Investing vs. gambling

After going through the analysis in the previous post with a friend a couple days ago, he said he had a contact in London, and I was able to put a tiny amount of money down on Ledecky. He suggested -- jocularly -- that I sell some stocks in order to increase the size of my bet.

The suggestion, of course, sounds ridiculous. If you do research and trade stocks, you're considered hard-working. But if you bet on sports, you're a degenerate gambler.

Don't ever think that when you invest in a stock you're not gambling, because you are. I've invested in stocks where I've lost my entire investment. That happens much more frequently with options than with stocks, but some stocks go to zero as well. And, of course, I've also lost sports bets.

There's really less difference between the two than meets the eye. Both boil down to probabilities, odds, informational advantage, psychology, and judgment.

As is obvious from this past week's posts, I follow swimming very closely. I could hardly justify my fan-dom by dignifying it with the name "research." (It's actually more of a vice.) But, from a sports betting point of view, it actually is research. I follow the sport more closely than the British bookmakers who set the odds. And I swam myself, so have a better feel for how and why and when swimmers perform.

When it comes to stocks, I don't have that kind of informational advantage. In fact, a lot of people, especially company insiders, have an informational advantage on me. There have been many times where, it's become quite clear in retrospect, I was nothing more than a sheep ready for shearing.

So, my friend was right. I should have sold my stocks and bet more on the race.