Wealth Creation is not Betting

“The markets can stay irrational longer than you can stay solvent” was a warning given by John Maynard Keynes. The reason the “Martingale Strategy” does not work in betting is eventually reality kicks in. The idea (popular in 18^th century France) is that in a Head/Tales style win/lose game, you double the bet every time you lose. So, the first win will cover all the previous losses. The false idea being that the gambler with infinite wealth will eventually win. Reality is not infinite, so the gambler will one day experience catastrophe if they continue playing in this way. Truth catching out a strategy with no value. Unable to place another bet. With the house’s edge, the gambler remains a mathematical loser every time they bet. I believe this is the reason those who see investment simply as a game of betting against others are existentially doomed. It is not merely a case of buying things for less than they are worth from the irrational. Waiting for normal to return. What the thing you buy does, matters. What you do, matters. Fundamentally. You need to build enough capital to survive whether the market is rational or not. Then carry on doing things that matter. Win/lose is wealth extraction. Win/win is wealth creation.

Investing is not Gambling

Green Zero

People come up with all sorts of elaborate strategies to beat the Roulette table. You can’t beat maths. On average whatever your strategy, in the long term, you lose 1/37th of whatever you put down each bet. 18 odds. 18 evens. 18 reds. 18 blacks. AND the pesky green zero. The Casino always wins. The only real winning strategy is to survive. Lose as little as possible while getting the “free” drinks. Wait for everyone else to lose first. The same is true on the other side. The Casino is only making a little each time. Enough time (Endurance) for it to add up. Enough of a buffer (Resilience) to handle the occasional big losses. Enough awareness to realise that chasing big, fast wins, can put you at risk of ruin. Enough understanding to look through the noise at what is really happening. Rule number one has to be staying in the game. Rule number two is that adding value beats gambling.

Odds and Odd People

I love playing Poker. I don't like gambling. Poker is the only Casino game I know of where the house has to explicitly take a little bit of each pot because the game isn't rigged in their favour. 

With Roulette, whatever your strategy, every time you spin you lose (in the long run). With Blackjack, the really skilled players are able to get their odds close to the houses. In the very long run the house will win. The good players play because they enjoy it and might get lucky. I don't like either game. With Poker on the other hand, you are playing the other people at the table. 

People make crazy decisions. Emotions get involved. We do stuff that doesn't make sense, but is fun. We go on gut. We mix it up. Few games I have been involved in have tested my emotions as much as poker. You can lose big with two Aces. You can make lots of money with the worst cards you can get (2 and 7 off suit). Anything can happen with any one hand. A crazy decision can work out. In the long run, it is the people who are able to combine the facts and the fiction who do the best. The people who know the odds and understand the people. The people who understand themselves, their strengths, and their weaknesses, and who adjust accordingly.

Dogs (K9) and Poker Faces

A Month's Pocket Money

I enjoy playing poker. I don’t enjoy gambling. Most people think they are the same thing and so did I until I started playing about 4 years ago.

My first experience with gambling was losing a month's pocket money (R50) as a 12 year old at the Westville Fair. I was playing a game of darts which had three stripes… two thick ones in red and blue, and a thin one in white. The board in the front had a red, white, and blue square. If you put your money in the red or blue square and the dart landed there, the `house’ matched your bet. If the dart hit the white stripe, and you had money in the white square, the `house’ doubled it. I was about R20 up at one stage and in a short space of time went from that to nothing. But now my `willingness to take risk had changed’. When I started, I was betting 50 cents or R1, and had made my way to R20 over a long period of time. I then got a little more risky, since it was `the house’s money’, and my bets got bigger. Soon, I was back to even. But my bets didn’t get smaller. I wanted to get back to R20, and I wanted to get there quickly! But it went the opposite way. I liked the feeling of winning, but I didn’t like the feeling of losing. My blood pumped through my veins, I felt like my temperature was rising, and I felt desperately out of control. On top of that, I had no pocket money left.

I promised myself I would never gamble again.

My next gambling experience was when my aunt and uncle took my mom and I to Sun City. My uncle gave me some money which he expressly told me was for gambling, and I couldn’t use it for anything else, and he didn’t care if I lost it. And lose it I did.

At university, some of my friends enjoyed hitting Grand West Casino playing outside bets on the roulette table. I wouldn’t go. Eventually one night, I did go. And I won R700! I treated my 7 flat mates to a dinner, and was rather chuffed, but it wasn’t enough to get me hooked. I had a strict betting rule. If I placed a bet and won, the chip that won the bet was banked… the winnings could be bet again, and I only started with two chips to bet. I couldn’t stand the idea of walking out of a casino having lost a lot of money.

Then one night, I was a friends house and they were playing poker with copper coins. I joined in since it was a R10 buy in or something. I really enjoyed the game, and started finding it very suspicious that Nick (there are so many Nicks who play poker, they have to be given nicknames.) won every single week without fail. He would win with a pair. I would lose. One hand he would win with a straight, and the very next hand when I had a straight, someone else would have a flush. It made no sense! No sense if it was gambling. I soon realized that that is exactly the point. Poker is not gambling, poker is a game of skill.

Well, played properly it is not gambling. The better players come out on top in the long run. Chris Ferguson (a former world champion) says any one hand is probably 99% luck, any one game is probably 90% luck, but over a year, it is probably only 10% luck. I have no research to back this up, but over the time that I have played, I think it is pretty accurate.

Poker pretty much ended my desire to gamble. Just after starting playing, I went to a Comedy Festival at Grand West with my girlfriend at the time, as risk-averse if not more than me being a Chartered Accountant in the making. I really wanted a Milky Lane waffle, and had just R100 on me. We also wanted to just give the gambling a little go… so I decided I would play a little bit, then buy the waffle. I got two R50 chips. I bet on black… it was red. I bet on black again… it was red again. My R100 was gone, and I had no waffle to show for it.

It took me a whole evening to lose R100 to Nick playing poker. Like a little boy who loses a month's pocket money, I didn’t want to play any more.