How to become a successful better using the lessons of the securities market

How to become a successful better using the lessons of the securities market

In general, the betting market and the securities market are very similar, because the basic principles of their formation, in fact, are the same. Players in both markets who have some valuable information can get only a short-term advantage that will quickly disappear since the ratios in the first case and the prices of assets in the second will be adjusted based on this information.

The so-called hypothesis of an effective market says that the price of assets fully reflects the information that the market itself possesses. The corollary of this hypothesis is the conclusion that the permanent receipt of superprofits due to victories over the market is unattainable. But is this really the case and is this hypothesis applicable to betting?

Exchange lessons
It is well known that in order to break even, a better needs to win in the market, and not a bookmaker, but other players, since “beeches” will almost always be in the black due to their margin inherent in the odds. The main difference between the betting market and the exchange is that in the securities market (and it is constantly growing over time), sometimes all its participants can become winners, but when betting on sports events, one of the betters will always be in the red.

Moreover, the behavior of active investors in the securities market is not much different from the actions of betters. For example, experienced managers of trust hedge funds, trying to provide their clients with good profits, also try to defeat the market. At the same time, their reward is actually the same betting margin. Alas, but, as studies by leading economists show, no more than three percent of such managers can bring stable income to their principals. Approximately the same percentage of betters who successfully place bets on a long distance to all others.

Here is a simple example. Imagine that you and your friend decided, without saying a word, to place bets on the site of one of the bookmakers or take a chance and play on the exchange. But in that, and in another case, it just so happened, your bets were of the opposite nature. As a result, let’s say you won a sports bet (and your friend lost, respectively), but you lost on the stock exchange (and your friend won). But here is the paradox – both he and you, all the same, paid for your participation in both games!

A few words about Warren Buffett
Perhaps many of you have heard about this billionaire and one of the largest investors in the world. Buffett is the person who proved that there are always exceptions to any rule since he regularly wins in an efficient securities market (it was not for nothing that he was nicknamed “The Seer”).

Over the past fifty years, the aggregate securities market of the most famous world companies (estimated by the S&P 500 index) has been growing by about 10% per year. At the same time, the growth of Buffett’s shares amounted to almost 21% annually over the same period, that is, it more than doubled the market figures.

Someone will say that all this happened and is happening due to the extremely incredible luck of this person. However, in this respect, solid economic publications published whole scientific studies, the respected authors of which convincingly proved that such a stable super-profits in an efficient market cannot be precisely explained with luck. So, is it still possible to defeat the market?

How effective is the betting market?
The fact that stock prices are correct only approximately and not always is a positive thing for betters. After all, as we have already found out, similar rules apply in the betting market. In other words, one can always find manifestations of inefficiency that a good player can use to his advantage.

A simple proof of this is the existence of international hedge funds for sports betting. Obviously, unlike exchange hedge funds (which can hope for a more or less stable, albeit small income, due to the constant average growth of the market), their sports betting colleagues who regularly play “minus” and lose the funds of their principals, it’s just going to go bankrupt soon. However, there are many such hedge funds in sports betting that have existed and even flourish, for many years.

Managers of such successful hedge funds should place their clients’ money at rates with closing line ratios or as close to them as possible. Only in this case, they can regularly play “plus”. Therefore, between the coefficients of the opening and closing lines, there is a place for the advantage that a good better (well, or a hedge fund manager) can and must detect.

Search for an average player in the market advantage
In order to be profitable in the long term in such an effective market as the betting market, the average player must either have some important information about sporting events, the outcome of which he plans to bet, but which most other betters do not possess; or it’s better than others to interpret the information known to all.

Warren Buffett once said that he had learned to capitalize on the competition with players on the exchange who thought that thinking was a waste of energy. Therefore, even the average player can regularly create for himself such an advantage that will allow him to win in the betting market: as you know, opportunities are given only to those who are constantly looking for them.

Let’s look at an example of a potentially profitable bet on the example of a “long-playing” bet on the number of goals scored by the Egyptian Mohammed Salah before the start of his first season in Liverpool (2017/18). Prior to that, in two consecutive seasons in Roma, he scored 14 and 15 goals, however, most bookmakers gave a coefficient of about 13 to the fact that Salah will surpass the 15 goals in the English Premier League. In principle, their doubts were justified: before that, the Egyptians had already tried his hand at Chelsea and had not gained special laurels.

In Roma, Salah’s role was more about supplying the best Bosnian club sniper Edin Dzeko with gears, while following the coaching guidelines, he sometimes sacrificed scoring chances in favor of his partner. In Liverpool, there is such an ingenious player as Roberto Firmino. He plays a huge role in organizing the attack, and Salah got the same opportunities here that in “Roma” were provided by Dzeko, that is, became the tip of the attacking spear. His striking talent was already manifested in the pre-season matches of the Liverpool players, so the bet that the Egyptian would score more than 15 goals during the season became quite justified, and the high coefficient allowed even the average players who saw the opportunities described by us to get a good profit in the end.

The search for such opportunities, which we cited in the example of Salah, just can give even non-professional players an advantage in the market. Such rates have low liquidity, which means that by definition they become attractive since low liquidity also means low efficiency.

On the other hand, Salah could have been injured during the season, or his role would have gone to another striker, who is at the peak of form, and then the bet would probably not have played. As in any other, in the low liquid rates, there is also an element of randomness. Nevertheless, capable bettors with experience and perseverance may well find and capitalize on inefficiencies in the betting market.