Trading & Gambling
Blogged By: Low Hang Wei @ October 8th, 2008 - 5:32 pmAfter watching the movie 21, I am quite amazed at how something so simple like counting cards on a blackjack table can significantly increase the chances of winning. Well, at least the concept seems easy, but I believe it will be real difficult to implement it in practice. While I have not done any research to prove that counting cards on blackjack tables can lead to profitability, I believe that it can, since it is basically about giving yourself the edge. Likewise, in poker, there are strategies that can increase chances of winning and some poker players are known to get really rich playing their trade.
Recently, I have been playing poker on facebook and I am thinking that it is insanely similar to trading, in terms of the psychology involved. In poker, we have no information on the other players’ cards and have only information on our own cards. With this limited information, we are supposed to make decisions to follow, raise the bet or fold. Likewise, in trading, we only know what we are thinking and do not know what the other parties know or are thinking. Based on the same limited information, decisions are made on buying and selling.
There are certain psychological pitfalls which trading and gambling share, based on my own experiences. For example, after losing, there is a tendency to up the bet in order to make the loss back as soon as possible. This has been proven to be a lousy strategy, since it takes just a single consecutive losing streak of about 5 to 7 times to totally wipe out your account and the probability of losing 5 times consecutively is 1 out of 32. You can almost be certain that it will happen sooner or later.
Likewise, I think that a good poker player and a good trader will share similar characteristics such as discipline, unafraid to take measured risk and the ability to guess what others are thinking. The more you know about what others are thinking, the more likely you are to make money whether in poker or trading. Maybe that’s why professional poker players don’t play first until they observe their opponents and traders reach offices at 7 to dig up all the news before trading even begins.
Of course, both in trading and gambling, there are some people who are just lucky and make some money. For these people who does not have a mathematical edge in their style of playing or trading, they will go bankrupt and make the professionals rich. Most people don’t play or trade with an edge and therefore consequently only a select few make it. Even these selected few that enjoyed previous success may eventually give back their earnings when their psychology is affected.
Anyway, I will sum up by saying that those professional traders and gamblers who are able to maintain consistent profitability throughout their career are really extraordinary. I truly respect them wholeheartedly.
Blogged Under: Personal Finance
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October 12th, 2008 at 12:43 am
You want to make money out of the market turmoil.
Please read Benjamin Graham’s ‘The Intelligent Investor’.
Turn your mindset from a speculator into an investor.
October 12th, 2008 at 2:13 pm
hi qwerty,
I do have that book. Give me insights on the ways to look at the markets.
BTW you mention that you save 50% of your after-tax income! How did you do that? Don’t you have a family to feed? Care to share some tips on your saving techniques?
October 18th, 2008 at 9:07 am
To Jianming,
Simple. I don’t have a family so I only need to take care of myself and I don’t live in Singapore where the cost of living is low.
The cost of living in where I stay (mid west of US) is low. For example, there was a 7 year freeze of electricity prices when I stayed there. When the utility company appealed to increase after 7 years, the state and the utility company chipped in to give us rebates. you won;t see this happening in Singapore.
I don’t eat out, I cook a lot and I live near where I work, so no need for a car.
Right now I don’t have much cash left, just a US$15,000 earmarked for emergencies for the next 2 years. I put that in an online savings account that gives me a 3.25% annual yield. that money is safe because deposits in the US are insured by the federal government up till $250000.
As for my investment money, I put 30% in individual dividend paying stocks(this one I call my speculative money because I feel individual stocks are risky even though they are dividend blue-chip). 20% in a bond fund and the rest in an S&P 500 index fund.
Apart from that I currently put in $1000 a month into my retirement accounts buying more of the index fund.
My only regret was that I should have done dollar cost averaging when I pumped my investment money in before last week’s crash. I was too greedy.
But I am not so worried as I am in for the long haul and at least some of the value companies that I buy will improve in 10 to 20 years time.
That is my time frame. And I can easily save up the money I lost given my frugal life-style.
One thing to look out for is cost of transaction of stocks. Get a discount online broker that charges you a low fee for stock trades.
And please do your own research, I did a lot of studies into their balance sheets and income statements before I bought.
I don’t believe in technical trading and all that stuff, you should treat the stock as real companies.
You should read the millionaire next door. That book started my savings habit a few years ago.
October 18th, 2008 at 2:31 pm
Correction, I meant cost of living in singapore is high.
November 20th, 2008 at 2:05 am
Counting cards for blackjack NO LONGER works. I am one of the few privellaged few in Singapore who work for Casinos and I can tell you that counting cards may have worked in the 50s and 60s but with the shoe decks stopped halfway, it no longer improves your chances.
Just a few cents worth.
November 21st, 2008 at 3:59 am
Flying co, you are too extreme in how counting cards can “NO LONGER” work and “no longer” improve your chances.
I find that hard to believe. Firstly, different casinos have different rules, although i believe there will not be any casinos that still deal to the last card. Of course, the more decks there are, the harder it is to keep count and the harder it is for the advantageous situation to arise. And because of the shoe deck being stopped halfway, you will not be able to do end play.
However, advantageous situations do arrive even with the shoe deck stopped halfway, so by keeping a count and playing the right basic strategy including splitting, hitting standing doubling down at the right moment while waiting for the situation to arise, you can still improve your chances at beating the game. Besides, counting cards has lots of different methods and may i ask how many you are aware of? Experts easily keep a total different count of at least 4 different methods.
Please do not be too extreme as the movie 21 ONLY introduces a very simple and compressed version of what card counting really is.
In addition, people who actually still succeed EVEN NOW in the casinos by counting cards actually do exist, just that they do not give their real name and face on the net for the most obvious reason of being recognised by the casino.
However, i will not say more, if you really want to find out, you can do some research on your own.
I will patiently await any rebuke from you if there is any to come.