can remember taking some boring math classes while daydreaming and wondering if this will have much use in the "real world". Well, one of the topics covered was probabilities and statistics. It turns out that knowing this is essential for doing well in the market in the long term.

Consider the probability of a coin toss. It can be either heads or tails, so one toss has the probability of 2 possible outcomes, each one being equally weighted. That results in a probability of 50% each for heads or tails.

Simple stuff that everyone who has taken HS should know right? Well, apparently not judging from my recent encounter with a co-worker.

This co-worker was complaining about the market being "stacked" against him and that he'd be better off in Vegas. I tried explaining to him that the odds in the market are much better than the odds in Vegas. The game in Vegas with the best odds is "Roulette" with betting either red or black. The odds are close to 50% but not quite- due to the green "00" on the wheel.

Now I went on to explain the market. Without knowing anything about stocks, you start out with a pure 50% probability of success. How is this so? Well, a stock can either move up or down- 2 possible outcomes. You can make money in each situation depending on whether you short a stock (sell, then buy back) or go long (buy, and later sell).

My co-worker had a hard time understanding this and disagreed with me. He said you had much lower odds of success being in the stock market. How did he get that answer? I'm sure he was basing it on his own lack of market success, which would be the wrong way to go. Going back to the coin toss example - if I tossed the coin 3 times and it came up tails every time, it doesn't change the probability of the next coin toss- which will still be 50% for heads or tails.

Unfortunately the co-worker has personalized his losses and has made the market appear more difficult that it really is. This is where that HS math comes in handy - it keeps you from falling in this trap. That is, if you still remember it.

Once you understand that you start out at 50% odds knowing nothing, you can now greatly increase your odds by applying basic investment knowledge. The key difference between Vegas and Wall Street is that Vegas games are 100% random while the stock market isn't. By analysis you can find market trends that will aid you in deciding where to invest.

I just saw on the news today that Billy Mays, the "Oxiclean & Orange Glo" pitchman, has passed away today. Another shocker - he was also only 50.

In one week we've have 4 celebrities pass away - 2 being expected or understood, and 2 completely unexpected.