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Gambler

Both stock picker and gambler need to develop a systematic approach to become consistent enough to take money from the casino, sportsbook or the stock market over the long-run.

Billy Walters, born in 1946 in Kentucky, is considered by many to be the most successful sports bett0r in the world. With a gambling career that spans six decades, Walters has seen tremendous highs and devastating lows. His talent for identifying value and managing a vast betting network has made him the most influential figure in the world of sports betting.

In his book, Gambler - Secrets from a Life at Risk, Walters says, "What separated me from the rest of the pack is that I beat all major sports for thirty-six straight years."

The book is a highly entertaining read, chronicling Walter's exploits in gambling, sports betting, and hustling in almost every endeavor. He even devotes a few pages to exposing professional golfer Phil Mickelson's gambling addiction and losses. "In 2011 alone, he [Phil Mickelson] made 3,154 bets - an average of nearly nine per day."

In the opening chapter Walters outlines four truths:

Truth No. 1: My bets are based on extensive research, a vast network of experts and insiders across the country, and my own finally honed instincts.
Truth No. 2: Betting sports is about one thing and one thing only: value. Which means your prediction needs to be better than the bookmaker's and you need to get the right number at the right price. Nothing else counts. And that leads me to:
Truth No. 3: The percentage of gamblers who are successful enough to earn a living is less than 1 percent. Frankly I think most people would make more money washing cars. Why? The professional term is "eleven to ten odds". A sports gambler must lay down $11 to win $10 and pay $11 for a loss.
This mathematical formula means that gamblers need to win 52.38 percent of their bets just to break even. For the average bettor, that's like trying to swim the English Channel at night, doing the backstroke, without a wetsuit. Surrounded by sharks.
Truth No. 4: There are a very small number of gamblers who gain an edge by specializing in one sport and betting as soon as the line comes out. Those guys make a living, but not what I would consider serious money. Most of them last fewer than five years. The problem with this approach is that their betting limits are very small and the lines move very fast.

87% of all global equities that went up 1000% or more over the past ten years were microcaps.

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Professional bettors and professional stock pickers have a lot in common. Amateur gamblers and amateur stock pickers also have a lot in common. Whether it's gambling or stock picking, amateurs approach the opportunity by happenstance and gut feel. As we know, human nature and gut feel are manipulated by our emotions. Don't get me wrong, professionals rely on gut feel, but it's only after a systematic approach has identified some value rich targets.

This is how I think about Professionals vs Amateurs:

Professionals are 90% systematic/ 10% gut feel
Amateurs are 10% systematic / 90% gut feel

Both stock picker and gambler need to develop a systematic approach to become consistent enough to take money from the casino, sportsbook or the stock market over the long-run.

Since 2018, Connor Haley at Alta Fox Capital has one of the best investment track records in the business. I loved his answer to my question at the MicroCap Leadership Summit 2023:

In a world where great due diligence is sort of table stakes and the flow of information is so open, what sets a great investor apart from an average investor?

I'd start by challenging a little bit the premise of the question if I can. Yes, information is freely available, but how many investors are actually reading all of the filings are building a detailed model, are meeting with the management team, are speaking with competitors, are trying to understand the suppliers. What percentage of fundamental investors are actually doing that? I think a shockingly low percentage, I think there's a lot of people, very smart people that for a variety of reasons take shortcuts and in doing so, divorce themselves from some of the insights that someone going through a full process who's really disciplined may discover. Now that being said, how does one analyst differentiate themselves from another analyst who is actually going through all the steps? I think there's a few different ways. I think one is, look, you have to find your own style.
There are different ways to outperform, there's different ways to put up good returns. I think my style is probably a little different than Brian's. There's many examples of ways that investors have crafted how they do things for us and Alta Fox specifically velocity of ideas is very important. Now we run a fairly concentrated portfolio, but we turn over a lot of rocks. And so on a three person research team today we speak to approximately probably high teens, number of companies per week. That's a lot of calls. It takes a lot of effort and that's a KPI that we track every single week and people are accountable for. It's not because now we only invest in that many companies at any given time and we'd like to hold our winners for a long time. I think you have to turn over a lot of rocks.
I believe in Peter Lynch, the person who turns over the most rocks is most likely to win the game. You have to turn over a lot of rocks, but if you turn over a lot of rocks, you have to have a systematic process for synthesizing that information. So we can get into this as deep as you'd want in this conversation, but if you're trying to keep it all in your head, I think that's a really bad process. For us our best idea this year might be an idea that was a pass 24 months ago. And so how did you synthesize that information? How did you make sure you got an alert that it's now interesting? And how do you do that with a team that's growing and so that the communication flow is consistent? I think you have to have a really systematic process to compare the sort of relative merit of risk reward across different ideas and have really crisp discussions so you can get to sort of the truth of the matter. So I'd say do the work that'll differentiate you significantly, shockingly from a large percentage of sort of the investing world. And then number two is try to have a really systematic process that you iterate on that's sort of true to who you are, how you want to invest. So you can compare relative investment merit across a very high velocity of ideas.

Toward's the end of the book, Billy Walter's illustrates the same thing,

"I've been successful because I've worked with some of the brightest minds in the business, true geniuses when it comes to computer modeling and probability theory. For years, my proprietary betting models were built by teams of the best in class handicappers, quants, and statisticians.
Our team members act like hedge fund analysts, assigning a numerical value to every conceivable factor or variable capable of affecting sporting events to within a tenth of a point.
In the NFL alone, I have several teams of experts working independently. They have never met each other, even though most have worked with me for more than thirty years, funneling their information to one common denominator: me.
After more than six decades of sports wagering, I know the strengths and weaknesses of every player on my team, which allows me to weigh their numbers and ratings. Then, and only then, do I decide whether or not to make a bet."

Develop a systematic approach like a professional. Don't "gut feel" your way through the investment process like an amateur. Give serious thought to your strategy. Don't believe you can keep it all in your head. Start building out your system. The more systematic you make your approach, the quicker the feedback loops, and the more you will learn from your winners and losers. The more systematic you make your approach the easier it will be to iterate and fine tune your skills of stock picking (identifying, buying, holding, selling) over the long-term.

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