Friday 16 March 2012

Comparing Apples

Mark Iverson wrote a couple of days ago:
Yikes! I've mentioned recently that I haven't had a losing month for 5 and a half years but after a few things going against me recently, I'm in danger of losing this record. It's a bit of a long story but the shortened version is that I've dabbled with the stock markets along the way for small amounts and always included any profits or losses in my monthly figures. Until recently the amounts involved have been insignificant (less than 1% of my bank) but unluckily for me a few of my shares have taken a big hit this month. Add to this a couple of decent size losses on the cricket and a couple of premium charges to boot and I'm now staring at the biggest monthly deficit I've ever faced. To get back to level for the month will be a big task.
I'm not sure I agree with the philosophy of including stock market investments along with sports trades. Don't get me wrong, I track my share and index fund prices on a daily basis - 'obsessive' was the word used just yesterday by Mrs. Cassini to describe this activity - and while they comprise part of my net worth spreadsheet totals, they are certainly completely different in nature from 'betting' trades, unless of course one is day-trading, but since I have strongly suggested that day-trading is not a good idea for most of us (outsider trading is not a long-term winning strategy), I doubt that Mark is engaged in this activity (although exactly what 'dabbled with stock markets means, I'm not sure). The bottom line for me is that my net-worth spreadsheet includes everything, of which betting is just a small piece, while my betting spreadsheet cover my betting - punts and trades, all broken down by sport, as well as arbs and the Premium Charge. This makes it an honest reflection of my betting history. To my mind, if the stock market is up 10% in a month, and you include those numbers as 'betting profit', you are at risk of fooling yourself into thinking your betting is profitable when it is not (and vice-versa). In my opinion, Mark, would be better served by keeping track of the two separately.

So why track long-term share investments in the same way as short term betting trades? We have no control over the former - yes, we could keep selling and buying, but that makes no sense when you factor in the transaction costs. Losses or gains in the financial markets are essentially beyond our control. I'm invested in shares, and add to them every month, knowing that in ten years time, I have a high probability of coming out ahead. In ten years - not at the end of this week or month. It's all very different to calculating the probability that Chelsea will beat Napoli or that with two minutes left in a close game, the price on the Dallas Mavericks or Green Bay Packers is too short.

Gains or losses on the stock market are only paper losses until you close the position. Gains or losses from betting are not, at least once the market is settled. And while an up day in the stock market (such as today) is generally welcome news, because it is out of my control it means far less to me than a decent win on the exchanges that might be a fraction of the gain from shares. Similarly with losses. When the stock market has a bad day, and it has its very bad days, it doesn't have nearly the same effect as a much smaller loss from betting will have. One gain or loss is something I own, the other is just something going on in the background. To my mind, merging the two makes as much sense as including the equity in your home, or the value of your antique car collection, art collection, private jet or luxury yacht. Not that have I have any of that list, although the car is getting on a bit, and misfiring on the number three cylinder so I was told yesterday. I was told a lot of things yesterday, now I think about it.

Having opened this post with examples of the worst days in London Stock market history, I'll now end on a high note with the list of its better days:


Mark Iverson said...

You are right and I shouldn't.

Wish I had excluded them from my trading figures as I be over a 1k better off.

That's my total share loss since I started 'dabbling' a few ago.


Cloppa said...


What is your view on putting a bet in on a football match after 20 mins, ie. laying U1.5 after 20 mins. Surely if you have identified value pre KO then the bet should be placed pre KO?