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Are You Trading or Gambling?

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Re: Are You Trading or Gambling?

#21

Post by superbcarrot »

tchalla wrote: post #15
TomGullen wrote: post #5

Working out EV is easy for casino table games, relatively easy for poker and extremely difficult for stocks trading.

The reason is pretty simple - probability of events are an important input to calculation of expected values. If the probabilities are off, expected value calculations will differ. Also, Expected Value works under the “law of large numbers” assumptions. That in turn brings into picture the “sequence of return” risk. Two drastically different sequences can lead to the same Expected Value but can have serious short ter…

> Also, Expected Value works under the “law of large numbers” assumptions.

Technically, EV has nothing to do with sample size. But I get your point that in sufficiently small sample sizes and/or sufficiently large bet sizes you might need to think about utility rather than expectation.

Re: Are You Trading or Gambling?

#22

Post by chillydawg »

uyt wrote: post #18

> A not so obvious result that follows from making successive negative expected value bets, is that in the long run you are guaranteed to lose all your money (or ruin). Intuitively this makes sense as with each bet, you are losing money on average. Expected value doesn't tell you much about the outcome of successive bets. Someone else can probably explain this better since it comes up on HN a lot (something about erg…

Kelly staking criteria tells you how much to bet in such situations. in this case: nothing since it's a pointless bet, economically speaking. you may derive utility from the lols, though, in which case probably don't bet the whole bank in one go!

Re: Are You Trading or Gambling?

#23

Post by dalbasal »

This is totally meta but... this style of writing or rhetoric is prone to "semantic not concept" problems. Gambling, Trading or Investing don't have strict enough meanings to withstand a "socrates is a man" analysis...

The author here is trying to make a point about EV. IE, a player is gambling, but the house is investing because positive or negative EV. I disagree.

IMO, negative or positive EV is not what separates house from punter. What separates house from punter is volatility. The house's risk is spread over many bets, and so EV (positive or negative) is a good predictor of performance. Punters don't spread their risk.

Roulette with positive EV is still gambling... it's just a "good bet." Obviously, the house tries to only offer bad bets. Skill games (both the author and gaming authorities agree) can still be gambling... though skill games can give players/gamblers a positive EV.

I also, kind of, disagree with the overall sentiment. I think ordinary people wanting to get in on r/wallstreebets' action are safer adopting a gambler mentality. Don't bring more than you can afford to lose. Bank enough winnings to ensure that this condition stays true. Then, feel free to make long odds bets.

Re: Are You Trading or Gambling?

#24

Post by IgorPartola »

elygre wrote: post #13

Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…

That makes a lot of sense. I think the GME debacle is a good demonstration of that. Shorting stocks is a part of the game. Some people exploited it, others found a counter move. I don’t believe GME is worth what the market currently values it at. But I also don’t see that fundamental value ever matching the market value anytime soon because the market has fully embraced its non-rationality regarding this stock. We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses.

Re: Are You Trading or Gambling?

#25

Post by hahahahe »

Investment is informed gambling on human behavior. Important to note especially for HN crowd, is that Claude Shannon’s information theory is very much applicable to trading (and perhaps this is why he was so interested in trading as well). Highly recommend reading The Mathematical Theory of Communication, with this lens and focus. It’s eye opening.

Re: Are You Trading or Gambling?

#26

Post by YokoZar »

elygre wrote: post #13

Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…

> An investor would not really care about the stock, but only about the behavior of other investors.

This sounds like the idea of a Keynesian Beauty Contest (https://en.wikipedia.org/wiki/Keynesian_beauty_contest)

"It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees."

Re: Are You Trading or Gambling?

#28

Post by midasuni »

IgorPartola wrote: post #14
ilaksh wrote: post #3

It's an artificial distinction. If you are wealthy, you have access to opportunities with good odds, call it trading and tell everyone about it so they know you are a sophisticated and wise investor. If you are poor, you have few good options and generally wouldn't brag about your gambling. If you do, you are labelled irresponsible.

I tend to agree. Trading stocks is essentially gambling but almost worse. The odds are rigged but you don’t know by whom abs how much. It’s a game of skill, except not entirely. The house always wins except there are multiple houses and you can lose to all of them. I think investing is a different beast: that is going long on a company, industry, or the market in general. You reasonably know that the market will over…

Stick a 1% tax on all share buys and use to reduce income tax for working people, or just issue it as a cheque at the end of the year that people can invest.

That doesn’t harm investing

Re: Are You Trading or Gambling?

#29

Post by agumonkey »

YokoZar wrote: post #26
elygre wrote: post #13

Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…

> An investor would not really care about the stock, but only about the behavior of other investors. This sounds like the idea of a Keynesian Beauty Contest ( https://en.wikipedia.org/wiki/Keynesian_beauty_contest ) "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third deg…

And I believe they orbit around the set of self fulfilling prophecies described in books. Fibonacci or similar simple arithmetic range estimates, deviation from the mean, etc.

Re: Are You Trading or Gambling?

#30

Post by dalbasal »

elygre wrote: post #13

Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…

Well put.

I am picturing as a triangle of three perspectives. That also gives you three (or 6) possible cross-perspective stories.

The dynamics between these perspectives are where things start to get squirrely. 2021 memestocks like gme are good examples. Game perspective (no. 3) was the main story. Short squeezes. Retail investors getting cut off, etc. The stock perspective (no. 2) is now all about game investors. Can the stock attract or sustain all this interest from day traders and such.

Company performance (perspective 1) is affected more by the company's stock than the other way around.

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