Examine your principles. Are you a gambling man or woman? Or do you seek absolute certainly in your life? Do you bet? For example, do you enter the National Lottery or do you do the pools? Have you any premium bonds? Do you play fruit machines, bet on horses or play roulette now and then for fun? If the answer to all of these questions is ‘No’ then I suggest that you are not the gambling sort…
Not all investors – far from it – are logical or work to your pre-defined time scales. A lot are gamblers who enjoy the, to them, thrill of the investment process itself, work to a very short time scale and are a happy with a quick profit then on to the next one : I saw somewhere that over 90% of spread bet accounts are profitable – for the spread betting company! It’s more akin to the adrenalin rush that some people get in the betting ring at a race meeting.
What is gambling? It is a system of placing a stake (a sum of money) backing your belief about a certain outcome. It could be which horse will win a race, which number will come up on a roulette wheel, which cards will be dealt or which way a certain market will go. There are many thousands of events which you could water your money on – even strange ones like whether or not it will snow on Christmas day.
The events you can water on are divided (in my mind) into two:
- Games of pure chance
- Pseudo-random games where there is a mixture of chance and science.
Here are some examples of games of pure chance:
- Flipping a coin
- Rolling Dice
- Roulette
- National Lottery
- Premium Bonds
- Bingo
- Fruit machines
- Most card games.
Here are some games which have a random element, but also have some skill or pattern involved. Knowledge of the patter (if you can gain it) allow you to win long-term.
Horse Racing (carefully studying form gives you the edge).
- Horse racing or any racing with animals (example dogs)
- Poker
- Trading the world’s markets (knowledge of what makes them move can give you the edge).
I have already told you that I do not bet on games of pure chance. – only mugs do that. Fortunately there are several ‘games’ which are far from random. Horse racing is one such game. It certainly is not random which horse will win! Far from it – and you can make consistent money just by betting with the odds slightly in your favour. Statistically, this means that over the long run you will win. This is not a horse-racing guide, but I’m sure you’ll be interested to know how it is done?
Basically, you study form very carefully and only take certain bets where the odds are slightly favourable. At all other times you stay away. These factors working together give you the ‘edge’. If you have the ‘edge’, then statistics are in your favour, and you will win long-term. In the short term, of course, you could lose five, ten or even twenty races in a row! This does not matter – you keep with the system regardless because it is certain that you will win long-term. Of course, you need a certain amount of money to keep backing a run of straight losers, and there comes a point where lack of disposable finance causes you to back out of the game for a while. This can happen to anyone, and it has certainly happened to persons I know on a number of occasions. To play the long-game, you need the money to bet many times. You can’t win at this game if you just have enough money for one or two bets.
To illustrate this, supposing I had a coin which I had slightly weighted to make it comes up on average HEADS 51 times and TAILS 49 times out of 100, instead of the usual 50:50. would you consistently bet £10 a time, every time, on HEADS? Of course you would! Over 1000 spins (i.e. long-term) you would comes out in the money. Short term, you could get runs of TAILS which might discourage a weaker person and make him switch to TAILS on a ‘hunch’. WRONG!! The professional gambler sticks with HEADS spin after spin after spin. He shrugs at his losses. The coin could come up sixty tails in a row and this would not force him to change to TAILS. Remember, I am assuming this is not a 50:50 chance, like in normal coin-flipping. The odds are skewed very slightly in favour of HEADS.
Get the idea?