Casino math can transform your portfolio: Expert explains how investors can ride risk–reward
Most investors chase high win rates, but markets reward a very different skill. The same probability logic that keeps casinos profitable can reshape your approach to risk. Market analyst Alok Jain breaks down how smart risk–reward thinking can transform long-term performance.
- Nov 28, 2025,
- Updated Nov 28, 2025 3:15 PM IST
Investors often obsess over being “right” in the market—aiming for the highest number of winning trades. But according to Alok Jain, Founder of Weekend Investing, the real secret to long-term market success lies in something counterintuitive: casino math. Speaking to investors, Jain explained that the same probability principles that help casinos make billions can also help individuals build more resilient, profitable portfolios.
Jain began by illustrating how casinos function despite occasionally paying out massive jackpots. “A 25-year-old software engineer wins $39 million after putting in $100. Someone else wins $3 million on a $3 bet. Casinos still thrive because they manage risk–reward, not win rates,” he said.
In a typical scenario, a casino may let a player win seven out of 10 rounds. But even with a 70 percent losing record, the house makes money because its losses are small and its wins are large. For example, if the casino wins three rounds earning Rs 100 each (Rs 300 total) but loses seven rounds losing Rs 30 each (Rs 210), it still profits Rs 90. “The math defies intuition,” Jain said. “But this is the core of risk–reward.”
He then connected the same logic to personal investing through a comparison of two investors, Ram and Sham. Ram wins 75 percent of his trades but has small gains and large losses. Sham wins only 25 percent of his trades but his winners are big and his losses are strictly capped. At the end of the year, Ram earns a modest 5 percent, while Sham earns 13 percent. “The person with more losing trades actually makes more money. That’s the power of reward outweighing risk,” Jain noted.
The reason many investors end up behaving like Ram, Jain argued, is due to loss aversion—a behavioral bias in which losses hurt twice as much as equivalent gains feel good. This pushes people to hold losing positions, hoping they recover, while prematurely selling winning positions to ‘lock in’ small profits. “We deceive ourselves,” he said. “A stock falling from Rs 100 to Rs 60 is treated as an interim phase. Investors convince themselves it will come back, even as the damage grows.”
The consequences of deep drawdowns, Jain added, can be devastating. A 50 per cent loss requires a 100 per cent gain just to break even. Falling 30 or 40 percent deeper places an investor in an almost unrecoverable “ditch.” Hence the principle: cut losses early, let winners run.
Jain also shared data from a 242-trade systematic momentum strategy. Despite losing trades outnumbering winning ones (52% losers, 48% winners), the average winner returned 25% while average losses were capped at 9%. A handful of multi-baggers—stocks that gained 144%, 219%, even 298% — drove most of the portfolio’s gains. “Just like the Pareto principle, 20 percent of trades create 80 percent of returns,” he said.
The lesson, Jain emphasized, is simple: a high win rate does not guarantee profits. Risk–reward discipline does. “Don’t cling to losing stocks. Don’t fear rising stocks. Use stop-losses, churn smartly, and let the math work for you,” he advised.
Jain encouraged investors to evaluate their own biases and adopt systematic approaches that prioritize survival, consistency and large winners over hit-rate bragging rights.
Investors often obsess over being “right” in the market—aiming for the highest number of winning trades. But according to Alok Jain, Founder of Weekend Investing, the real secret to long-term market success lies in something counterintuitive: casino math. Speaking to investors, Jain explained that the same probability principles that help casinos make billions can also help individuals build more resilient, profitable portfolios.
Jain began by illustrating how casinos function despite occasionally paying out massive jackpots. “A 25-year-old software engineer wins $39 million after putting in $100. Someone else wins $3 million on a $3 bet. Casinos still thrive because they manage risk–reward, not win rates,” he said.
In a typical scenario, a casino may let a player win seven out of 10 rounds. But even with a 70 percent losing record, the house makes money because its losses are small and its wins are large. For example, if the casino wins three rounds earning Rs 100 each (Rs 300 total) but loses seven rounds losing Rs 30 each (Rs 210), it still profits Rs 90. “The math defies intuition,” Jain said. “But this is the core of risk–reward.”
He then connected the same logic to personal investing through a comparison of two investors, Ram and Sham. Ram wins 75 percent of his trades but has small gains and large losses. Sham wins only 25 percent of his trades but his winners are big and his losses are strictly capped. At the end of the year, Ram earns a modest 5 percent, while Sham earns 13 percent. “The person with more losing trades actually makes more money. That’s the power of reward outweighing risk,” Jain noted.
The reason many investors end up behaving like Ram, Jain argued, is due to loss aversion—a behavioral bias in which losses hurt twice as much as equivalent gains feel good. This pushes people to hold losing positions, hoping they recover, while prematurely selling winning positions to ‘lock in’ small profits. “We deceive ourselves,” he said. “A stock falling from Rs 100 to Rs 60 is treated as an interim phase. Investors convince themselves it will come back, even as the damage grows.”
The consequences of deep drawdowns, Jain added, can be devastating. A 50 per cent loss requires a 100 per cent gain just to break even. Falling 30 or 40 percent deeper places an investor in an almost unrecoverable “ditch.” Hence the principle: cut losses early, let winners run.
Jain also shared data from a 242-trade systematic momentum strategy. Despite losing trades outnumbering winning ones (52% losers, 48% winners), the average winner returned 25% while average losses were capped at 9%. A handful of multi-baggers—stocks that gained 144%, 219%, even 298% — drove most of the portfolio’s gains. “Just like the Pareto principle, 20 percent of trades create 80 percent of returns,” he said.
The lesson, Jain emphasized, is simple: a high win rate does not guarantee profits. Risk–reward discipline does. “Don’t cling to losing stocks. Don’t fear rising stocks. Use stop-losses, churn smartly, and let the math work for you,” he advised.
Jain encouraged investors to evaluate their own biases and adopt systematic approaches that prioritize survival, consistency and large winners over hit-rate bragging rights.