A gambling thought experiment

Good stuff, DQ. The go-broke scenario is actually similar to a recommended gambling strategy in that, one should never lose more than 10 percent of their bankroll in a single session. So, if you're betting on the 1 p.m. games and you lose $1,000 of your $10,000 bankroll, you should take the rest of the day off to mitigate a run of bad luck.

 

I don't know a thing about EMH, but this sounds pretty much exactly like how most professional gamblers - poker players, in particular - are able to make a living.

 

EMH: Efficient Markets Hypothesis .... Eugene Fama at Chicago, who won the economics Nobel for it in 2013, is considered to be a/the father of it. There are three versions of it (we'll talk about stocks, but it applies elsewhere, too):

1) The weak version -- you can't look at a stock's immediate past, project that into the future, and make any money on it (unless you take on more risk)*

2) The semi-strong version -- all of the publicly available information about a stock is already priced into the stock; you can't expect to glean something especially valuable from a company's annual report or whatever and make any money on it (unless you take on more risk)

3) The strong version -- ALL known (both publicly and privately) information about a stock is already priced into the stock; if you hear through the grapevine that a company's heroic founder/chairman (e.g., Steve Jobs) is seriously ill, even though that's not widely known, you can't expect to make any money on it (unless you take on more risk)

As you go from 1 to 3, the evidence in favor of EMH gets more muddled. Still, very apropos of the discussion.




*This reminds me of an argument my father and I had when I was a grad student (think I was finishing up my MBA). The stock markets had had some period of pretty volatile days, and for a week or so it literally was Up/Down/Up/Down ... Some dingbat my father had advising him told him that he could make some really easy money by buying on the down days (because, of course, the next day it would go up, right?). He got furious with me when I told him that, yes, he might make some money, but he'd be taking on a good bit more risk, probably way the hell more than is appropriate given the additional return he expected to get (net of transactions costs). At the time I thought I didn't make an impression ... but now that I think back on it, he never pulled the trigger on one of those trades, either!

 

So you kept your father out of Google when it was at 10 bucks?

Good job!

 

Hope you don't get put off by this, but that's really not a strategy to improve your luck, it's a strategy to improve your chances of having some gambling money throughout your trip. It would absolutely suck to go to Vegas, bust out in the first few hours, and then not be able to gamble any more (or, worse, wager additional money that you can't afford to lose). That is a smart approach to making sure that doesn't happen.

 

Not put off at all.

No, this approach is about making money gambling, whether by betting on sports over the course of a season, or grinding out a living in the poker rooms. If you go to Vegas for a weekend to gamble, your losses are really just the cost of entertainment. If you come ahead, great.

But if you're looking at winning money gambling over a long period of time, this is the recommended strategy.

EDIT: I probably shouldn't have used the word luck in the original post. It's about keeping your losses small in the event you hit a cold streak.

 

It is possible to know more about a team, or a game, than the people who set the line, but this might happen very infrequently over the course of a season.

 

Many many years ago. 1989 to be precise, I did the weekly pro football gambling column for the Herald. I didn't beat the vig, having a season's winning percentage of just over 50 percent, but I really wrote it to make points about football, not gambling. Anyway, one week I didn't like any of the bets on the card and said so, advising readers to keep their money in their pockets or to look for other opportunities. This of course was sound advice, and I was brought into the editor's office and told never ever to do that again, as a gambling column without picks was bad for OUR business.

 

The Times has an article today about a hedge fund guy who's putting millions into Super PACs to support Ted Cruz's presidential campaign.

The hiring practices of the firm he works for is pretty interesting:

Before joining Renaissance Technologies, Mr. Mercer, 68, worked at I.B.M.’s research center, where he specialized in computerized translation of languages.
...
When James H. Simons, the billionaire founder of the Renaissance hedge fund, hired Mr. Mercer in 1993, the company was more university campus than Wall Street firm. Mr. Simons, a mathematician and former code-breaker for the National Security Agency, brought in astronomers and physicists to analyze reams of data, using computer programs to search for patterns that could be used to inform trading decisions. Mr. Simons has been a major political backer of Democrats, donating $8.3 million in 2014.

The hedge fund’s strategy has been tremendously successful. The firm’s flagship Medallion fund, which manages money only for employees today, has earned average annual returns of 35 percent for two decades. Over all, the firm manages $25 billion, much of it employees’ money.

http://www.nytimes.com/2015/04/11/u...es-as-a-generous-backer-of-ted-cruz.html?_r=0

 

Average annual returns, over two decades, of 35%? No fuckin way.

 

Sure...

http://blogs-images.forbes.com/jordanmaglich/files/2014/02/BernardMadoff.jpg