Yesterday, I likened on-line trading to gambling. As usual, your responses were much more interesting than my column.
YOU CAN GAMBLE AND WIN
From Dan Hachigian: “Bet you didn’t know that there’s a game in Vegas that can be beat! (Now you’re waiting for me to also claim perpetual motion exists) I speak not of counting cards at blackjack, which the casinos have made next to impossible (and lures suckers in a vain attempt to try). I am talking about (some) video poker machines (primarily located off the strip), which offer up to around a 1.5% advantage over the house. Consider that 5 cards are dealt and for each card you make a decision about whether to keep or dispose of the dealt card. Therefore there are 32 different hands that can be potentially selected by a player. One of these hands has the highest expected statistical return. If you always pick this hand, a quarter machine will yield on average more than 6 dollars per hour of play (over the very very long run).
“Of course the average player gives the house more than a 10% advantage based on non-optimal play. It is, however, amazing that profitable machines do exist (and are easy to find). The only catch is that you have to learn to play very close to perfectly. Fortunately there is software to teach you to do just that (available for free, see www.vid-poker.com/vptutor.html). In reality, playing at the level where you get a 1.5% advantage over the house is fairly difficult, but achieving a .5% advantage is very doable. Really!”
If perfect play yields a 1.5% edge and $6 an hour, then the more easily achievable 0.5% advantage he posits is worth $2 an hour. So it would seem there is a second catch, with which I’m sure Dan would agree: this isn’t gambling — you know the outcome in advance, and there is no chance to win big — this is work. Well below minimum wage and with significant unreimbursed commuting costs, to boot.
Still, it makes the point that if you are really logical, you wind up winning at the expense of most day-traders — oops, I meant video-poker players — who stare at the screen and place their bets based on intuition and sorcery.
More on-line trading casino notes (and another chapter of Fire and Ice) tomorrow.
Quote of the Day
October. This is one of the singularly most dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August and September.~Mark Twain
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