How Gambling has Become Like Investment Management

I was dropping my son off at school yesterday morning, as I’m one to do, I had sports talk radio on, and timed it perfectly for the call-in segment where listeners could get on the hotline and say whatever.

“I’m taking the under on the Bills vs. Steelers on Sunday, a storm is moving in and it’s going to be sloppy football and a low scoring affair.”? Let’s call this person Bob.

Those familiar with the cultural capital of western New York know the climate this time of year is prone to large snowfalls, and at the time of writing, that is projected to be the case.

Lake Erie football, what can I say?

You know who also knows about Buffalo weather in January?? The multi billion-dollar gambling industry.?

Gambling is a funny beast.

Humans are known for many things – overconfidence being one of them.? The old line about ‘80% of drivers think they’re above average” is the premise of gambling.? We know the house always wins, but those rules apply to everyone else.? Not Bob though, he's playing a hunch that nobody else has looked at the weather this Sunday and has tremendous insight on what’s going to happen.

There is a line in the 1998 poker movie ‘Rounders’ where Matt Damon talks about the skill in poker – ‘why do you think the same five people are always at the final table of the World Series of Poker? – What, are they the luckiest guys in Vegas?’

I was curious about this – how often are there duplicates in the final five of the final table at the World Series of Poker since the movie came out?

1999 – 2023, a 25-year sample with five seats, 125 possible chairs over that timeframe, all of two people have been back multiple times (twice each), so of 125 possible spots, 123 unique people were there.

Did Matt Damon lie to me?

Not quite.

The prior 25-years (1974 – 1998) did have many more people repeatedly find the final table, 17 in fact.

It’s a far cry from ‘the same 5 guys’ – but there is a degree of persistence.

As a note – expanding the sample from 1974 – 2023 adds two more duplicate participants who overlapped the two split samples above.

Why has the persistence fallen off?

Like I said at the top about the multi-billion-dollar sports gambling industry – it’s money.?

In the early days of Vegas – it was cowboys like Doyle Brunson winning money off of tourists from New York.?

Relative talent had a mismatch.?

The weakest players at the table were no match for the strongest players, and an edge was present, and the better players could make it to the final five.

Money brings people to the table.

The last 25 years of the World Series is a good illustration that the relative talent or the disparity between the top 5 players and the 500th or 1000th player is smaller than ever before – to the point that Matt Damon’s character’s line ‘are they the luckiest guys in Vegas’ becomes true, and it almost resembles a 500 person rock/paper/scissors competition where the relative skill at the game is close to uniform.

Investment management is the same.

The relative talent between ‘the top investment managers’ and the middle of the road managers are razor thin.

Money has brought the best mathematical minds away from NASA and put them on Wall Street.

Like poker, the industry has evolved immensely since 1998 – the internet has revolutionized exponentially how securities are analyzed, and will only continue to.?

What would have been insight 30 years ago – calculating metrics on a stock or a bond for instance – can be done in seconds rendering that ‘insight’ to be merely commoditized data at this point.

Long story short – no advisor picking stocks has any idea what they’re doing.?

The premise that someone can build and implement financial plans, study tax and estate planning, and allocating time to really get to know their clients and service them while taking on the job of picking stocks is preposterous – and when marketed – disingenuous.?

They can’t possibly compete with the might and power of Wall Street which has never had more talent than it does today, and THEY haven’t shown the ability to beat the markets in any persistent way.

If you hear an advisor talking about a stock, a trade, or (my favourite) a ‘theme in the markets’ – think of Bob calling in about weather reports in Buffalo – it’s two sides of the same coin.

Two things are persistent:

1. The advisors will continue to market to no end their stock picking ability over all evidence to the contrary while more important things like planning are left neglected.
2. Nobody circles the wagons like the Buffalo Bills.

Enjoy the weekend everyone!