Back when I was a financial advisor, a diligent stockbroker would seek to transform about 2% of the assets they controlled into commissions each year. So for example, if your clients had deposited $10 million with your firm, you were expected to generate about $200,000 worth of commissions each year. Bring in only 100 grand in commissions while in control of that amount and the implication would be that you were a slacker in danger of losing your job. Bring in 500 grand and the implication would be that you were trading your accounts excessively (called “churning”) and likely to win a trip to Hawaii.

Options and futures are investments that offer a great deal of turnover for a commission-based financial advisor, and a great deal of excitement for investors. Both reasons why sooner or later you’re bound to hear about them. Just say no.

Since options and futures are horrible investments, I’m not going to waste your time explaining what they are and how they work. All you need to know is that both represent leveraged bets on the short-term value of some underlying asset. For example, options allow you to bet that within a few weeks or months, the price of a stock is going to be higher or lower than it is today. Futures allow you to make the same kind of bet on something like gold, interest rates or oil. And since it’s virtually impossible to know what’s going to happen in the short-term, these are stupid bets.

But gambling on an uncertain outcome isn’t the only reason to avoid options and futures. Here’s a story that will help illuminate another more fundamental flaw.

When I met Gunter Kangyal, he was one of the best poker players in the United States. He had recently won the World Series of Poker; an annual event held in Las Vegas that attracts gamblers from all over the world. Gunter could have made his living at cards, but didn’t have to because he was already wealthy from developing real estate.

A client who likes gambling is a wonderful opportunity for any commission-based financial advisor, because short-term, gambling types of investments guarantee turnover. And based on both his vocation and avocation, this guy had gambler written all over him. So prior to my first meeting with Gunter Kangyal, I spent a lot of time preparing. By the time the appointed day rolled around, I was ready to demonstrate my prowess in options, futures and options on futures: the highest turnover, highest risk investments available on Wall Street.

As I pulled up to the Kangyal home I was practically salivating with anticipation. Not just because this guy alone could double my commission income virtually overnight, but because of the referral opportunities. He undoubtedly had a passel of gunslinger buddies who were just like him. I pictured myself sitting around the poker table with my new client and a bunch of his buddies. “Hey, partner...ain’t you that broker that’s been making Gunter beaux coups bucks in soybeans?,” one of them would say as I raked in yet another pot. “I’m going to have my gal shoot you a check for $200,000 tomorrow. See what you can do with it, ok?” “Well,” I’d say, “I reckon I can give it a go.”

My fantasy began to cave in the instant Gunter answered the door. As we made small talk, I realized that it would be tough to pick him out of a lineup of librarians. Not exactly the gunslinger I’d pictured: more Mister Rogers than Cool Hand Luke. Nonetheless, I knew he was a risk-taker so I started talking trading. But I didn’t get far.

“Hey...hold on there!” Gunter interrupted. “Maybe you’ve gotten the wrong idea about me. You must be talking options, futures and such because you know I’m a card player, right?” This was so unexpected, I hadn’t the time to respond with anything cleverer than the truth. “Well...yes. I assumed that someone who likes action in cards would like action in the markets too.” He smiled. “Well, I guess that’s a reasonable assumption. But rather than waste your time, let me tell you what I really wanted to talk to you about. I just want to set up a safe, secure account of some kind for my granddaughter. She’s two, and I’d like to make sure that when college rolls around, the funds will be there to pay for it. In any case, I wouldn’t consider gambling with any of those risky investments you’re talking about.”

This was odd. An aversion to risk sounded pretty strange coming from one of the best poker players in the world! I wanted to learn just what he meant by that statement.

“Mr. Kangyal, before we discuss your granddaughter, mind if I ask why you don’t invest in the Wall Street equivalent of poker?” He responded, “No problem. You see, Stacy, whether you’re in Vegas or on Wall Street, there are only three types of games you can possibly play. Positive sum games, zero sum games and negative sum games. The stock market is the only investment, at least that I’m aware of, that operates within the parameters of positive sum. What I mean by positive sum is that since wealth is actually created in the American economy, nobody has to lose for someone else to win. Think about it...when a company is formed, the stockholders put up the money, the factory is built, and the company starts to manufacture and sell its products. If the products are successful, profits are made, the shares of stock become more valuable and all shareholders benefit in relation to their investment. But the money that’s making them wealthy isn’t coming at anybody else’s expense. In a positive sum game, nobody has to lose money in order for somebody else to win, because money is actually created from profits. In fact, a positive sum game, one that potentially creates only winners, isn’t really gambling at all. No matter how much the stock market may look scary or fluctuate in value, since it’s positive sum it’s by definition not gambling, at least when taken as a whole within the context of a growing economy. Clear so far?”

“Crystal,” I responded.

“Ok,” he said, “now let’s consider a zero sum game. If we were playing poker here at my house, we’d be playing a zero sum game. It’s zero sum because the only money you can win is money somebody else loses. See, in this game, no wealth is actually created...just transferred from one side of the table to the other. And that’s really what we’re referring to when we use the word “gambling.” A transfer of wealth from one player to another: a winner and a loser. Still with me?”

“Absolutely!” This was getting interesting. “So what’s a negative sum game?,” I asked.