Sports betting v. Playing the stock market

[fearless]

Sports betting v. Playing the stock market - Which do you have more faith in? Please compare and contrast these two types of gambling.

I'm sick and tired of people putting down betting on sports. It's a hundred times less risky and more profitable than the stock market for the common man (if you know what you're doing), IMHO. Sure, there are a few Warren Buffets out there but for every guy like that there's a million who have lost their shirt gambling in the stock market. Even if you're winning in the stock market, you can lose big. Here's an explanation:

http://www.gold-eagle.com/editorials_05/schiff011306.html

If the congress wanted to shut down internet gambling, why are datek and all the other online gambling sites that specialize in the stock market still allowed to operate? It's a sad joke.

[ShamsWoof10]

well that's the easiest question when it comes to why.. It's simply because if they wanted to stop it they could very easily but it's like I said in another post in that "they" provide it for us and only make it look like they are against on the surface for political correctness... As a Federal Reserve worker supposedly said... "the answer to the coming dollar crises is the debit card..." Online Gamming is going NO WHERE!!!

[ShamsWoof10]

As far as the stock market vs. sports betting.. hmmm well there are some interesting factors here... The stock market is fixed and this I am sure of... When you know this it makes it much easier because it's easier to fix a decision or manipulating the markets then making a FT... I believe the Fed Reserve is fixing the market wtih liquidity through the banking systems and then through the brokrage houses...

Anyway it all depends on what specifics you are comparing.. For instance if you play straight futures the risk of losing your shirt is very real because you can lose more then you put in.. With futures options it's more like sports wagering where yoiu could only lose what you put in but the returns are less.. It is the same in concept where they are both gambling there is no question there even if it's a mutual fund...

MY FINAL ANSWER IS THE MARKET IS EASIER!!!..for the below reasons:

1... Sports betting allows wins and loses in a MUCH shorter period of time so you can play more often and lose more often..
2... It's only in futures where the rate of risk is VERY HIGH but generally the over all risk in the market is much lower as is the return..
3... It's black and white with sports betting there is usually not a grey area in the sense that you either win or lose but with the market if you lose it's usually not all your money but some of it and it you are wrong at first you have as long as you are willing to hold on to it or take SOME loss instead of all of it....

[durito]

I'm not entirely sure what you mean by: "Which do you have more faith in?"

At a most basic level, you could buy an index fund, and over time you will make money. No skills or knowledge are needed to do this.

Whereas in sports betting, with no skills, one could expect at best to hit 50% of their best, and thus lose money long term.

However, for serious sports invesors, with winning strategies that have consistently won long term, the % returns one can make betting sports can be far greater than average market returns -- even for talented individuals that consistantly beat the market.

[fearless]

I'm not entirely sure what you mean by: "Which do you have more faith in?"

Everyone has to decide what that means for themselves.

At a most basic level, you could buy an index fund, and over time you will make money. No skills or knowledge are needed to do this.

That's not necessarily true anymore although it may appear that way on the surface. Here's an example of why:

http://www.gold-eagle.com/editorials_05/schiff011306.html

[Korchnoi]

> Please compare and contrast these two types of gambling.

The main difference is that the sportsbetting is a zero sum game, while our modern free market economy is not. When a company goes public and issues stock to raise capital, in theory it uses this money to become a better company. Both the company and the investor can win.

Other than that, there are financial instruments that work identically to sports bets called binary options. For example, you can make a bet on whether the fed will raise interest rates (expires at 100 if they do, 0 if they stay the same or are lowered). These will have the exact same risk/reward profile as, say, a future bet on a team to win the superbowl.

>It's a hundred times less risky and more profitable than the stock market for the common man (if you know what you're doing), IMHO

How "risky" either is depends on how you bet and how much. If you buy a binary option for 7 (%) for the fed to raise rates, your risk profile is the same as if you paid 7(%) for the Saints to go all the way next season. The vast majority of investments in the stock market will be less risky b/c when you buy stock you'll rarely double or half your money.

>a million who have lost their shirt gambling in the stock market

Most people who have been in the stock market for any period of time have actually made money. It can seem more risky b/c the casual sports bettor will play with a bankroll much smaller than the sum of their market investments.

>If the congress wanted to shut down internet gambling, why are datek and all the other online gambling sites that specialize in the stock market still allowed to operate? It's a sad joke.

Free capital mkts is synonymous with capitalism, it ain’t going anywhere. Yes, there’s definitely some hypocrisy in the way these two similar activities are viewed by law makers and the general public.

[durito]

Everyone has to decide what that means for themselves.



That's not necessarily true anymore although it may appear that way on the surface. Here's an example of why:

http://www.gold-eagle.com/editorials...iff011306.html

First of all, no major currency is currently backed by gold, so that's irrelevant.

But, to compare it to sportbetting, the value of your bankroll in terms of gold, has also fallen the same amount.

[capitalist pig]

IMO, the markets are way to risky for trying to day trade, vs making a single sports bet daily. You stand a better chance of hitting a sports bet, verse hitting a winning day trade. To many variables in the market for non pro daytraders. Stocks are moved by the big boys either buying or selling, and its impossible to know who on any particular day is going to buy or sell 10 million shares of xyz stock. They will move the price, and you will take the ride either up or down.

Now if you want to stick your $$ in good funds, then the market is a bettor bet. I averaged over 20% last year on a S&P fund, Russell 2000 fund, and an international fund and thats not having to do a thing.

If you think the fees are bad with the online books, you should try daytrading, it will make the book fees seem almost irrevelant.

JMO later

[PeterWellington]

Your average sports bettor is a long-term loser.

Your average stock market investor is a long-term winner.

But they are both forms of gambling and I think it's hypocritical to allow one and not the other. To me, it's an issue of individual rights. A grown adult should be free to make or lose his money in any way he chooses so long as he's not hurting anyone.

Personally, I have faith in the stock market but even more faith in my own abilities to be a long-term winner in sports betting.

[Ganchrow]

Sports betting v. Playing the stock market - Which do you have more faith in? Please compare and contrast these two types of gambling.

I'm sick and tired of people putting down betting on sports. It's a hundred times less risky and more profitable than the stock market for the common man (if you know what you're doing), IMHO. Sure, there are a few Warren Buffets out there but for every guy like that there's a million who have lost their shirt gambling in the stock market. Even if you're winning in the stock market, you can lose big. Here's an explanation:

http://www.gold-eagle.com/editorials_05/schiff011306.html

If the congress wanted to shut down Internet gambling, why are datek and all the other online gambling sites that specialize in the stock market still allowed to operate? It's a sad joke.

Firstly, that "editorial" to which you have linked reads more like an advertisement for gold investments than a cogent explanation of the perils of stock market investment. This is hardly surprising when you consider that gold-eagle.com is at best a gold advocacy website, and a worst a haven for gold market touts. The truth is that while over the short-term gold has sometimes outperformed most broad-based measures of the US equity markets (and has typically proven itself a good hedge for short-term stock market fluctuations), over the long-term US equities tend to significantly outperform gold.

Secondly, in my opinion it's rather disingenuous to equate long-term investment in the stock market with sports betting. Sure, there's an element of risk to both activities, but if you follow a buy-and-hold-type strategy of a broad-based equity market index, you can expect over the long-run to come out ahead. The same most decidedly can not be said for sports betting.

You'll see all kinds of numbers thrown about on sports betting forums claiming to presage what percentage of current sports bettors are likely to lose money over the remainders of their betting careers. The numbers always vary slightly, but are typically in the neighborhood of maybe 95-99+% (reminding one of tacomax's maxim that 87.45% of all statistics cited on message boards are fabricated). Now I myself don't claim to know what the actual figure might be, but I think it's clear that at the very least some large unspecified majority of sports bettors will be net losers over their careers. As such, there's good reason why IRAs are considerably more likely to contain SPYders than they are to contain 2007 NY Yankees World Series futures.

Thirdly, I'd certainly have to question the methodology you've used to determine that "[sportsbetting is] a hundred times less risky and more profitable than the stock market for the common man (if you know what you're doing)". But hey, if this really is true for you, and you can actually document your performance, then I urge you to get in touch with me ASAP. At a 100x the return and 1% the risk of the US equity market, I'm sure I could find you a few investors.

And lastly you ask "If the congress wanted to shut down Internet gambling, why are datek and all the other online gambling sites that specialize in the stock market still allowed to operate?" Again, I do suspect you're being somewhat disingenuous here. I think the obvious answer is that enabling the efficient transfer of investment capital is of tremendous value to the health and success of any economy. If a city had 5,000 bakers and 3 ovens then I suspect the city's residents would be happy to have a company like Datek assist in finding investors to provide ovens for that sandwich-starved metropolis. Sports betting, on the other hand, does not appear to provide the same benefits to economies-at-large.

Even those of us who believe that sports betting should be completely legal in the United States should still be able to recognize that it's not internally logically inconsistent of our lawmakers to permit online brokerage companies to function while still prohibiting online sportsbooks. (Permitting online horse betting but prohibiting online sports betting? Now that's a different story entirely.)

[Ganchrow]

The stock market is fixed and this I am sure of.

Well you're certainly entitled to your own opinion ...

[Ganchrow]

The main difference is that the sportsbetting is a zero sum game, while our modern free market economy is not. When a company goes public and issues stock to raise capital, in theory it uses this money to become a better company. Both the company and the investor can win.

Well, I think it's clear that unless you discount the substantial vigorish paid by most sports bettors, sports betting is really a rather negative sum game for private bettors transacting with traditional sportsbooks, although clear you'd be right when you consider the aggregate of sports bettors and sportsbooks). Betting exchanges obviously come closer to a zero-sum model given their relatively low commission rate (which is still more than an order of magnitude greater than commissions typically paid in US equity markets.)

But speaking of the market as a positive-sum game, I posted the following some time ago on this message board (and lest I upset my erstwhile antagonist in this argument allow me to emphasize that to simplify the issue I've rather purposely ignored the impact of commissions. OK, RS?)

Is the Stock Market a zero Sum game?

The short answer is yes and no.

The stock market itself is nothing more than an exchange where people trade cash for partial ownership of some conglomeration of capital (you can think of capital as "that which aids in the production of goods or the delivery of services" -- examples of such might include items as diverse as computer hardware or software, farming implements, hammers, office space, mops, microscopes, trademarks, or patents). The amount of cash required to purchase said conglomeration is solely determined through its supply and demand as well as by the infrastructure of the market itself. The stock market is what's known as a secondary market in that buyers or seller of capital do not transact directly with the company itself (with the exception of share buyback programs) but rather with other members of the public (where a member may be either an individual or a conglomeration of individuals such as hedge funds, mutual funds, or pension funds).

As such the stock market is a zero sum game. If (agents for) you buy a share of IBM from (agents for) me at $80 on the floor of the New York Stock Exchange and the share price later rises by $1, then you've made $1 and I have lost $1 (of potential profit – this is known as “opportunity cost”). There's no way to make (or lose) money buying or selling a stock on a secondary exchange without it costing (or benefiting) some one else an equal amount (putting aside the dead weight loss of commissions and exchange fees).

Now comes the however. The stock market is not the only place to way to purchase stock. There’s also a mechanism for purchasing stock in the United States (and every country has an equivalent) called the public offering market. Broadly speaking, there are two types of public offerings: initial public offerings (known as IPO’s) and secondary public offerings (which I suppose might be known as SPO’s, although I can’t honestly recall if I’ve ever heard that acronym used). The essential difference between an IPO and an SPO is that the former represents a public offering of a stock which had not previously been publicly traded while the latter represents a public offering of stock which had previously been publicly traded. But what exactly is a “public offering”?

The term “public offering” is itself a bit of a misnomer. Public offerings are really not all that public. In general, it’s much harder to purchase stock through a public offering than it is to purchase stock on a stock exchange. I won’t go in to the gory details of how public offerings work either in theory or in practice, but the defining characteristic of all public offerings is that they represent the mechanism by which companies may sell previously unissued shares of stock to (certain elements of) the public.

Now it’s my contention that public offerings in general are not zero sum games but are in fact positive sum games. To best explain we first need to get away from the abstraction of a publicly traded corporation and consider a hypothetical company. Typically, when microeconomists discuss hypothetical firms they use the term “widgets” as an abstraction for the generic goods produced. However, because this is a sportsbook review site let’s consider a small bookmaking operation.

When this hypothetical operation first begins the company is just a single person – the owner/operator -- let’s call his Bill. Bill has no equipment and no money. All Bill owns is the shirt on his back and the shoes on his feet (if you like you can also assume Bill owns a pair of pants and some underwear). Because he has no money the only way he can operate is as the agent of another larger bookie. Bill books bets at -109 and then lays them off on the other bookie at -110. Because he doesn’t even own a pen he can only book as many bets as he can remember. He doesn’t make very much money doing but at least he’s able to survive. Now after doing this for several weeks he’s able to sock away enough extra cash to buy a few pens and some paper. (This is an example of “capital”.) After Bill does this he finds he’s able to book significantly more bets per week and increase his profits substantially. Then it further dawn on Bill that he can start making much more money by buying or renting office space, telephones, computers, software, and by having access to a credit line so that can operate independently of the larger bookmaker. Unfortunately, Bill realizes that it might take him years to generate enough profits to allow him to grow his burgeoning company as he might wish.

So what’s Bill to do? Big dreams but small pockets and all that. So Bill thinks for a while and decides to hit the pavement and find some investors. He tells his potential investors that for every $10 they invest with him they can own 0.01% of the company. (By doing this Bill has implicitly valued the entire concern at $100,000.) Because a lot of people believe in Bill’s business plan and because Bill’s such a top-notch salesperson, he’s quickly able to sell off 10% of his holdings and come up with $10,000 of operating capital.

This is the equivalent of a public offering. If Bill’s company is successful then he’ll be able to generate good returns for his investor while increasing his own profits all because of the equipment he can purchase by virtue of the cash infusion. In short this is a win/win scenario. Bill makes money and the investors make money. Without the investors Bill could not so much money and without Bill the investors couldn’t make money.

So now let’s relate this back to the original concept of a stock market. Remember that Bill’s investors were able to purchase “0.01% of the company” for every $10 they invested. But what exactly does this concept of “owning 0.01% of a company” actually mean? As company operator Bill is certainly entitled to pay himself a fair salary, and as 90% owner Bill is certainly entitled to 90% of profits net of capital expenditures. But what if there are no profits net of capital expenditures? In other words, what if Bill as operator decides to reinvest all the profits back into the company (perhaps establishing or setting up a health plan so as to attract better employees)? If this occurs then Bill’s investors won’t be able to get paid. Certainly, the value of their holdings within the company might well increase but if they themselves were concerned about liquidity they would be unable to extract any cash from their investment and potentially unable to pay their own bills or fund what they might consider ultimately a superior investment. But enter the stock exchange. If Bill’s stock were publicly traded then any of Bill’s investors could sell his ownership in the company at the secondary market even if Bill could neither pay out dividends nor could he repurchase his company shares.

So therein lies the interplay. The very existence of stock exchanges make it easier for companies to raise money from the public. Companies don’t raise money on stock exchanges but the exchanges do give potential investors the security of knowing that they can readily translate their ownership in a company into hard currency if the need should ever arise. This security translates into greater in fundraising. Ask yourself this question: With whom would you rather invest money -- a company from which you can only cash out your investment on their terms, or a company from which you can cash out your investment at any time any without any interference?

So is a stock market a zero sum game? Yes and no.

Yes, it is a zero sum game insofar as an exchange devoid of any new issues does not present any opportunities for market participants to generate income in excess of that lost by other market participants.

And no, it’s not a zero sum game in that stock markets allow corporations the opportunity to more easily raise capital from the public. And, as lakerfan writes, if these companies can use this capital to create value, then ultimately everyone wins.

[wack]

Everyone has to decide what that means for themselves.



That's not necessarily true anymore although it may appear that way on the surface. Here's an example of why:

http://www.gold-eagle.com/editorials...iff011306.html

The fall in 99-2000 was the "25 year itch"/bubble effect which happens, so to compare what's happened since a "worst case scenario" actually occurs is meaningless and misleading.
6 years means nothing. Over 150 years the stock market has risen between 8 and 10 per cent per year on average.

Therefore, you have an inherent advantage. Its like a casino with the odds stacked in your favour. You erode this advantage by trading more heavily (which incurs costs which come off your bottom line) and trying to guess which way the market is going rather than buying index funds and you also lose this advantage by paying some overpaid active fund manager to buy stocks for you.

In summation most professional gamblers aim for a return of 10% on stakes over the year. The stock market in index funds in the long run will provide the same return - however of course you can recycle your money much faster through gambling. Very few have the talent to make 10% ROI + per year, whereas all of us could invest in index funds if we so chose. QED.

[Korchnoi]

I totally agree with newb411breaker19 (that's what I was going for in my breif, if glib, positive sum discussion), thanks for posting that Ganchrow.

[Ganchrow]

I totally agree with newb411breaker19 (that's what I was going for in my breif, if glib, positive sum discussion), thanks for posting that Ganchrow.

You mean you agree with me? newb411breaker19 had just posed the initial question.

[Korchnoi]

You mean you agree with me? newb411breaker19 had just posed the initial question.

My bad, I like your explanation very much.

[jjgold]

The huge difference is long term betting sports is a losing prop vs long term trading a stock you probably will not lose as much or show some profit.

The stock market is a rich mans game, sports is for the poor man for the most part.

If someone gave me $10,000 to gamble with and I had pick which to trade , I would pick stocks

[ShamsWoof10]

I think what everyone has to understand when making assumptions about the stock market is that it's like an exchange from what I understand... You buy a stock from some one selling it or sell one to someone buying it.. In a sports exchange you do the same thing... So in the sports exchange for every winner there is a loser does that apply in the stock market as well..? It is supposedly an exchange... What I gather is being assumed is that EVERYONE long term can get 5%-10% long term.. Well who loses..?

[Korchnoi]

I think what everyone has to understand when making assumptions about the stock market is that it's like an exchange from what I understand... You buy a stock from some one selling it or sell one to someone buying it.. In a sports exchange you do the same thing... So in the sports exchange for every winner there is a loser does that apply in the stock market as well..? It is supposedly an exchange... What I gather is being assumed is that EVERYONE long term can get 5%-10% long term.. Well who loses..?

Did you read Ganchrow's post?

The "pie" gets bigger. The natural seller of stock is the issuing company, who doesn't get hurt when their stock does well. It is not true that for every investor who is long a stock, there is one short a stock. The world is long stock.

Ganchrow explains this primary mkt vs secondary mkt distinction in his post.

[Ganchrow]

I think what everyone has to understand when making assumptions about the stock market is that it's like an exchange from what I understand... You buy a stock from some one selling it or sell one to someone buying it.. In a sports exchange you do the same thing... So in the sports exchange for every winner there is a loser does that apply in the stock market as well..? It is supposedly an exchange... What I gather is being assumed is that EVERYONE long term can get 5%-10% long term.. Well who loses..?

As I attempted to explain above, while stock exchanges represent zero-sum games (in the absence of exchange fees and commissions), the public offering market does not.

This is the relevant portion of my post above (and I apologize for re-reposting it):

Now it’s my contention that public offerings in general are not zero sum games but are in fact positive sum games. To best explain we first need to get away from the abstraction of a publicly traded corporation and consider a hypothetical company. Typically, when microeconomists discuss hypothetical firms they use the term “widgets” as an abstraction for the generic goods produced. However, because this is a sportsbook review site let’s consider a small bookmaking operation.

When this hypothetical operation first begins the company is just a single person – the owner/operator -- let’s call his Bill. Bill has no equipment and no money. All Bill owns is the shirt on his back and the shoes on his feet (if you like you can also assume Bill owns a pair of pants and some underwear). Because he has no money the only way he can operate is as the agent of another larger bookie. Bill books bets at -109 and then lays them off on the other bookie at -110. Because he doesn’t even own a pen he can only book as many bets as he can remember. He doesn’t make very much money doing but at least he’s able to survive. Now after doing this for several weeks he’s able to sock away enough extra cash to buy a few pens and some paper. (This is an example of “capital”.) After Bill does this he finds he’s able to book significantly more bets per week and increase his profits substantially. Then it further dawn on Bill that he can start making much more money by buying or renting office space, telephones, computers, software, and by having access to a credit line so that can operate independently of the larger bookmaker. Unfortunately, Bill realizes that it might take him years to generate enough profits to allow him to grow his burgeoning company as he might wish.

So what’s Bill to do? Big dreams but small pockets and all that. So Bill thinks for a while and decides to hit the pavement and find some investors. He tells his potential investors that for every $10 they invest with him they can own 0.01% of the company. (By doing this Bill has implicitly valued the entire concern at $100,000.) Because a lot of people believe in Bill’s business plan and because Bill’s such a top-notch salesperson, he’s quickly able to sell off 10% of his holdings and come up with $10,000 of operating capital.

This is the equivalent of a public offering. If Bill’s company is successful then he’ll be able to generate good returns for his investor while increasing his own profits all because of the equipment he can purchase by virtue of the cash infusion. In short this is a win/win scenario. Bill makes money and the investors make money. Without the investors Bill could not so much money and without Bill the investors couldn’t make money.

So now let’s relate this back to the original concept of a stock market. Remember that Bill’s investors were able to purchase “0.01% of the company” for every $10 they invested. But what exactly does this concept of “owning 0.01% of a company” actually mean? As company operator Bill is certainly entitled to pay himself a fair salary, and as 90% owner Bill is certainly entitled to 90% of profits net of capital expenditures. But what if there are no profits net of capital expenditures? In other words, what if Bill as operator decides to reinvest all the profits back into the company (perhaps establishing or setting up a health plan so as to attract better employees)? If this occurs then Bill’s investors won’t be able to get paid. Certainly, the value of their holdings within the company might well increase but if they themselves were concerned about liquidity they would be unable to extract any cash from their investment and potentially unable to pay their own bills or fund what they might consider ultimately a superior investment. But enter the stock exchange. If Bill’s stock were publicly traded then any of Bill’s investors could sell his ownership in the company at the secondary market even if Bill could neither pay out dividends nor could he repurchase his company shares.

So that's the point. When you purchase shares in a public offering (that is when you invest capital) both the investor (may) win and the company (may) win. This is because you've an investment opportunity, and because the company's been able to use your money to purchase much widget for its production.

This is somewhat similar to what happens when you buy, let's say, a a computer. The computer company wins because it's made some money and you win because you now have a computer. The key is that you deem the computer more valuable than the money you've spend and the computer company deems it less valuable. So what we see in a general sense is that because different people need or want different things to different degrees all parties come out expected utility-wise ahead when transacting within any market.