The most important question that arises when investing – and encapsulates the scepticism towards profitable betting – is the difference between investment and speculation. As the great investor Benjamin Graham puts it; “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
By ‘safety of principal’ Graham is referring to the requirement of a margin of safety in a true investment; meaning that its market price is significantly below its intrinsic value (the difference of which being the margin). By ‘satisfactory return’ Graham is refuting ‘Get Rich Quick’ schemes – people chasing above average returns (compared to long-term historic performance) will be bound to end up speculating rather than investing. In the stock market, this could take the form of someone betting on the growth of a company whose name contains a ‘.com’, has no earnings reported and is trading at 1000x its expected future earnings, purely due to the belief that ‘the Internet is the future!’. Such was the case of the Dot-com Bubble at the start of the millennium. To a layperson, since these people were putting their money into the stock market, it was deemed an investment; when it very clearly was not. This is the type of misconception that is currently working in reverse in the sports betting industry – and it must come to an end!
Now to relate Graham’s definition to sports betting. This article will not be explaining sharp market efficiency, so have a look at this article if you are still unsure about the concept. The odds at a sharp bookmaker can be considered the ‘intrinsic value’ of a betting contract; and the odds offered at a soft bookmaker can be considered its market price. So, by betting at a soft bookmaker when the corresponding odds are lower at a sharp bookmaker, a bettor is effectively purchasing contracts at prices that are significantly below their intrinsic value, meaning that a margin of safety has been obtained. Also, despite the great success Trademate’s users have had previously, we are by no means promoting our service as a ‘Get Rich Quick’ scheme. None of our customers have expected to win every trade they make and become a millionaire in a week – instead, by following a well-managed staking strategy, over a large enough sample size of bets they have allowed variance to average out and have made a return close to the expected value from the trades placed.
By meeting the criteria set out by one of the most distinguished investors of all time, there is no question that value betting should be considered a legitimate asset class - contrary to its current negative stigma. As that has now been clarified, let’s compare value betting to other mainstream assets classes, and see how it fares...
Return On Investment:
Time / Effort:
To conclude, value betting should start to be given serious credibility as an asset class, and in our opinion it is one of the best! We believe that value betting should be a feature of everyone’s portfolio, especially due to its zero correlation with any other asset. If you think soft bookmaker limitations are the end of road, do not fear - check out the Trademate Pro version. Since Asian markets and exchanges do not restrict accounts, this asset can become a permanent part of your portfolio (although a much higher bankroll and volume is required for these markets, as the edges are smaller). Of course, proper diversification is necessary in any portfolio, so you should consider your current financial status when deciding on your individual asset allocation.
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