Investors and Sports Bettors: What's the Difference?
What is the difference between making a bet on sports and making a bet on stocks?
I wake up early (6:30 AM) on a Saturday morning and begin by looking at the schedule of football games for the day. I get research reports from a few handicappers that I trust. I grab my bankroll, which consists of 100 units and am ready to hit the streets of Las Vegas. I am looking to place wagers on about seven games from the list of 60 games offered.
This is very similar to looking/researching a sector of the equity market and picking the best companies for longside investments.
I am constantly thinking about how much of my bankroll I should wager on each of my seven initial picks. I need to leave some of my bankroll for other betting opportunities that will inevitably come up later in the day, so I have to think strategically about my allocation of capital.
I decide to rate my plays from 1-3%. 3% might seem like a small amount to risk, but I must be prepared to lose all seven games and still have capital left for future betting opportunities. On this day two of the seven plays are 3% plays, two are 2% plays, and the remaining three are 1% plays.
This means that I am going to invest 13 units of my bankroll on the seven plays. This is what investors must do as well as they have to weight their investments based on the perceived advantage/relative strength of each investment. For example, an investor might put 1% of their portfolio in Starbucks (SBUX) while putting 3% in Boeing (BA) because the investor believes Boeing to be the stronger play.
So do I just go into the Wynn Hotel and place all my bets there? Absolutely not.
I now have to shop around the Strip for the best odds I can find on each of these seven plays. I go to the computer and look at the odds for each of the games and write down where the best line is available along with a backup book in case the odds move. This is akin to shopping the best price for a stock at the various exchanges.
Now I hit the streets of Las Vegas and begin placing my bets. Of my seven bets, six of them are underdogs. This is very typical of the bets I place because the betting public crowd loves favorites. And to make money in sports, fading the public is important because their betting inflates the odds.
This is the exact same thing as being a contrarian investor on Wall Street and buying when extreme pessimism exists and selling when there is extreme euphoria. My portfolio of bets has always been inversely correlated with the crowd noise in the sportsbook on any given day. I lose when it is loud and win when it is quiet because I end up on the opposite side of the general public.
After placing the seven bets at various sportsbooks, I turn my attention to other betting anomalies. I go from book to book looking for any bets that are mispriced.
I use various conversion charts when evaluating the different odds that are offered and calculate my potential advantage, which tells me how much to wager on these mispricings. Typically, I wager 1-2 units on these mispricings. This is what hedge funds try to do on Wall Street.
Then the games start and there are derivative bets to be made at halftime. The books will post bets for the second half of each game and at this point I can hedge exposure that I no longer want or I can increase my exposure to a particular game.
For example, I may decide to cut my exposure on a 3% play to 2% using the halftime line because I don't like how the team is playing. This is the equivalent of a trader deciding to cut their position in Boeing from 3% to 2% by selling 1/3 of the position.
I also look for anomalies in the odds offered just as I did before the games started. And this goes on all day long until approximately 9 PM, when the day ends as the last halftime wager goes off the board.
All this sounds a lot like investing. As someone once asked me, "What is the difference between a stock and a sports bet?" I responded, "Nothing except one is seen as an investment and the other as a form of entertainment."
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