Gambling or Investing?

A question that I've been asking myself more and more over the last 18 months whilst I've been studying horse racing is this...

"Where do you draw the line between gambling and investing?"

And, to answer this question isn't quite as simple as it might seem; many people have the wrong idea about what corporate investors do for a living (believe me, I've been there - it's not all screaming "Buy, buy, buy" or "Sell, sell sell" - it's about a million billion times more complex than that!)

So, I anticipate that this will be the first in a series of articles about the crossover between Gambling and Investing.

A Warning!

Now, this article might come over as sounding a little bit negative.

And, if you feel that, please don't hesitate to comment.

It will be the first of a number of articles about the crossover between gambling and investing and, taken in their entirety, the series of articles should give some common sense advice and help.

Please be aware, any comments about gambling on horse racing equally (or perhaps more so), apply to day traders and the forex chappies!

Definitions...

The Random House dictionary says: "Gamble: To play at any game of chance for stakes. To stake or risk money, or anything of value, on the outcome of something involving chance."

"Invest: To put money to use, by purchase or expenditure, in something offering profitable returns."

Both seem fairly accurate but they could equally apply to each other.

The Dictionary.com web site says: "Gamble: To bet on an uncertain outcome, as of a contest. To take a risk in the hope of gaining an advantage or a benefit."

"Invest: To commit money or capital in order to gain a financial return."

Once again, similar?

Now, it has been said that... "In investing, the odds are in your favor; in gambling, the odds are against you."

Or... "An investment is simply a gamble in which you've managed to tilt the odds in your favor."

My personal definition...

My personal definition is that "Investing is about managing risk in order to make a profit" and "Gambling is risking money in order to attempt manage a profit".

And, as Warren Buffett once said,

"Risk comes from not knowing what you are doing."

Or, how about this (and this one is also mine!!!)

"If you're a gambler you go visit a casino, if you're an investor you ask your broker to prepare a report on the profit opportunities in buying shares in the casino!"

Now, I'm being serious here...

If you think that you have anything at all in common with a professional trader working for an investment bank - THINK AGAIN!

You don't!

For every trader on a trading floor in an investment bank there are probably 20 to 30 people behind him (or her) working as economists, analysts and general logistics.

Then, there are probably about 10 to 12 people in the back office doing the settlements.

And that's not even taking into account Sales & Marketing, HR and Corporate Finance!

So, if you still think you're a professional, why don't you ask yourself a few questions...

A few simple questions...

1). When your PC/Laptop has a problem, can you call your Technical Support team and know that someone will be there within 5 minutes, any hours of the night or day, to fix your problem?

If your PC/laptop is offline or otherwise unavailable for even five minutes, can you ensure that your BetFair trades are matched?

If you're offering a tipping service, can you be sure that your clients are going to renew their subscriptions to a service that can't be relied on?

How are you going to be able to analyse form if all your historical data is lost on that PC that no longer works?

2). If you want to bet on a horse/race, can you shout at your new intern... "Get a report on that horse/race on my desk by 5am or I'll have your goolies swimming in milk (low fat) with my cornflakes!"

Let me tell you - it's kind of nice having interns/junior project managers/work experience people - Donkeys is what we used to call them!

But, to be serious here, if you need some research done then who does it?

Is it you?

And, if so, where do you find the time?

If you're not a full time professional gambler, doesn't that mean that you have a full time job (and the time it takes to get to and from your job?)

And don't you have to spend time with your wife/husband and children?

Believe me, this is a serious problem for non-professional gamblers - just exactly where do you find the time to do your research?

3). Do you have fall back positions so that even if your selections lose you still end up making money?

As a professional gambler (or a trader for a market desk at an investment bank) you've got plenty of funds, OK?

If your selections don't come in today you still have money to stake on tomorrow's selections - right?

If you need to generate £30,000 a year to pay your way, you have at least £3,000,000 of capital (yours or your clients) to make that happen?

Or, don't you?

4). You use a computer to access the RacingPost.com or BetFair.com - is that right? What do you do if that laptop or computer is stolen or otherwise not available?

Do you have a Disaster Recovery/Business Continuity plan in place?

And, if so...

Has it been tested recently?

5). Are you realistic in your performance aims?

Do you know that many traders might be handling millions in funds to attempt to make a net profit of 3% to 4% a year for their clients? And they're the professionals with a whole host of back office staff to help them!

And you're trying to earn a million with an opening bank of one grand?

Let me let you into a secret, chappy...

In those posh wine bars in the city, they're pissing themselves laughing about you!

A Confession...

Look, I'm sorry but...

Unless you've got a really serious IT setup with a backup/support regime that one could expect to find behind a Trading Desk in the city...

You'll be an amateur when it come to betting on/trading on Horse Racing.

But, I'll try my hardest to try and explain what it is that I've experienced in my time in the city.

I'll try to explain how that stuff might apply to you.

And I'll try to explain how that affects whether you make profits or not; in other words, whether you are Gambling or Investing.

---

There should be another post in this series in about a week's time; watch out for it as it will contain important information (and a few tricks of the trade) about developing, testing and deploying a workable (and ultra low cost) business continuity plan/solution for your own IT.

How do you feel?

Gambling or Investing, where do you stand?

Feel free to leave a comment either way?

Your opinion is valued!

 

 

 

Links and further study...

1). "A Bloody Good Winner: Life as a Professional Gambler" - Dave Nevison is doing, every day, what thousands of punters dream of doing - living the dream of life as a professional gambler. Since taking the plunge in 1993, Nevison has made his living, a very good living, from backing racehorses. He has taken on the best bookmakers in the world, and won. It has not been easy, or a smooth journey, but a roller-coaster ride full of spectacular highs and testing lows. Nevison's frank account is full of entertaining stories of his rumbustious life, and reveals how he has succeeded while most punters fail. Heed what Nevison has to say and you will become a better bettor; ignore it, and you will still have been richly entertained, for his is a life out of the ordinary.

Get the book here... A Bloody Good Winner: Life as a Professional Gambler

2). "Mastering Betfair" - Trading the Betfair sporting markets in-play is rapidly growing in popularity thanks to the increased sporting coverage available on many different satellite and cable channels. Enthusiasm for sport is a must, but there is much more to mastering Betfair. Many people start by just using Betfair to obtain better odds than those available at the traditional bookmakers. They then perhaps do a little more research and learn to trade the markets. But to make a regular profit to win and keep on winning a serious, disciplined approach and careful planning need to be employed. Mastering Betfair takes the reader through many low-risk strategies developed by the author over the past three years, showing how you too can benefit from these approaches to the betting exchanges. It also explains in detail why and how the Betfair user should employ disciplines such as managing risk that are normally associated with trading the financial markets. Indeed, through doing this it is hoped that the book will draw the attention of financial traders to the unique opportunities available on Betfair. This book is essential reading for anyone looking to take their Betfair trading to another level and start making some serious money.

Get the book here... Mastering Betfair

3). "Enemy Number one" - This is the sensational inside story on how professional punter Patrick Veitch overcame adversity to take the bookmakers for over GBP 10 million in an eight year period. Veitch studied maths at Cambridge alongside becoming a major league punter. A comfortable life as a professional punter looked assured until his world was torn apart. He was the victim of an extortion attempt by a dangerous criminal who would subsequently be tried twice for murder and later convicted of attempted murder. Veitch was forced to flee and go into hiding, returning to Cambridge to testify in a bulletproof jacket with police protection. With his tormentor behind bars, Veitch took on the bookmakers on a greater scale than ever before. Over the following eight years, he would come to be known as the bookmakers' public enemy number one as he and his followers relieved the bookmakers of colossal sums.

Get the book here... Enemy Number One

One Response to “Gambling or Investing?”

1. jims says:

   February 28, 2015 at 7:48 pm

   Interesting article.. having spent some time in the City and then trading my own funds, I have to agree with a lot of it, unfortunately. The IT support is perhaps quite rightly the number one question in my opinion, as it’s so often overlooked. In my own experience, individual traders must be prepared to learn a lot to maintain their systems. Not to say it can’t be done of course… Good luck. All the best!

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