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Saturday, April 29, 2017

Playing the Stock Market

Posted by Dave on May 18, 2010

I like to gamble – I particularly enjoy gambling on sports.  I read and understand a lot about sports, having played them for most of my life.  Although I have never really kept track I have never lost money over an entire season (I know this because I haven’t had to put any new money into my online account).

I recently got an e-mail (spam) from an author who I had purchased an e-book from a couple of years ago and is now selling daily picks for the various major sports (Football, Basketball, Baseball, and Hockey).  In the e-mail there was a link to the historical results achieved by the picks, which although not impressive (a win rate of around 60%) the returns (if they were not forged) were similarly not overly impressive, but steady over the previous 3 seasons, this system’s baseball results showed an average gross return for of $6,000, which conceivably could be achieved by anyone willing to study the sports involved and employ a similar system of betting.  Alternatively, the sports picks could be purchased for a subscription price per season.

What I’m wondering is whether adding sports betting to my retirement portfolio would make sense.  I know significantly more about baseball, football and hockey than I do about some of the companies that I watch or indexes that I invest in.  There is a lot more transparency occurring in major sports than there is with some of the companies in the stock market (think of the crash that took place a couple of years ago, that started mainly due to a lack of information).  Major sports need to provide injury reports daily – their finances are an open book and there are probably just as many reports available on any player in the NFL as there are on most companies listed on the S &P.

The benefit of returns on sports betting is that they are generally tax free1 – a tremendous boon, compared to the stock market.  Additionally, there is (for me anyways) a little bit more enjoyment in watching a game to see my possible returns than watching the business channel, or reading business news.

The downside to betting on sports is that it really isn’t passive income.  I would have to actively be making bets on an almost daily basis in order for any level of profitability to be feasible.  Betting on sports is also not really a socially acceptable way to earn a living – If I told my parents (or spouse for that matter) that part of my retirement was based on how well I can predict the point spread on a football game, I’m not sure how excited they would be.

From a diversification of income perspective I don’t think that betting on sports is any less risky than most endeavours undertaken, whether it be starting a business, investing in dividend-providing companies, or owning property there are different risks that need to be mitigated in one way or another.  I’m not sure what level of returns are possible through gambling, but how much more risky is betting on sports is compared to “investing” in the stock market.

What do you think – Is this a reasonable contribution to my portfolio?  Do you have any interesting alternative streams of income in your portfolio?

1 Unless you’re a bookmaker or employ a system that minimizes or manages risk.  Conceivably, in this circumstance winnings would be taxable, and losses would be deductible as you would be “deemed” to be running a business by the tax code.

Comments

13 Responses to “Playing the Stock Market”
  1. Canadian Dream says:

    I think gambling is sort of like speculative investing, both are high risk activities with an uncertain return.

    Index investing on the other hand according to a plan can significantly reduce stock investing to a more reasonable level of risk. Same idea can apply to dividend paying stocks, depending if you have a plan you can reduce the risk.

    So overall I would keep gambling as something you enjoy and not part of your retirement plan. If it happens to help the plan, good, but I won’t count on it.

    Just my two cents,
    Tim

  2. Matt says:

    I like it…but I am a sports guy! I would consider this as ‘entertainment’ and any profits could be used for anything you want! But I wouldn’t count on it as ‘income’.

    More like, found money!

  3. Goal Hunter says:

    What are the payouts for the 60%? Is it: Win = double your bet, Lose = lose your bet. If so then you have a system that prints money and you should put as much money into it as possible. In fact, I would like to learn from you!

  4. Mike says:

    Very interesting.

    I would suggest that retirement investments are passive (stocks, bonds, mutual funds, GICs etc) and a small business is not passive.

    Given the amount of work you would need to do, I would call this a small business. I think it’s perfectly legit to create income which could be used for retirement investing although you should start keeping better track of your ROI and time spent.

  5. Steve says:

    How do you expect anyone to take you seriously when your website is covered in all of these get rich quick advertisements.

    You talk about “investing”, but all I see are a bunch of ads telling me to buy penny stocks. What a joke.

  6. Dave, you are on a roll this week. Another great post.

    I’ve read that the guys who bet on sports for a living have a success rate of 51-55%, so I think your 60% goal is perhaps a little too high.

    I agree with the other commenters that you need to spend more time figuring out your ROI and time spent. I know when I bet on sports I spend about a minute and a half picking out games. You look at the lines and a couple games jump out at you and you bet on them.

    Oh, and injuries aren’t always disclosed, especially in the NHL. After so many playoff series you find out whoever was playing hurt.

    All that said, it’s a really interesting concept. I’d say that you try it for a little while and see just how much money you make. And maybe do a follow-up post to tell us curious people how it’s going.

  7. I’m not much of a gambling woman myself, but I like that you’ve compared sports betting to the stock market . . .depending on how you invest, all you’re really doing is gambling and hoping for a certain rate of return.

  8. Canadian Dream says:

    @ Steve,

    In case your not familiar with Google’s Adsense program. I don’t control any of the ads shown on the site. As such you have just as much chance of seeing a cooking ad as a penny stock ad.

    Tim

  9. Goal Hunter says:

    Financial Uproar is right. Even 1% higher is a license to print money. Just hire an employee to run the analysis if it takes a long time and pump in as much money as possible. 60% is huge.

  10. Gene says:

    Sports betting as a financial strategy = stupid

    Running a sports betting outfit (as a bookie) = better

    “I’m not sure what level of returns are possible through gambling, but how much more risky is betting on sports is compared to “investing” in the stock market.”

    You don’t know anything about investing.

  11. Wanda Eckman says:

    I’m not sure that I would advocate betting as a diversification strategy, although I certainly won’t discount it as a means of entertainment. The issue is that for any betting system – unless you’re doing it with friends – there are friction costs inherent to the system. Much like the house’s take of any bet reduces the pot for all involved. Thus the systemic function of the game is tilted away from you. Not to mention that it’s a zero-sum game – someone wins and someone else loses. I would look for systems which are in your favor – for example, the Canadian stock market has grown by 5-6% per year, on average, over the long term. Therefore if you just met the average of the market, you win. Likewise, the American stock market has been growing at 7-8% per year, on average. If everyone just gets average returns, they will still come out ahead.

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