A gambling thought experiment

Speaking generally -- for an individual without A LOT of resources. ... It is nearly impossible to compete successfully in any kind of large (and liquid) market on fundamental research (or information). It's possible. There is someone out there who does it. But for every one person who is successful, there are a gazillion losing their money. And even the one in a gazillion person doing it, usually has inside information that isn't publicly available. It's why 95 percent of traders who try to trade some of the markets I am active in lose money and never come back. It's why when I started doing it, I learned pretty quickly that I COULD NOT compete successfully on research and information, and that I needed another way -- if there actually was another way to statistically shift the odds and make money at it (a whole other discussion, but one I am really passionate about).

I've looked at sports gambling for the same reasons it entices everyone -- you think it is ripe for exploitation. If you know that a point spread is not reflecting the difference between the two teams, you should be able to take what is only a 47.62 percent chance of breaking even on the bet (with standard juice: -110) and subtly shift your odds to greater than 50 percent. And if you can do that consistently, over time, you can expect to probably make money.

The problem is knowing that the point spread doesn't reflect the true difference between the teams. "I watch Team A a lot," isn't really much of an edge given how much money is coming into the game from a lot of different places.

 

Any market -- one that is large and liquid included -- is exploitable by someone. I just know that it is very unlikely that any given person who thinks he knows something more than the mass of other people, really does. Way more people have lost money thinking than that have made money.

 

I wasn't thinking about you at all. I was talking about ANYONE who thinks that way.

If I find out that someone is managing to consistently game a market that is very liquid and that trades freely, I know it most likely isn't a matter of their "smarts" -- at least the way I think you mean smarts.

When I find out that someone is consistently doing that, I know that one of three things is likely: 1) They were lucky. OR 2) The person isn't operating on their smarts (fundamental research). They are using another method. Often it is way more mechanical than people here would believe. OR 2) The person's smarts amounts to a source of inside information that none of us is getting our hands on easily.

 

Right. And that's back to what I am saying. It's possible. There are large research institutions on Wall Street, for example, hiring teams of MIT grads who do analysis into the wee hours of the night. And some of them make money just because they know more than the rest of us. The point is, I am VERY cognizant of the fact that as an individual yokel -- one with lots of smarts, BTW! -- that that is what I am trying to compete against if I think I actually know something. It's the same when it comes to sports betting. It's the same when it comes to ANYTHING where there is money to potentially be had.