Gambling Like a Boss: Always Bet On Black

Click Bait title! That said, we ‘re going to jump into a fun and controversial topic “Gambling”. According to a quick google search there are two definitions: 1) play games of chance for money and 2) take risky action in the hope of a desired result. Between these two, we think the first one is a little bit better since the second one implies all of your bets are “risky”… which we’ll argue is not the case at all times. Finally, before we begin, none of this is professional advice. We’re simply outlining how we think about it.

Play Games of Chance: This is an important concept in the first four words of the definition. Chance implies “probabilities” and the “expected value” is unlikely perfect every single time. When we talk about games of chance, we are not talking about games like roulette or the lottery where there is a massive edge to “the house” If someone defines gambling as playing games like slot machines, roulette, the lottery etc. we’ll agree and say you should never play. There is no fun in taking unnecessary risk. There are a multitude of other options with much better odds… Ones with emotion… sports/poker etc.

Step 1) Play Emotional Games of Chance: Here is where we would go ahead and say it is “okay” to gamble from time to time. In emotional games of chance such as Poker, Sports or Politics… it can make sense to take a *calculated* bet. The more emotions involved the better. Without emotions it makes it quite difficult to get an edge. In other games, the house typically has an edge so they win over and over again in the long-term. When people get involved the odds are never “correct” since emotions will always swing it in one direction or another.

Step 2) Get an Edge: We’ll use the last two public bets we announced on twitter. The NBA MVP race and the presidential election. Our edge is essentially two items: 1) stats and 2) reading emotions. Combining these two you should be able to get a decent feel for when certain events are heavily skewed in one direction or another. Do you need to be a mathematician? No. You just need access to the right software tools (MATLAB – Matrix Laboratory) works well for stats and the emotional reading is more of an art than science (we’d say it takes about 5 years to get decent at reading emotions of herds).

Step 3) Wait, Wait, Wait: As you can see we’ve only announced two bets over two years or so. We bet on both Westbrook and Harden for MVP (mid/late 2016) and Donald Trump (~11 months before election). Here is the “why” for both.

Westbrook/Harden: With the change in the NBA landscape, you knew that Kevin Durant, Stephen Curry and Lebron James were not going to win the MVP. This has nothing to do with stats and everything to do with emotion. When Lebron left for Miami, he didn’t win the first year because people were “upset” even though he was still the best player in the league by far. Why? A lot of the voting process has to do with emotion… Once we eliminated three of the best players in the league you were left with essentially: Anthony Davis, Russell Westbrook, James Harden and Kawhi Leonard. All in the real risk was Kawhi Leonard given that his team would win a lot (we looked at the odds and didn’t bet until a couple months into the season). Once the numbers started to show, the only risk was he’d have a breakout 2nd half which is extremely unlikely if you run the stats (offense stats Popovich vs. D’Antoni vs. Donovan). So the risk made sense.

Donald Trump: This one was much more “controversial”. To us it looked pretty similar to the same logic in a different fashion. There was more *emotion* against him… But the stats don’t lie. Run the stats on the history of back to back democratic wins (or back to back republican wins) after a two term presidency… And you’ll see they are bad. Even Democratic candidates knew Trump was going to be the republican ticket… and people were still offering 5:1 and even 10:1 odds against him… Insanity and 100% emotion.

Step 4) Calculate Your Own Probabilities: People on twitter are “shocked” we’re now betting on Floyd Mayweather because his odds are so “low”. That’s not how we see it. We entered already through various platform at a ~20% return ($5,000 bet gets you $1,000). This means it’s a 20% return in just 2 months. While it looks like a “worse odds bet” because the “dollar win is lower” we don’t look at it like that. Stick with running the stats and coming up with your own probabilities. Sure a $1,000 bet on Trump won a cool $5,000-10,000 but if someone gives you a ridiculous offer you should go ahead and play the game anyway.

Mayweather Risk: We’ll go ahead and give our odds. We think it should be at 20 to 1. That’s our own number and means $20 should win you $1… or… $20,000 should win you $1,000. That’s the more realistic line since we give him no “real” shot of winning. High security environment and high paychecks for both fighters should keep it clean. Note: we chat time to time with a boxer Ed Latimore and have encouraged him to do a breakdown of fighting style given his background.

FullSizeRenderMayweather Match Gets Rigged: This is a real risk since we’re talking about sports here. Just like the NBA bet, where stats don’t always matter (emotions matter as well), if the match is rigged we’re screwed. Rigging includes: 1) Ref somehow allows a low-blow or some strange attack that goes “missed” and Mayweather gets KO’d, 2) Judges somehow give him the win if the fight goes 12 rounds and 3) somebody drugs Mayweather

Risk of DQ: Mayweather has fought the best people in the world for about 20 years with zero losses. Anyone with basic knowledge of boxing knows he didn’t “cheat” any of those wins including the controversial KO of Ortiz where… Ortiz was getting embarrassed and tried to head-butt him. For those with good memories – Mayweather 61/125 power punches 49% and Ortiz at 22/117 or 22% -. And. He won in Jabs at 14% vs. Ortiz at a whopping 0%. Therefore, the chances he gets DQ’d are RAZOR thin, but “anything could happen”.

Illegal Bet & Throwing the Fight: This isn’t a risk. We see it floated on social media but the reality is he would lose more even if he bet $100M+ on himself. His brand would be destroyed and he would lose out on revenue for 40+ years. By beating Conor (ideally badly in a few rounds), he’ll elevate the *status* of boxing and generate more money for the sport and himself over the next 40 years. We’re unsure if this will do any real brand damage to MMA (we’ll see) since people will realize

Outlandish Other Risks: The last set of crazy risks include things we could barely even comprehend. Such as: 1) illegal gloves being used – e.g. Antonio Margarito, Luis Resto, 2) Mayweather gets injured for some insane reason – tears a tendon during fight, breaks something in a strange way moving around the ring and 3) somebody jumps in the ring and KO’s Conor for no reason giving Mayweather a DQ win

Zero Disrespect to Conor: As a note, if this was an MMA fight, we would put every cent onto Conor in a brutal KO in probably 50 seconds or so. The reality is MMA and Boxing are not really related for those that are at least familiar with both sports (notice all the pro-boxers hint at it being a joke but don’t want to screw either of them out of hundreds of millions of dollars). They are both fantastic to watch. But. They are not the same. Just look at the tactics used in boxing, if you tried to do a lot of these things in an MMA fight you’d be on the ground in seconds, KO’d or worse.

Step 5) Get Good at Math: We’ve talked more about sports/politics but you can also learn Poker and a few other games (potentially blackjack in special situations). With statistics alone you can gain an edge in both games and place bets based on expected values and more importantly *adjust* your bets as you go through different hands through a game. The more variables there are to choose from (ability to move around the bet size) along with your knowledge of the number of cards in the decks you can make expected value positive wagers over and over again.

Step 6) Expected Value Positive? Lets assume that you believe you have a 51% chance of winning. Does this mean you should bet everything you can? Of course not! It means you could bet on it but it’s not that attractive. This is something you’ll have to figure out on your own. Given the math set up you can see we likely bet close to the same amount on Westbrook/Harden combination as we are on Mayweather/Conor. In addition, you can see that we bet *more* on Donald Trump. Why? It all depends on your calculated expected value. Example: we would have taken even Odds on Trump but it was 5:1 to 10:1 very good spread, we would take Mayweather up to ~12:1 but at 14:1 or so it’s not worth it.. so on and so forth. Note: we have no doubt there is some mathematical way to do it but we still view gambling as a fun *profitable* hobby and don’t take it too seriously.

Step 7) Have Fun: As you can see… We don’t have a raw calculation for step 6. The reality is we should. That’s okay for us since we treat it as a fun hobby/game and as long as we’re making money over the course of 5-10 bets… It’s alright with us. We do not bet more than we are willing to lose based on our own calculations. This is also why “low dollar win spreads” like Mayweather are not attractive to some people, they just can’t afford to lose $10,000 for example in a single day. That’s fine and we’re “gambling” that’ll change once you make a bunch of money!

Concluding Remarks: As usual? Since everyone says Gambling is bad… You know what to do… the opposite. No one “needs” to gamble, we’re simply pointing out how we think about the process. If someone is losing over the course of a year, it’s time to call it quits for another year and revisit the strategy. If someone is winning on a consistent basis then it’s certainly a fun hobby to have. Just remember, exactly like a work environment, always trick the counter party into thinking he’s smarter than you even if he has no experience in the topic. Then make the bet.

On an extremely cheesy note… Thank you to all of our subscribers for the advanced pick-up of Efficiency! For those that received the email (check your junk mail as well), you’ll have until July 21 to pre-order (as stated in the email). While we’re definitely not going to make a financial return on it given that we put a good deal of time into making it as clean as possible (no junk words) it was extremely fun to create it. We’re thinking of new ideas to gift out small tokens of appreciation for the purchase in the future (we already have a few ideas).

For the newer readers… if you’re interested in learning more about making money, staying in shape and doing so without choking off your personality… You’ll probably like Efficiency, Get Rich Without Giving Up Your Life (July 23, 2017). The benefits include:  1) How to get into the top 10% physically with one hour a day of exercise; 2) How to eat correctly to be in the top 10%; 3) How to figure out what type of intelligence you have; 4) How to use this type of intelligence to choose a career and the *right* company: Wall Street, Technology or Sales; 5) How to start an online business and sell (the basics and all you need to start); 6) Clear outline of how to create and start an online product business with correct copywriting; 7) How to go into affiliate marketing if someone wants to take a stab at the competitive space; 8) Overview of how affiliate marketing operates and how to do it, 9) How to do all of this and maintain a normal social life (avoid choking off your personality).

Comments

  1. Engineering Student says

    Genuinely amazed at how many people seem to think MMA skill will translate into the ring against Mayweather of all boxers.

    As an aside, can’t wait for Efficiency!

  2. Aaron J Garcia says

    Mayweather Risk: We’ll go ahead and give our odds. We think it should be at 20 to 1. That’s our own number and means $30 should win you $1… or… $30,000 should win you $1,000. That’s the more realistic line since we give him no “real” shot of winning.

    Don’t you mean 30 to 1? No need to approve this comment…

    — Aaron

  3. Marco says

    Unrelated, but I asked my parents if I could buy Efficiency (with my own money, of course) & they said no. Among the things they called you guys after reading your “Intro to Efficiency” post: “dickhead,” “asshole,” “conmen,” “would punch them in the fuckin teeth if I saw them”. They especially had problems with the “no obligations” thing, interpreting it as “you can do anything you want, including murder, as long as you can get away with it.” I understand the nuances of the points in the post & tried to explain it to them, but they wouldn’t listen, so i just said ok to everything, walked away & refused to buy the book. Guess thats how you gotta play it

      • Robert says

        I’m willing to gift a purchase to this kid. His parents are not sharp. He will be.

      • Jay says

        I don’t understand how anybody could be triggered by that post.. there wasn’t even a single word about women that would alarm ‘misogynist’ in an average person’s head. The only thing that I find potentially triggering is the 3 hours of television part, but I’d hope that would make people feel guilty about their own lifestyles instead of angry enough to shoot the messenger. I’m okay with that though, just means less competition for me.

    • mbp says

      Haha, I’ve had the “money doesn’t buy happiness” lecture from my parents (they’re poor ish) and sent them the Money changes your life article from the WSPs (!). Obviously got grounded for awhile without my PC for working, and they were “really worried about my attitude” so they called a few from their “succesful” friends to lecture me about “life not being that way”. Fun to watch.

      • Marco says

        Wow thank you guys so much for the gesture! Did not expect it.

        And the comment, “For Marco and his ignorant parents,” haha that’s hilarious! I ain’t worried about that anymore though; they’ll chill when they see the results.

  4. LED2BKK says

    “ideally badly in a few rounds”

    Step 1:
    Lay $100k on Floyd at one of the shops still offering 11/2 odds = 18%. (Can fund with Bitcoin, etc, if your U.S. debit card denies the transaction.) Which shops offering 18%? Well known one based in Ireland for starters. More emotional wagers on local guy = need $ on Floyd to balance their books.

    Step 2:
    Lay $18k on Floyd in under 9.5 rounds at a 90% payout.

    Result 1:
    Floyd wins. Fight goes the distance. Result = break even.

    Result 2:
    Possibly best fighter in history wins before the middle of the 10th round. Result = $34,381 on $118k laid = 29% return.

    Step 3:
    Immediately fly to the Greek Islands before the season closes

  5. Axel says

    Mayweather v McGreggor in one sentence – Entertainment for the masses.

    Got the email, from the ToC I like the content(straight to the point)

  6. says

    Regarding the 6th step and given you can estimate the ‘true’ odds/probability, you could use the Kelly, or half-Kelly criterion to adjust your bet sizes. Of course, given the frequency you’re ‘gambling’, I would just bet flat stakes or whatever; it’s just a hobby.

    I thought Kelly criterion applied in trading as well, in the same manner in applies to blackjack/sports (it’s called risk management for a reason). Didn’t you ‘actually’ trade on Wall Street or is that just sales? 🙂

    • Peter says

      But it would be impossible to calculate the the true odds. Since the odds are likely error-prone, any calculation into the “ideal” bet size would be as well.

      This is a frequent problem in statistics. The BS gets hid under layers of math. The best guess without the analytics is frequently just as good. (In this case, don’t bet more than you are afraid to lose and bet only when you think you have excellent odds).

      I am surprised you guys know MATLAB. (ps if anyone else doesn’t want to pay for a matlab license, numpy/scipy is just as effective especially if you couple it with an IDE).

      • William Ruan says

        Lol. MATLAB back in my math days at Uni (stochastics). WSPs, math or stats major in college? Maybe ECON?

    • says

      Yes, the Kelly Criterion works well in trading as well. Its greatest advocate, Ed Thorp, is a legend in finance and gambling – he invented counting cards at blackjack, built a shoe computer in the early ’60s together with inventor of information theory to get an edge in roulette, discovered the Black-Shoales option valuation formula first and kept it to himself, invented the true (market-neutral) hedge fund, got long-term returns of over 20% p.a. (taxes aside) as well as being a math professor in his spare time. The articles on his site, especially on the Kelly Criterion are well worth reading. Investments usually aren’t straight win-lose, so the math is a bit different, also the cases of choosing a portfolio of bets/investments and using leverage are tricky, but the basic principle that the amount of your bet should be in proportion to your edge (real odds compared to offered odds) divided by the true odds. So even if you somehow have a 100x better chance than the average guy in a lottery, the odds against winning are still 2 million to 1, so don’t bet a large fraction of your bankroll.

      I think those who aren’t traders could learn more from trading a free practice forex account than from regular gambling. Forex is the simplest, cheapest trading there is, symmetrical between long and short (unlike most markets), with huge liquidity, but there are still a lot of technical wrinkles to learn, many of which are relevant to other markets. The big learning, though is from dealing with emotions in a trade – especially if you’re trading actual money, even a $50 or $100 account – which with a little practice beforehand can last for weeks / several dozen trades with average luck. You might even make money, but forex absolutely is gambling in a negative-sum game, with the house taking a cut.

      I learned the most, though, from playing around with an automated strategy generation and backtesting program called Forex Strategy Builder (FSB), which while there is still a free version (now web-based), isn’t as usable as it used to be. (The pay version is still good, though.) You can get the equivalent of decades of experience in days, trying literally thousands of different systems. Most of what people think they know about trading doesn’t hold up in practice. Here’s a mini-mind-dump on the subject:

      There are lots of complicated ways to lose money. Simple systems with few and non-critical parameters are best by far, especially for automated trading. Money management, how much to bet, is of supreme importance – bets should be sized according to a % of account rather than a fixed number of contracts. For small accounts in most markets the minimum bet is a higher % of bankroll than is a good bet. Forex is better in this regard with 0.001 contract trading (=~$100, or $2 of account margin, tradeable with as little as $10 in the account), but a strategy that makes lots of minimum bets will still need a big enough bankroll to work, and the lots-of-tiny-bets approach is definitely the way to go for automated trading, especially in forex where 1000 minimum orders costs the same as a single full-contract trade. Swinging for the fences is the #1 account-killer, it’s irrational emotion, one has to learn to suppress the urge to just buy 5 contracts on a hunch. Stop-loss and take profits almost always screw up returns in an automated system, but can be good for hand-trading safety as long as they hardly ever get triggered. (Don’t forget your worst opponents can effectively see your stops with depth-of-book info. – see Oanda fxlabs to get that info. for yourself.) Lower account leverage has lower trading costs, regardless of effective leverage, i.e. a 50x leverage account using 20% of its margin is 10x effective leverage, but the costs to buy or sell a contract are still 50x the spread, while a 25x account using 40% of its margin to trade the same amount as the high-leverage account will have spread costs half as much as the 50x account. Backtesting is nice and all, but until you export that FSB system to a Metatrader (standard desktop forex trading software) EA (expert advisor), and run it on a live account with real money (practice accounts may or may not work due to slippage, etc. – but if it doesn’t work on a practice account, it won’t work in the real world, either) then your system isn’t more than a toy, no matter what great results you get in backtesting.

      • OP says

        I run a systematic macro strategy.

        Focus on what you can control. Remember systems are for winners, goals for losers.

        Emotion: you need to follow your system for it to work. Simple – but hard to do from an emotional point of view. Applies to working out, applies to diet, applies to dating.

        Positions size: size your bet. This is the basis of all risk taking, including trading. You can run monte-carlo VaR’s, correlation matrices etc … those are post measures not ante. Sizing is king.

        Risk management: know when to quit. Stop loss is another key risk metric.

        Costs: the other key metric in trading. Look at commissions and look at the spread (bid/ask) – as a retail guy you are likely getting killed on the spread.

        Gambling can be fun, but personally only bet on mispricings like Brexit, Trump or sports I know well (tennis, good gambling opps there – Gilles Muller vs Nadal at Wimbledon being one example).

  7. Dafydd says

    In the UK, one can buy a lottery ticket for £2.00. Your odds of winning the lottery are very, very low and you will never see that £2.00 ever again.

    Over a year, £2.00 per week is £104.00 For only £100, you can buy a Premium Bond from the Post Office. The Premium Bond itself will be entered in a draw, where the first prize is £1 million.

    So for less money than playing the lottery for a year, you can buy a Premium Bond. You will definitely get your money back, and your chances of a £1 million prize are actually much higher.

    I am not necessarily disagreeing with WSP’s comments on gambling.

    I do think that playing the UK lottery is silly and shows that you lack the discipline to save even £2 per week.

  8. says

    The emotional approach involving sports and politics is of the utmost importance. When well learned, it is a skill that can be transferred to other areas: relationships, professional, etc. It is very useful in many situations.

    In short, all the choices of life (woman, career, business, partnerships, investments, etc.) is summarized in:

    A) Limit the downside as much as possible

    B) Search unlimited upsides.

    The risk is not dimensional, as they teach out there. There are several opportunities that offer 100% risk and 1000% gain. Think of a stock for example.

    Another example would be a successful StartUp: 100% risk and almost unlimited gain. Founders of Snapchat until the IPO as an example.

    Regarding betting, just like everything else in life, there is a top-ranked minority that can win in the long run. And they do everything contrary to the mass below them.
    His insights are of great value to the public.

    Either way, betting on McGregor can be fun. 1: 5 is a good reason to cheer for the Irishman. On a cold and rational analysis: Floyd, without hesitation.

  9. YM says

    Love your approach and not against gambling.

    But given the odds here and since I don’t have large lump sums willing to lose, I’ll have to stick to “gambling” a a few thousand on a 5% conversion rate with a 50% chance of an upsell…. #am

    Bet on black!

  10. Ayn Rand says

    A lot of online business owners at some point dabbled in playing professional poker for a living. Saturday night at random casinos all over the USA are gold mines for entertainment and $$. Playing for a living IMO is stupid but having it as a hobby where you’re also earning $100-300/hr is great. Also, great place to network/meet successful people.

      • Ryan White says

        Poker as a hobby is indeed great, but it is extraordinarily unlikely that the authors of this blog have the skill set to beat it for $100/hr.

      • Wall Street Playboys says

        $100 an hour is only $200K a year… happy to leave your comment up.

        $200K is less than most bankers make at 25 (and we left that hell hole years ago!)

        Will happily admit we clearly lean to sports

      • Ryan White says

        I’m absolutely sure you guys make far more than $100/hr, I’m just saying you can’t do it at poker.

    • Ayn Rand says

      $100/hr on a saturday night is not that hard…. I played for a living thru college and averaged $50-60/hr while watching movies, reading blogs, listening to podcasts, not paying attention, and not really trying to get better for 150 saturdays/sundays over the course of 3.5 years. Would have hit 100/hr if I played 5/10 but wasnt bankrolled. I also played for 10-12 hours during this period. If you only played 7pm-2am you would crush it.

      The skill on a Saturday night is laughable. At the place I played at only 1-2 other pros/good people were on the same table on a saturday, and sometimes none

  11. says

    I’ll give you a better one.

    -Get a Stock Margin Account (>$25K)

    -Short 5 Aug 18’17 strike 285 TSLA puts (39 days to expiration) for about $8 a piece – you will receive $4000 and will need to set aside $20K in your account as collateral to be able place that trade.

    – Earnings are coming up in 23 days time. Implied probability (premium inflation) has been at record highs.
    After earnings, if TSLA does well and stays above $285 price, you will expect that premium to deflate and most probably in a month get to pocket the whole $4000.

    ROI = 20% in a month or so with 76% probability of making it (3 to 4 odds)

    Worst case scenario you will be the owner of 500 TSLA shares at $285, it has been already pretty beat up, it should come back to previous highs, market is unstoppable.

    You’re welcome.

  12. Pops says

    I see this all the time during football season. There are guys who pick 55% on their picks and could make great $$ on straight bets. But they live for 8 to 10 game parlays and live for the emotional high of the big hit. Its stupid

  13. JP says

    My best analogy of Mayweather-Conor is a world-class triathlete tying to beat Michael Phelps in swimming. Conor is a good boxer by MMA standards, but boxing is just a part of MMA along with wrestling, submissions, kicks, elbows, knees, etc. Even the footwork is different, as boxers have no fear of takedowns or leg kicks.

  14. says

    Charlie Munger could not have said better what you’re sharing here in this post.

    “We look for a horse with one chance in two of winning, and that pays three to one. In other words, we’re looking for a mispriced gamble. That’s what investing is, and you have to know enough to know whether the gamble is mispriced.”
    –Charlie Munger

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