Casino Math Can Power Your Portfolio: How Investors Can Win The Risk–Reward Game

Last Updated:November 30, 2025, 10:58 IST

Winning more trades doesn’t mean winning more money. Alok Jain says long-term success comes from casino math—small losses, big winners

Investors often fixate on being “right” in the stock market by chasing the highest possible number of winning trades. But according to Alok Jain, founder of Weekend Investing, true long-term success in the markets comes from a counterintuitive principle: casino math. Addressing investors, Jain said the same probability-driven logic that enables casinos to earn billions can also help individuals build stronger and more profitable portfolios.

To explain the idea, Jain began with how casinos operate despite occasionally paying out massive jackpots. “A 25-year-old software engineer wins $39 million after betting just $100. Someone else wins $3 million on a $3 bet. Yet casinos continue to thrive because they focus on managing risk and reward—not on win rates,” he said.

In a typical setup, a casino might allow players to win seven out of 10 games. Even with that apparent disadvantage, the casino still profits because its losses are small while its gains are large. For instance, if the casino wins three rounds earning ₹100 each (₹300 total) but loses seven rounds losing ₹30 per round (₹210), it still makes a profit of ₹90. “The math defies intuition,” Jain explained, “but this is the essence of risk–reward.”

He then translated this concept into personal investing using a comparison between two investors—Ram and Sham. Ram wins 75% of his trades but settles for small gains while suffering large losses. Sham, in contrast, wins only 25% of his trades, but his winners are large and his losses are tightly controlled. At the end of the year, Ram ends up with just a 5% return, while Sham earns 13%. “The investor with more losing trades actually makes more money. That’s the power of reward overpowering risk,” Jain noted.

Jain said many investors behave like Ram because of loss aversion, a behavioural bias where losses hurt far more than equivalent gains feel good. This leads people to hold on to losing stocks in the hope of recovery, while booking profits too early on winning positions. “We deceive ourselves,” he said. “A stock falling from ₹100 to ₹60 is treated as temporary. Investors convince themselves it will bounce back, even as the damage keeps increasing.”

The impact of deep losses can be severe, Jain warned. A 50% fall requires a 100% gain just to recover. Falling another 30–40% pushes investors into an almost unrecoverable “ditch.” The core principle, he stressed, is simple: cut losses early and let winners run.

Jain also shared real data from a 242-trade systematic momentum strategy. Even though losing trades were higher than winning ones (52% losers versus 48% winners), the average winning trade delivered 25% returns, while average losses were capped at 9%. A handful of multi-bagger stocks—posting gains of 144%, 219% and even 298%—accounted for most of the portfolio’s overall performance. “Just like the Pareto principle, 20% of trades generate 80% of the returns,” he said.

The central takeaway, Jain emphasized, is that a high win rate does not guarantee profitability—risk–reward discipline does. “Don’t cling to losing stocks. Don’t fear rising stocks. Use stop-losses, churn smartly and allow the math to work in your favour,” he advised.

He urged investors to introspect on their behavioural biases and adopt systematic investing approaches that prioritise survival, consistency and large winners—rather than chasing bragging rights based on hit rates alone.

Aparna Deb

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More

Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More

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