Tuesday, 16 March 2010

Each To Their Own

It would appear that my reference to Marks and Spencer shares yesterday was misunderstood by at least one person. M&S wasn’t supposed to be taken literally, it was an example to make a point. I’ll try again. The point is that a profit in actual terms isn’t always a profit in real terms. Buying shares for ₤1,000 that are worth ₤1,100 in 10 years is a profit, yes, but the investment isn’t value if the interest rate on your deposit account is paying 5% a year.

‘Investing’ versus ‘gambling’ or ‘betting’? Yes, I use the term investment slightly tongue-in-cheek, since most of the markets I invest in (there I go again) are very short-term, but at the same time, I don’t like to use the word ‘gamble’ because it has negative connotations. My Mum is far happier to hear that I make a number of short term investments on sports than that I was gambling. My grandfather was a stockbroker, and like many people, she felt that was an occupation for gentlemen whereas doing the same thing on sports was far less respectable, and not something to be talked about.

The Internet has changed all that, and although my Mum’s generation will never fully accept it, I don’t see it being too long before there is a general acceptance that trading on sports, elections, award shows etc. is viewed in the same way as trading on financial markets is currently viewed. You can already trade weather via futures and options, and as I posted the other day, a Hollywood market on movie success is imminent.

JP and his strategy were mentioned yesterday. He extensively uses tipping services, mostly horse racing with a golf service and Football Elite as well, (although not winabobatoo as of late) and over the past couple of years has done well. So well in fact that he is now betting full-time. That would make me very nervous. As he mentioned himself, his wages acted as a safety net, and once that is removed, betting or trading full-time becomes a whole lot more pressurized.

Again, the degree of pressure depends on where you are in life. If you are in your 60s with your mortgage paid off and enough money in the bank to live happily ever after, and a job you don’t enjoy, that’s one thing. If you are in your 30s still making your way in the world with a young family, that’s quite another. Full-time trading / gambling sound idyllic, and may suit some temperaments, but for me, giving up that safety net would make me very uncomfortable. Knowing that I have to make money to pay the bills would be a lot of pressure.

For me, betting and trading on the exchanges is a hobby and a secondary source of income. I don’t like losing weeks, but they happen, and when they do, I can live with it because the money is ‘play money’. Losing is an annoyance but no one is going to starve.

Winning is better, but as with my primary source of income, I don’t see too much to be gained from shouting about how much I make, or indeed comparing my income with anyone else. While it is useful to know how your peers are compensated in a normal work environment, it’s pointless in the betting arena because we are not comparing like with like. Fat Cassini occasionally enters road races, and I’m out there with the 20 year old skinny boys, zero body fat, without a hope in Hell of beating most of them. I’m also out there with the wheelchair racers, and I can’t beat most of them either! What’s of more interest to me is how I compare with other runners of a similar age, (and propelled on legs, not wheels), but the bottom line is that I am competing with myself, trying to improve my times and more importantly lose some weight!

With trading, whatever my P is over whatever period, there will always be some who have made more and some who have made less. There will be some who have spent more time gambling and some who have spent less time. There will be some who have risked a bigger percentage of their net worth and some who have risked a smaller percentage. There will be some who have years more experience than I do, and some who have far less. There will be some who made thousands betting but lost thousands in the stock market or on other ventures. I don’t care about anyone else’s numbers. They’re totally irrelevant. Anyone can have a P&L with one company that shows a huge profit and meanwhile with another company they have an (almost) corresponding huge loss. Perhaps the proposers of such a "test" are in favour of a full audit? After all, screenshots can be easily faked. Comparing P&Ls is simply a ridiculous idea. I am not in competition with anyone else. Nor should anyone else be. I am competing with myself, trying to raise my ROI and increase my all-time daily average, explore new possibilities and gain some cash!

And if my P starts becoming a P&L on a frequent basis, I’m out of here. Anyone who thinks that I, or anyone else without a hidden agenda, would spend time writing about a losing pastime doesn’t understand me or human nature too well.


Anonymous said...

A very profound post as the blog's volatility index has spiked a bit lately!

As you say things like weather futures blur the difference between financial and sports "investing" - spread betting has shown for years there is little difference between the two, the timeframe is irrelevant. The only real difference to me is the Sport's investor bets with his own money, the Financial investor bets with other people's - protected to some extent by an natuarally appreciating market.

Anonymous said...

"Buying shares for ₤1,000 that are worth ₤1,100 in 10 years is a profit, yes, but the investment isn’t value if the interest rate on your deposit account is paying 5% a year."

That shows a complete lack of comprehension of what investing is all about and how to calculate return. I'm not going to explain because you clearly do not want to listen. Just think about why that statement is so wrong.

Anonymous said...

"I'm not going to explain because you clearly do not want to listen. Just think about why that statement is so wrong."

Are you a woman? You sound like my wife...

Cassini said...

If you think that turning an investment of ₤1,000 into ₤1,100 after 10 years was 'value' when you could have invested your ₤1,000 at 5% a year in a deposit account and be sitting on £1,628.90 that's fine, (your idea of value differs from mine), but please explain your reasoning. Anonymously commenting that a statement is wrong, but not offering an explanation doesn't contribute anything to the debate.

Anonymous said...

Where did this 5% interest rate come from? Whatever the shares make you chould choose an interest rate to try and make your point, but dividends dear chap, dividends.

Tax of course is a different matter.

Anonymous said...

"Anonymously commenting that a statement is wrong, but not offering an explanation doesn't contribute anything to the debate."

Yes it does, it shows how ignorant your statement was. If you can't see the obvious answer that's speaks volumes.

Cassini said...

"Where did this 5% interest rate come from?"

Er, from my post of 15th March, where I wrote "...and any increase in the value of your shares needs to be measured in real terms accounting for inflation. Marks and Spencer may go up 10% in 10 years, but if the interest rate on your deposit account is paying 5% a year, that M&S purchase wasn’t value by most people’s standards."

Also mentioned was the fact that not all companies pay dividends:

"I hold shares in a number of companies, some of which pay dividends (presumably what was meant by “you are paid to hold stock”) but not all companies do."

M&S happen to, but the use of their name in my post was a random choice as I have also mentioned.

Anonymous said...

Lol you're the one continually quoting M&S shares who actually pay decent dividends.

I'm never quite sure if you don't understand the basics or just waffle a load of bull to try and hide the fact your ideas are flawed in many ways

Cassini said...

Clearly you do not read what I write. M&S was just a name chosen at random. The name is not to be taken literally. I could have chosen ANY company - i just needed a name, and they were chosen because my Mum happens to own some. The fact that they pay a (reduced) dividend is nothing to do with the debate on value. You continue to miss the point either deliberately or you really are a little slow.

Anonymous said...

"Also mentioned was the fact that not all companies pay dividends:"

Very, very few don't, and they tend to be speculative start ups which are in effect a gamble. Most true investment grade companies pay dividends and a lot yield above cash and have done for some time in the current climate. You could have chosen a much better example.

Cassini said...

What I should have said was "Company A" - but I was trying to make it user friendly...