The Investor

Bet the Market

But if you bet mentally, you could lose your mind. A report from Las Vegas.

By 1.29.03

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One of the great things about Las Vegas is that you don't have to worry about news of the outside world. The town is protected by some kind of invisible dome that filters out earnings news, tax cut proposals, preparations for war, and weapons inspections. The late, great poet and gambling-writer A. Alvarez told a story about a Vegas poker-room regular during the late Sixties who was surprised to learn that we were fighting a war in Vietnam.

State of the Union address? Never heard anything about it, don't have an opinion. I spent a lot more time discussing how to bet the Super Bowl. In that regard, I hereby apologize for not sharing my good fortune with the readers of this column. I was certain Tampa Bay would defeat Oakland in the Super Bowl and even took the trouble of going to Las Vegas, one of the forty-nine states in which gambling of some kind is legal, to bet on the game. I can't (or, more accurately, won't) share my winnings, but I will give you the benefit of my counsel on these matters in the future.

Betting is one of the great mental exercises of a free society. At least, that's what I tell myself while I shred my markers and losing lottery tickets and betting slips.

I've heard all the arguments. Gambling is immoral, populated by bad characters, the bane of the poor and stupid, and basically unproductive. I disagree with all of it, and believe gambling can involve a process that is healthy to investors and all smart people.

When I was in college, my Dad took me to the racetrack for the first time (in part, I suppose, to show me what happened to the money that was supposed to pay for Harvard). I was surprised and impressed by the surroundings. It seemed like a clean place, populated by nice people. In fact, the only two slightly disreputable-looking people I saw were my uncle and my Dad's friend Joe Beef. (For those familiar with the Detroit harness racing scene, he was also known as Joe Patty Melt, Joe Cheese, and Joe Hamburger.)

I can't say that poor people don't gamble, or aren't lured by gambling, but there didn't seem to be many poor people at The Venetian for Super Bowl weekend. (At least, they weren't poor when they arrived.) Governments have generally closed the high road on this argument for good. Nearly every state has a lottery, and several urban areas have licensed casinos in locations with the best access to low-income adults. Many religious groups these days raise money through some form of gambling.

Granted, some people can hurt themselves through their gambling. They can also hurt themselves skiing, going to a ballgame, having extramarital sex, smoking, and visiting friends who own pets. Caveat emptor.

On the other hand, gambling has one great benefit, and I'm talking about in addition to developing mob ties. Making a wager rewards intelligence and the proper weighing of probabilities of risks and benefits. Unless you are willing to travel at least part way down the path to self-destruction, you may not know that there are actually gamblers who make money. They don't pull slot machine handles (though a couple people claim otherwise) or buy lottery tickets or bet on the dice or the spinning wheel. The house always has an advantage in those games, and no amount of brainpower can legally overcome that. (Blackjack is different and there are some professional blackjack players, though usually not for too long. Though the house has an edge in blackjack, keeping track of the proportion of certain cards and making bets and plays accordingly can give players a small edge. Casinos do everything they legally can, and sometimes more, to keep those people away from their tables.)

There are a few professionals who consistently make money betting on horses or other sports or playing poker. In these games, you are betting with the other players. The house takes a cut of the action, but you only need to be marginally better than the other players to exceed the house rake. Not too many people succeed, and most of those who fail lead miserable lives. But the few consistent winners all succeed by doing the same things:

They crave information -- Unless a bookmaker is making book as an accommodation, he has to offer odds on a lot of sporting events. Go into a casino on a weekend afternoon during college basketball season and there are over fifty games on the board. Stanford vs. UCLA is almost risk-free for the house. Information on the highly ranked teams is widely disseminated. With a lot of bettors on both sides of the bet, the point spread will probably be pretty efficient. But what about Murray State vs. Eastern Illinois? The expert sports bettors pick these games, where they can learn more than the oddsmakers -- if you sell any out-of-state subscriptions to student newspapers of Ohio Valley Conference schools, guess who is buying them? -- and the bookie can't count on "the market" to help set a good spread or bail him out of a mistake. The Super Bowl, in contrast, is a vacation day for real sports bettors.

They find value -- Point spreads usually represent an accurate assessment of the difference in ability between two teams. In many instances, however, it is merely a means of assuring that bookies get equal action on both sides. (That's how bookmakers make their money: they match up bets on both sides of a proposition and charge a small commission, or vigorish, on losing bets.) A lot of Chicagoans go to Vegas during football season and they like to bet on their home team. To get enough bets going the other way, the point spread may be overly generous to the opponent.

They are in for the long haul -- If you truly have an edge, it may reveal itself only over a lot of trials. You can do everything right and still lose sometimes. Many otherwise successful gamblers won't cut their losses and will do ridiculous things like doubling their bets at the end, to get a winning "session." The smart gamblers know that it is all one long game with a lot of wins and a lot (but fewer) losses.

They hold a little something back -- As much as confidence is an essential part of the gambler's armor, the best gamblers know they can't put every dime into every idea they have. Johnny Moss, the legendary poker player, won $100,000 in Las Vegas back in 1950, and told his wife Virgie, back in Odessa, Texas, to pick out a nice house and he would wire her the money. "That way, whatever happens to me, you'll always have that house." Virgie and a friend had a great time looking at houses. ($100,000 will buy you a lot of house in Odessa today.) Every night, Johnny would ask if he could wire the money, and Virgie would tell him the experience was so much fun that she wanted to look just a few more days. Two weeks later, Virgie called her husband and said, "I found the perfect house. Wire me the money." Johnny said, "You should have asked for it while I still had it."

Come to think of it, these are all good pieces of advice for investors: learn everything you can about prospective investments, look for some less-well-known companies for value, understand how to cut your losses, invest for the long term, diversify. If you do those things, and stay away from the free buffet, you can be a good gambler, and a better investor.

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About the Author

Michael Craig is a writer in Scottsdale, Arizona.