Dec

21

There is nothing more thrilling in gambling than stepping up to a craps table to wager a few chips on the roll of the dice. The dynamics of the game are absolutely fascinating, and can be quite confusing for the neophyte gambler. Chips are flying around from seemingly everyone, gamblers are placing their chips all over the board and people are screaming and yelling out catchword phrases like ” 7 come 11, baby needs a new pair of shoes, box cars, 8 hard 8″ and many others. The action can be furious when suddenly a shooter gets hot and money comes from everywhere around the table in the hopes of cashing in on this blessed event.

In dice, practically everyone at a table is betting along with the shooter. That is to say that they are putting their money on the pass line, taking odds, betting the points, and playing the hard ways in the hope and dream that the longer the shooter stays alive the more money they can rake in.

However, a player can also take the other side of the wager and be a “wrong way” better. They can bet on the don’t pass bar 12, the don’t come bar 12 , and the prop bets that are one time bets such as any craps and any seven.

The “wrong way” betters at craps are the most unpopular people at the table. They are called a variety of names, “coolers” and a host of others normally reserved for biker and country and western bars. If you have ever tossed a chip out on a table during a shooter’s hot streak and yelled out ” any craps” you will know what I mean. You will receive stares, threats, innuendos and quite possibly be doused with a cocktail if the bet gets paid off while everyone else’s money gets cleared off the table after a shooter craps out.

Interestingly the don’t pass and the don’t come bets carry the same odds of success as their counterparts the pass and the come bets which as many people know are the best wagers based on the odds in a casino that a gambler can make. This is approximately 0.6% in favor of the house. However they are the least played areas on the layout. Everyone would much rather bet alongside the shooter. It is generally seen as un-American to bet against a shooter.

This reminds me of those who choose to bet against the shooter so to speak or against the stock and be short sellers or contrarian investors. They are many times going against the consensus or the implied bullishness of the times yet they can have an equally positive payoff, and in many cases a greater payoff than the field in general.

It takes a certain strength of character to short a stock that has risen meteorically and breaks its trendline. It takes equal strength to invest in a company that has fallen upon hard times, replaced management, restructured, just come out of bankruptcy and is unloved and its stock price is sitting at multi-year lows. However, properly done it can also be very financially rewarding if one succeeds in pulling it off.

Vic responds:

Mr. Leslie has given us a primer on dice psychology, but I believe that his analogy breaks down on the short side because the grind and drift are much bigger than on the long side.

Allen Gillespie responds:

The allure of the short side, however, is that the declines tend to be much swifter than the rises. For example, in counting swing magnitudes and durations of both the market and high volatility stocks we have found rallies and declines to be only slightly different in magnitude (but favorably tilted for the rises) but significantly different in average duration with declines lasting about 2/3 the length of time as the rallies.

Prof. Gordon Haave responds:

Let me clarify: I have nothing against telling someone who can afford it “just invest say 2K per month, and do it every month, regardless of market conditions”. That is fine.

There are a lot of people, with the lump sum, however, who get the bad advice to dollar cost average. I see it all the time even with large consulting clients. They get the advice to take their money and “dollar cost average it in” over say 12 months. All that does is leave much of their money in cash instead of the market. Any possible benefit from dollar cost averaging in such a case is built into the probability that over the course of the year there will be some opportunities to get in cheaper than if you went all in at day 1. However, the probability of that does not over come giving up the 10% drift with some of your money for some of the time.

Steve Leslie responds:

I think rather than splitting hairs on where performance is better with dollar cost averaging or lump sum investing, and making this a full blown debate:

In my view:

This is more of a philosophical based decision rather than a performance based issue. People do not invest because they are afraid of being wrong more than they want to be right. Fear always trumps greed. Many are more interested in the return of their capital rather than the return on their capital. They really don’t know what the return of their money is anyway so speaking in percents is a complete waste of time in the majority of cases.

Therefore if one can devise a “scheme” to make the process less painful then where is the harm. In sales the technique is “reduce it to the ridiculous.” It is easier on the psyche to say to the client “I want you to invest $2000 pre month, for a year.” rather than “I want you to invest $24000″. It is less invasive less of a shock to the system.

Nobody buys a $30,000 car, they make monthly payments of $400 a month for 6 years. Nobody buys a $400,000 apartment, they buy a mortgage. People look backwards and do the math of what they can afford on a monthly basis and make their purchase accordingly. Most live off a budget so when you talk to the client in those terms they can relate more easily.

Furthermore, in the clients eye, it takes away the timing aspect of investing. Instead of professing to know the correct time to buy, essentially a financial advisor is stating that nobody knows the right time to invest, especially me so lets put a little in over a long time rather in all at once. In psychological circles this is eliminating “all or nothing” thinking. Plus it takes away the reply “I think I am going to wait until next week, month, year, to put the money to work, because I think the market is going to be lower then.”

My father, one of the great salesman I have known said that the client buys emotionally but justifies logically. Try to see things from the clients viewpoint rather than your own.

He also used to say “The husband buys but the wife confirms.” It is far easier for the husband to go home and tell the better half that this is a plan that is the foundation of virtually all retirement plans in the world. Plus, he doesn’t have to look at his statement and explain to the wife why their $50,000 is now worth $40,000.

In summary, working with individuals requires a far different set of skills than working with institutions, Institutions will tell you what amount they are looking to place with you. They are transactional based and are bottom line people. They are brutal, because they have a board to answer to and they eliminate warm fuzzies from the equation. Just as quickly as they hire you to manage money they will just as quickly fire you. Nothing personal but as I like to say “That’s how they do things downtown.”

Individuals are more interested in relation based investing. One of the great statements about relationship based selling that the client must settle in their mind is “Do you care about me and can I trust you?”

Some might say that this is fluff and takes away the substance of the investing. My reply would be ask the Chairman who his first client was and why he chose to stay with him through the good times and the bad for so many years.


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