As we prepare to participate in next week's Las Vegas Money Show, I can't help but compare investors and gamblers to fools. Investors are generally viewed as those people who are willing to accept some risk but clearly want the odds of winning to be in their favor. Gamblers are seen as risk takers, but they are not fools. Good gamblers figure the odds of winning; then decide whether the reward is worth the risk. Fools are individuals who bet their money on the thrill of the moment without proper risk/benefit analysis.

Take, for example, the contestant who reached the $500,000 level on last night's "Are You Smarter Than a Fifth Grader?" show. He was only the third contestant to have reached this lofty level. One of the previous contestants took the money and ran. The other went for the $1,000,000 and lost. Last night's contestant decided to go for the $1,000,000. He's a Yale University graduate and was president of the math club. Obviously he's a pretty smart guy, but he's still a fool. Why would he bet $500,000 when he had no way of knowing what his chances of winning were?

In this regard, I call your attention to Mr. John Campbell's thoughtful analysis illustrated in his April 20th "Strategy of the Week," "To Straddle or Not to Straddle." As you may recall, one of our subscribers made $6,000 in a few days on an option straddle based upon a preliminary FDA committee giving Dendreon's prostate cancer drug, Provenge, a thumbs up. Subsequently, John learned that the FDA might not be so inclined. Indeed, the FDA asked for more data and the price of Dendreon's stock fell $11.41 per share, or 64.3%. Even so, John showed that placing an option straddle on the occurrence of such an event made no sense because the options were too expensive. It's this kind of analysis that distinguishes investors and gamblers from fools.

One of the most important things we try to do in VectorVest is put the odds of winning in your favor. We advocate that you buy safe, undervalued stocks rising in price when the market is rising. We have run thousands of tests showing that this is a highly reliable system of investing with a high probability of success. But even that isn't enough. You need to diversify your portfolio, always have a clearly defined exit strategy for every stock, and constantly assess risk and reward. Don't Be A Fool.

P.S. The Yale graduate lost his $500,000.