Topic: BS&T -- Are you staying or leaving? - page 2. (Read 24789 times)

I'm gonna risk patrick slapping me with one of those brain hurting responses again and say what I think he was implying by 'not random'.

I believe he was refering to the payouts for blackjak, not the hands.

edit; which if you could apply the formula of placing a bet n^ your previous bet for each losing hand you would eventually win. Catch is the casinos are too smart for that and limit the maximum bet. ;p

Even if you get an edge the outcome of each hand is random. And even if you are talking about the long run to the point where you are sure to win your exact result will vary widely.

Not if you do it the right um  wrong way: en.wikipedia.org/wiki/Card_counting

Blackjack is not random?

Investing returns are random within a range based on what you know of the underlying asset/business/investment.  Sounds like gambling.

Blackjack (as an example) is not random, but again returns are within a range based on the rules of the game.

Both involve some skill, as opposed to a simple game of chance.  Even BS&T allows some skill to be applied, such as due diligence on different aspects of the business.

Investing is often gambling.  So often there are confounding variables that give an incomplete picture, even when using all due diligence in the world.  Invest in a farm and then two years down the road, subsidies change or whatever. 

In gambling the outcomes are random or near it. In investment you can see a company's earnings (to a point, although it's also possible to learn to recognize fraud), you can call them and ask them what they're doing to improve their business, you can see what tangible saleable assets they have (which may not relate to their main business), you can see how often they've paid dividends (if any) and if they've raised them or not. Etc etc.

Investing properly is like appraising a farm for sale. You already know more or less what productivity to expect out of the land, which you can verify by checking various soil features (assuming you know about farming) and determine whether the price you're being offered is low, fair, or too much. In other words, you get a big advantage by having specialist knowledge into the business you're investing in, whereas in gambling the only advantage you might glean is purely mathematical.

I was actually observing the "all or nothing" approach being challenged by the Kelly reference as to why you might not want to do that.  In simple optimisation problems (multdimensional linear/binary/non-linear) and point in an interior space is sub-optimal and that's why the simplex method for LP is so easy (it traces the n-dimensional space to an optimum provided the Kuhn-Tucker conditions are met - typically a concave space).

The other aspect of investing/gambling is expected payoff versus average payoffs and that is why people typically diversify their portfolios.  Putting 1000 BTC on a horse to win might have a 100k BTC return, and might have a higher expected return than a BS&T account or a 1% deposit account, but getting enough horse races to get that return becomes unlikely.

As for the difference between gambling and investing, what is your subtle difference between these? 

exactly.
the other reason this cannot be applied to stocks, bonds, etc. Is because there are no set in stone payouts for stocks and bonds. The Kelly Bet relies on the payouts always being the same since you need them to plug into the formula. Granted you could recalculte any time there is a change in the stocks and bonds but it would not be true Kelly Bet.

Maybe I misunderstood, but I took it as that is what he was getting at.

Eh, Peter Lynch has a pretty good system for it, although it certainly isn't a science. My point is that treating financial investments the same as gambling is the wrong idea. Whether a company does well or not, or whether a bank is solvent and can pay your interest or not are much more predictable than, say, whether a particular horse wins a race or whether a marble lands on red or black. In both cases, though you don't get any "well this company has x% chance of doing well" sort of figures to work by, so the equations used in the Kelly Criteria can't apply.

@Patrick: Yes, sort of, but the math and considerations that go into investments (as opposed to gambling) are very different.

Note the requirements.  This typically means more than you think by orders of magnitude.

I don't know what Buffett thinks about, but if he is usually running in to a limit of what % of this company do I want instead of what % of my assets do I want in this company then it doesn't really apply to him. It would be like a millionaire playing penny poker. If the limit is lower than Kelly would recommend anyway then it doesn't matter. But every small competent investor at least makes an intuitive approximation of Kelly Criterion. I'm by no means a trader, but I do have assets and I don't put -all- of them in the one thing I expect to preform the best.

@Rygon: I agree, although I don't believe the recent changes are cause for suspicion. I suggest checking out the lending forum. There are a good number of lenders which take deposits and are very transparent about their operations. They pay quite well, too, although not as high as pirate.



I think that's a bit overcomplicated. I also don't buy the whole "Warren Buffet uses this" deal, either. I've read Buffet, and his decisions are based solely on the solvency, competitiveness, and quality of management of the businesses he surveys. He most definitely does not treat investment as a sort of gambling and the amount of money he invests in a company depends on what % of that company he decides he wants to own (based on size and individual merit).

Check the Kelly Criterion.

Props to Haplo and Mrb for having a (mostly) civil discussion.

Like a lot of other people on this forum, I have my suspicions about the investment, but I still invest in a PPT. There seems to be this unsaid assumption that the only two options are to invest "nothing" or "everything". I would consider those extremes. Where is the conversation about how much people are willing to invest? Everyone has some lower limit they feel comfortable just throwing away for fun, right? I'm somewhat fortunate that I don't think twice about spending $50-100 on a nice dinner or a new pair of shoes if I'm in the mood for that. If I lose that much money on a bad investment, I can do without that fancy dinner for a week, no big deal. On the other end, I wouldn't sleep well at night if I had $10K+ invested in something risky as Pirate because losing that would cause some pretty long term financial harm.

Also, the amount of entertainment I've gotten out of investing in Pirate has been easily worth a few movie tickets or a trip to the amusement park. (Perhaps I'm just a geek like that)

Personally, I'm reducing my risk down to ~100 BTC because of the recent changes. It can't be much worse than the poor investment choice I made in Sirius XM Radio stock. I don't ever expect to get my principal back on that one. Plus, most of what I have invested are dividends anyhow.

If you go that route, 90% of the thread is off-topic.
The topic is "Are you staying or leaving?", and despite that you have an army debating "Should you leave or leave?"... Take your pick.

Wow, this isn't getting off topic or anything.

meh...
Just get used to it.
One guy writes one sentence and all of the sudden everyone and its dog detects some emotion that just wasn't there, or fails to detect one that was. The former happens more than the latter

Vlad's tongue and his cheek are good friends. You're not the first to have failed at tongue-in-cheek detection, and you won't be the last. Damn this internet! People never know when I'm joking either.

I indeed do "know" you since a few days, so I'm maybe wrong. My bad if i'm wrong