Wolf Money(Against all odds)
Against All Odds
I took an interest in the various kinds of odds associated with table games in a casino after my trip on a Genting cruise recently. The casino enjoys a house odds over the players in any games. The game of Blackjack happens to have the lowest disadvantage to the gambler. The house has a 51% chance of coming out as a winner in every game. The second game that has the lowest house odds happens to be the favourite game of high rollers, Baccarat. The odds are 48.94 vs 51.06 in favour of the house. One must be thinking the house odds weren’t that great; 1% is negligible. The odds stay at 49% vs 51% if the players played just one game. If the rule of probability is added to the equation, that 1% becomes a very big advantage over several games.
As I was indulging in my research, I came across a couple from Michigan that managed to beat the house in the game of lottery. Jerry and Marge Selbee, both retirees, came across a new lottery game called Winfall. Basically, it is our version of Toto, but here is the catch: the lottery has a cascade mechanism built into the game. Once the prize money snowballs to $5m and if there is no winner for 4 draw, all the money will cascade down to groups 2,3 and 4. He figured out by placing USD $1100 on 1100 tickets during a roll down draw, he would get back his capital, plus a USD $800 profit. It was a fantastic rate of return on investment. Over the next 9 years, they went full steam ahead on the venture. They even set up a company called GSIS to do this on a full-time basis with 25 others, family and friends. In his 9 years as a lottery punter, he made a gross winning of USD 27m and USD 7.75m after taxes. Their story was made into a movie, Jerry and Marge go large. There was an interview on how they actually do it. It is fascinating listening to their story. If you happen to see the movie, please don’t rush to your nearest Toto outlet to place a big bet.
Our Toto cascade mechanism is different from the lottery game Jerry played. Our Cascade mechanism only flows down to group 2, then follows by group 3 if the top two groups doesn’t produce a winner. Below are the odds of winning in our local Toto draw.
There is a 1 out of 14m chance of being the top prize winner if you post a dollar bet. I put the theory to the test by buying $61 worth of $1 Toto. As the odds stand, I should have 1 out of 61 chances to win at least $10. Is that really the case? In theory, if one spent $14m on toto, you might strike it big. I will leave the other expensive experiment for others to test it out. 😁
Odds of coming out as a winner in the stock market
Back to the stock market, I once told a person who asked me about my job scope. I told him I am an odds’ analyst. Every day my job requires me to analyse companies. Reading annual and research reports and finally mental counting my odds of winning from the trade. One thing I always do is to assess my downside risk for that particular stock. If the upside is much higher than the downside risk, it might be a calculated risk worthy of a trade. It is always true. Look after your downside risk. The upside will take care of itself. Many people have asked “isn’t the stock market a casino?” Yes and No are my answers. The main difference is that there are no house odds against the investors in the equity market. One is free to wait for a favourable timing before putting in money. There are no 3 strikes out like a baseball game in the stock market as Buffett described. The key to increasing your odds of a favourable outcome is by understanding the company’s fundamentals. Some simple chart reading skills are also helpful. If one treats the stock market as a casino, be prepared to lose like a casino.
How actually do you improve your odds of coming out as a winner in the stock market? These are the few things I do to improve my chances.
1.) It must be a business easy to understand. The simplest the business, the better it is.
2.) Trade at a substantial discount to book value. The bigger the discounts the better.
3.) Comes with a consistent yield of at least 5% or 3% if it is a growth stock.
4.) Good operating cashflow.
5.) Shown weakness in share prices for the last couple of years even though fundamentals are not in permanent decline.
6.) Good management with a clear understanding of their business. (Understand the unspoken language of listed companies)
7.) Many years of experience in the stock market.
8.) Must be more than $250m market cap due to circumstances like the lack of illiquidity in our market.
9.) Reasonable executive’s compensation.
10.) No deployment of financial engineering to accounting.
11.) Unlikely to be disrupted by technology or trends.
12.) If possible, buy on weakness during a crash or the stock falls out of analysts’ favour.
13.) If possible, businesses are supported by government contracts or initiatives.
14.) Always have time/patience.
15.) Lastly, this is more like an art and science. Your comfort level with the management.
If each item on the checklist gives you an additional 0.1% advantage, a 15-point checklist will give you a positive 1.5% advantage over everyone in the market. Just imagine the stock market like a big mahjong table with unlimited players. The more experienced player will always have an advantage over those who just started in the stock market. In a book I read, in order to achieve mastery in anything, one must be willing to spend at least 10,000 hours on the subject. The earlier you start, the quicker you have those critical experience under your belt. If financial situation permits, one should start their investment journey early.
I am sure you want to know how my Toto bets went. By the way, gambling doesn’t pays. I got back nothing from my $61 bets!!
As we head towards Chinese New Year more people will be engaging in some form of social gambling. All problematic gambling starts from going social. For those facing gambling addiction, a call to National Council of Problem Gambling can help kick start a new life free from gambling woes. Take charge and be a winner of your life. God bless 🙏
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Disclaimers
All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.
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