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Are You Trading or Gambling?

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Re: Are You Trading or Gambling?

#111

Post by spydum »

ab111111111 wrote: post #104

"Gambling occurs when you have a poor understanding of risk, resulting in either (1) negative expected value bets, or (2) poor bet sizing that leads to ruin." Not so. Top poker players are still gambling, but have an excellent understanding of the risks. Their skill doesn't turn them into investors. Gambling is taking a high risk bet. Whether the expected pay off is high enough to justify the risk and whether you can…

I thought the exact same thing.

I suspect a better definition would be a wager based on random chance. Markets aren't "random", they are just suitibly complex enough to seem like it. Some people apply algorithms and emotional analysis to predict behavior. This might sound like poker, but I would argue all of the influences in a market are clearly visible. In a game of chance like poker, card ordering is still random (yes you have probability of predicting next card, but you can't see it until it happens).

Re: Are You Trading or Gambling?

#113

Post by RivieraKid »

lordnacho wrote: post #31

This is only scratching the surface of the question. For interest, there's a very common negative expected value bet that almost everyone is required to make: insurance. We don't consider that gambling, in fact we often tell our parents to buy some when they fly on holiday. Why? The answer touches on the lottery. We care about not just the average case, we care about what might happen. Regarding Kelly criterion, ther…

Insurance has a positive expected value if you've made a good decision.

Re: Are You Trading or Gambling?

#114

Post by drunkpotato »

criticaljudge wrote: post #53
TeMPOraL wrote: post #36

Earlier quoted context omitted.

> But I also don’t see that fundamental value ever matching the market value(...). We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses. I think you're still doing L1/L2 thinking. The way I understand L3, there's no such thing as "fundamental value". There's only market value, that's determined by what people think the market value is. The extent to which it's correlated…

But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks. As for the usefulness question: providing liquidity is useful. If an investor considers investing in some project, it helps his dec…

I care a lot what other people do with their money. I care if they use it to harm people. I care if they use it to buy legislation to replace pensions with 401ks. I care if they “earned” it through fraudulent means. Some ways to use money are beneficial or neutral, but some are harmful.

Re: Are You Trading or Gambling?

#115

Post by GuB-42 »

JohnJamesRambo wrote: post #76
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…

I think the problem with this is it works great in a bull market but when the recession man comes the stock values get pared down to what the companies are really worth.

It is the same thing with a bear market, that's the reason why shorts exist.

It I think people will think a company is overvalued, then I can short a very good company and make money.

Re: Are You Trading or Gambling?

#116

Post by dmos62 »

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…

I'd say that the second and third perspectives are really the same. You'd be left with the actual in-world company vs. the in-market stock. The duality stems from a stock having two values that can be at odds with each other: real-world value and market value. In some circles the two perspectives are called fundamental trading and technical trading. One extreme of technical analysis is looking only at price and volume charts, sometimes even vertically flipping the chart to more completely detach from any real-world notions you might have about the instrument.

Re: Are You Trading or Gambling?

#117

Post by necrotic_comp »

papito wrote: post #74
hef19898 wrote: post #33

Earlier quoted context omitted.

The reason I will never touch day trading is, that it is basically the same thing HF traders do. Only 1000 times slower. So I will loose against these guys every single time. And even HF traders loose money. The only single stock investments I have came from employment, either through RSUs or employer sponsored stock buying programs. RSUs are just coming to you, and why would I not take stock at 50% discount? The onl…

HF traders DO NOT lose money. They see the trading world a few milliseconds into the future. The whole game is rigged in a way where they cannot lose. They only lose if someone screws up, human error, all that.

This is 100% not true. As mentioned below, HFT competes against itself, and there are measures to protect against latency manipulation.

Re: Are You Trading or Gambling?

#119

Post by gandalfian »

chrisgd wrote: post #80
gandalfian wrote: post #77

Gambling is a zero sum game, your win is anothers loss. Investing is not. When it works there is literally more stuff, goods and services, for everyone! With investing you can win without others losing! That is how we all have so much more stuff than a century ago without anyone losing, we didn't liberate it from the aristocrats we invested and created it.

But there is a buyer and seller in the transaction regardless of whether one person is gambling or investing.

You buy a share, it goes up. You sell it to me. Share goes up more. We have both won. How? Because the company created more stuff and injected it into the equation. We can literally get more out than we put in.

Re: Are You Trading or Gambling?

#120

Post by dalbasal »

statstutor wrote: post #51
dalbasal wrote: post #23

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…

> The author here is trying to make a point about EV. This is only the first of their two points (summarised at the top and bottom). The second section "Poor Bet Sizing" covers what you are trying to say. They make the second point that even if you have positive EV, the size of your bet is relevant - and the Kelly Criterion can help you decide how much to stake. The larger your bankroll, the more volatility you can s…

Not quite. Appropriate bet sizing is related to volatility, but that doesn't make it the same. This is what I meant by imprecise definitions. Sure, two small bets are technically less volatile than one.

I think this is a tricky road to walk. Whether its a diy version of modern portfolio theory, or a day trader's take on martingale system... EV doesn't matter if you're not trying getting market returns. If you very investment is a speculation, a risk.

IDK what you mean specifically by "professional gambler," but most pro poker players are staked by others. That basically makes a martingale strategy viable... not unlike a "two and twenty" wall street trading firm.

"Professional" in both gambling and finance are positions, not skillsets. A professional investor invests other people's money. Same with pro gamblers, generally

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