Guest Post - Gambling in World Cup vs Investing in Stocks
The World Cup fever is here and we are through the group stage so far, which sees some surprising results such as Germany being eliminated.
The fever means there are plenty of gambling options to participate in the fun side of things, but things can get bad if one treats it as a long sustainable sort of investment.
I've made my fair share of losses in the group stage when I bet for a draw for England against Belgium yesterday but they are all entertainment for the fun part of it.
Here is Chris Susanto, a good friend of mine who runs the blogRe-ThinkWealthwho shares his side of things on his experience between gambling as opposed to investing.
Hi my name is Chris.
Looking at the relationship between risk and reward is fascinating and interesting to me.
I am sure you are familiar with the terms "odds" and "payout".
In stocks, when the odds that the business is going to be bankrupt is low, the chances of a dividend and cash flow cut is low, I have higher odds of winning and higher payout as the price of the stock goes lower - assuming I am right.
In stock investing, we call this, margin of safety.
I've always thought that betting is different, the odds are always against us.
The odds are with the house, with the banker. So I knew that the amount of money I put in - if ever - to bet, is the cost of "fun".
But I hadn't experienced betting myself before, so I am not really sure if I am right.
Hence, I decided to do something new.
Something I had not done before.
I bet money on soccer, for the world cup 2018.
I wanted to see if I make money. I wanted to see if I will have a positive return on "investment" on it. I placed $100 into Singapore Pools account and after less than a week and 5.5 matches of consecutive losses, I lost 100% of my money.
Well, I've got to say that Singapore Pools have a very seamless verification process online for opening an account. Kudos to them. But this is a painfully good and rewarding experience for me to have gone through the emotional ride of betting money on soccer.
I am grateful for it.
The main mistake that I did was that I focused too much on the potential payout that I could get.
I was greedy.
I betted for games or stakes that give me lower odds of winning but higher payouts. That explains the consecutive losses. I just could not stand on betting $1 and winning 17 cents if I am right and losing $1 if I am wrong - which was the odds for the Brazil vs Costa Rica match on 22 June 2018.
I picked Costa Rica and I was on the verge of winning, if they drew with Brazil. But during the last 6 minutes of added time after full time, Brazil scored two goals. I lost.
Here's what I learnt:
1. Soccer is very unpredictable - The ball is round. as of 28 of June 2018 in qualifying round, Germany is out of the world cup. Who could have predicted that? Not UBS and Goldman Sachs, that's for sure, who predicted Germany would win the cup and go to the final respectively.
2. The more the potential payout, the lesser the odds - I tend to have a tendency to want to go for the higher payout. This is greed taking place. But most of the time, going for the higher payouts like "pick the score" is throwing money into the drain. The odds are really against us.
3. Do not focus on making money when betting - When we focus on making money, we get emotional. When we get emotional, our brain do not function properly and we lose money.
4. Money management is vital - do not double your bet - Generally speaking, because soccer can be unpredictable, its all a luck game. So put in the money you can afford to lose every time (by mentally being prepared to lose it). Do not double your bet, you will double your losses.
5. Do not bet for the sake of betting - If you want to make money, get a serious vocation outside.
6. Only put in the money you want to lose - for the fun of it - Let's just enjoy and have fun. Any money gain, is a bonus. Besides that, its the cost of "fun".
When investing in the stock market, there is more certainty.
At least that is the case, when you pick the right company. Example, if you invest in Macdonald, there is more certainty that even one month from now, two years or five years from now, people are still going to eat Macdonald. There will still be cashflow coming in for the investors.
Not with betting in the world cup.
Based on world ranking and other statistics, Germany should have beaten Mexico. But Mexico won. Argentina should have beaten Iceland, but they drew with them.
Unlike soccer bet, in stocks, you do not have an estimate on the potential payout.
You have potential dividend payout for certain company. The more the dividend yield, the higher chance that there will be a dividend - cut if the cash flow cannot support it.
Both in soccer bet and in stocks, we need to be careful on a high potential payout.
When we are greedy, we forgot that we could lose it all because we are focusing too much on the potential payout. Note the word, potential. In soccer bet, money management is vital because it is so unpredictable. You cannot put $10 on the first bet and $20 on the second bet just to regain the money you lost. The odds of you losing are still high. I think that all bets should be equal weighted. If we want to lose $100 and we decide to bet in 10 games, I think $10 each for 10 games would be best.
Do not get too emotional and double down every time we lose.
In stocks, for certain companies during certain times, there is more certainty. We still need to manage our portfolio well by knowing when to buy and sell. But during over-pessimism, it is good to average down on high certainty stocks.
Last but not least, in stocks, I am so good at doing nothing. I do not invest for the sake of investing. I do not know why when betting, especially after I lost, I feel the need to bet again. This is a mistake. I am reflecting on it now and I will not repeat it in the future. In conclusion, being a good investor requires the same skill needed to be a good better.
My definition of a good better is someone who can manage their emotions well and able to control themselves. I do not believe that gamblers can profit from betting consistently for decades to come. For a good investor, that is more likely.
And for me, I better stick to investing in stocks.
Thanks for reading.
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