Two lessons that I learned about life via Sports Betting
I've never been a gambler, I hate taking risks -- I'm pretty much what you call "risk-averse", and I especially hate taking risks where you know you're going to lose (i.e. betting at the Casino). But sports betting is another beast (kind of). Unlike the Casino where the odds are mostly stacked against you, think a 49% chance of winning as your best bet, Sports Betting is a place where you can place a bet where the chances of winning could be a whopping 99% (equivalent to decimal odds of 1.01). Of course, your payout (or return) for taking such a low risk would be minuscule. A bet of $100 at odds of 1.01 would yield you only $1.00 plus your initial $100 that you put in, for a total return of $101. And this is rightfully so, because the gambling houses would go broke if they paid you any more money for taking such a tiny risk.
But here's the fun part, first of all, I'd be more than willing to take a bet with 99% chances of winning any day, given that I'm so risk-averse. Second of all, what if I made this $100 bet 1,000 times a day? Would I not end up with something like $1,100 at the end of one day? Profiting $1 for each time I bet $100 at 1.01 odds. Now, that's a 10x return on $100! People on Wall St. would kill to make that kind of return in a day. Compounded annually, those returns are absolutely astronomical. So what's the missing piece here? This definitely sounds too good to be true -- and it is.
The missing pieces is the 1% chance you lose all of your investment. Yes, all of the $100 you had to begin with. Now you may have some winnings left after the first $100 loss, but the second loss of $100 will almost always put you to zero. After that, you're done. Game over. Now, here's the lesson to be learned. Lesson 1: Don't bet all your chips if you stand to lose them all. You can't physically come back from zero. You have to have at least something to re-up if you want to come back. You can come back from $1, $2, or even $3, but you can't come back from zero. In gambling terms, "bet sizing" is important. Here's an example. If you have $150, don't go and bet $150 because if you lose all of it, you can't come back. What you should do is bet just a portion of it -- 25%, 50%, 75%, 80% -- whatever it may be. The point is to have at least something to come back from. This is absolutely easier said than done. People almost always overestimate their capabilities when they are up and will be tempted to go 100% because of Greed. The process seems simple enough but I can't stress how much DISCIPLINE this takes -- it will really test you, I promise. This is why computers make better gamblers than humans and why they're also taking over stock trading -- because they follow rules and they don't let emotions like Greed get to them. They don't have a change of heart or change course mid way and blow the whole process pieces.
Lesson 2 is a little more subtle and was more of a realization while I was Sports Betting. Lesson 2: Having success in life is about taking as many good bets as you can. Sure, life is also about taking risk. But it's about taking good risk. Here's an example: Do you smoke? Well, there's a chance that you might get cancer. Do you drink? Well, there's a small chance that you may get liver disease. Do you do both? Well, the chance that something will mess up in your body will be the combination of the two chances (let me do the math for you -- it's higher than doing just one of them). Now, I'm not telling you to be a prude and not engage in vices that make you happy. Not at all. I'm all for doing things that bring you enjoyment. Life's short, you should live it the way you want to. What I'm saying is that IF you do these things, don't go complaining that some of these negative effects might happen. Here are some examples of the flip-side: Want a job? Well, going to school and getting an education increases your chances of getting a job; it can't guarantee you a job, but it will certainly increase your chances. Want to be healthy and prevent diseases? Well, getting regular exercise and routine medical exams will make sure your body is properly maintained. All in all, what I'm saying about Lesson 2 is that life is the culmination of all the bets you take, whether they be good or bad. So do whatever it takes to make more good bets than bad ones and I'm sure it won't disappoint you.
But here's the fun part, first of all, I'd be more than willing to take a bet with 99% chances of winning any day, given that I'm so risk-averse. Second of all, what if I made this $100 bet 1,000 times a day? Would I not end up with something like $1,100 at the end of one day? Profiting $1 for each time I bet $100 at 1.01 odds. Now, that's a 10x return on $100! People on Wall St. would kill to make that kind of return in a day. Compounded annually, those returns are absolutely astronomical. So what's the missing piece here? This definitely sounds too good to be true -- and it is.
The missing pieces is the 1% chance you lose all of your investment. Yes, all of the $100 you had to begin with. Now you may have some winnings left after the first $100 loss, but the second loss of $100 will almost always put you to zero. After that, you're done. Game over. Now, here's the lesson to be learned. Lesson 1: Don't bet all your chips if you stand to lose them all. You can't physically come back from zero. You have to have at least something to re-up if you want to come back. You can come back from $1, $2, or even $3, but you can't come back from zero. In gambling terms, "bet sizing" is important. Here's an example. If you have $150, don't go and bet $150 because if you lose all of it, you can't come back. What you should do is bet just a portion of it -- 25%, 50%, 75%, 80% -- whatever it may be. The point is to have at least something to come back from. This is absolutely easier said than done. People almost always overestimate their capabilities when they are up and will be tempted to go 100% because of Greed. The process seems simple enough but I can't stress how much DISCIPLINE this takes -- it will really test you, I promise. This is why computers make better gamblers than humans and why they're also taking over stock trading -- because they follow rules and they don't let emotions like Greed get to them. They don't have a change of heart or change course mid way and blow the whole process pieces.
Lesson 2 is a little more subtle and was more of a realization while I was Sports Betting. Lesson 2: Having success in life is about taking as many good bets as you can. Sure, life is also about taking risk. But it's about taking good risk. Here's an example: Do you smoke? Well, there's a chance that you might get cancer. Do you drink? Well, there's a small chance that you may get liver disease. Do you do both? Well, the chance that something will mess up in your body will be the combination of the two chances (let me do the math for you -- it's higher than doing just one of them). Now, I'm not telling you to be a prude and not engage in vices that make you happy. Not at all. I'm all for doing things that bring you enjoyment. Life's short, you should live it the way you want to. What I'm saying is that IF you do these things, don't go complaining that some of these negative effects might happen. Here are some examples of the flip-side: Want a job? Well, going to school and getting an education increases your chances of getting a job; it can't guarantee you a job, but it will certainly increase your chances. Want to be healthy and prevent diseases? Well, getting regular exercise and routine medical exams will make sure your body is properly maintained. All in all, what I'm saying about Lesson 2 is that life is the culmination of all the bets you take, whether they be good or bad. So do whatever it takes to make more good bets than bad ones and I'm sure it won't disappoint you.
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