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Minyan Mailbag

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.


Professor Succo,

I have not seen it yet, but "Cooler" (the movie) is getting great reviews. It's about a guy whose job it is at the casino is to knock the hot hands off their edge....time for boo to get a cooler no?

Peace,

Minyan George Hill


"Cooler" is a movie about a guy (James Macy) with extremely bad luck who lost more than he could pay back in a casino. After getting his knee destroyed as a "lesson", he agrees to work as a "cooler" in Alec Baldwin's casino for several years to pay back his debt.

A cooler is someone with such extraordinarily bad luck that it rubs off on others. Whenever a player in the casino would get on a hot streak, they would send over the cooler to play next to him. Invariably the cooler's bad luck would spill over and the winner would turn into a loser. Obviously James Macy became very valuable to Alec Baldwin and this makes the story interesting when the cooler's luck changes, as it always does.

Luck always changes, even for those with extremely bad luck or good luck. It is just a matter of time. But is it really luck that is changing or is it something else? And is luck real?

I contend that luck is not real. This is not to say that streaks where things go, or seem to go, either all right or all wrong do not occur. In fact, they are a real statistical phenomenon.

Take the case where you flip a coin where there is a 50% chance of either heads or tails on each flip. If only ten flips are made and recorded, there is a real chance that six or seven heads to four or five tails may occur. This happens because successive heads may occur within the context of so few total flips. A statistician who measures this limited occurrence may incorrectly believe that the odds for heads are higher. But if more flips are allowed, say 1000, the true nature of the probability becomes manifest. The statistician will then realize that the odds are indeed fifty-fifty as the streaks of heads versus tails are allowed to balance out.

The true nature of the universe can only be determined with large amounts of data. To make decisions on limited data will inevitably lead to mistakes, like believing in luck.

The trick in gambling for example is to create a strategy so that the consequences of "unlucky" or bad streaks are minimized. If a player believes that she has the odds in her favor, no matter how small, this requires playing the game as many times as possible. This means in general to bet less when losing and more when winning. Conversely, if a player feels that the odds are not in his favor, he should bet all he has in his pocket on one game.

So managing "luck" in reality is managing risk. As a trader/money manager my most important job is to let the odds work in my favor. That means minimizing losing streaks and maximizing winning ones. It really is that simple, but it makes all the difference between long term successful money management and short term failure.

Alec Baldwin as the manager of the casino should recognize this. When his cooler's luck begins to change it simply means that the law of probability is playing out. The cooler's years of servitude should necessarily be cut short.

There is no luck, just the management of risk.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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