Bad Profit

Brian Coplin has commented on a previous post that there is "No such thing as a bad profit."

Really? Now whilst I agree with the idea that one could argue that profit is always good, I also think that one can differentiate between a good profit and a bad profit.

Let’s examine three scenarios:

1) I take a position in a market, the market moves steadily in my favour, and at no point do I consider the market to be out of line with my view of what the current price should be so I hold my position to the close. This is a good profit.

2) I take a position in a market, the market moves initially in my favour, but at some point my valuation and the market’s differ enough for me to exit my position and green-up. The outcome here can be that the initial position ultimately proves to be a winning one or a losing one. Either way, I think of this as a good profit.

3) I take a position in a market, the market moves initially in my favour, and I trade out after a couple of ticks to lock in a profit. The outcome here can be that the initial position ultimately proves to be a winning one or a losing one. Either way, I think of this as a bad profit, since the reason I exited my position was not based on any concept of value, but was made purely for the sake of locking in a profit. I don’t feel that in the long-term, this is the way to go.

Essentially what I am saying is that one should always have a good reason for entering a market, and similarly one should always have a good reason for exiting a market.

Q) And what is a good reason to enter or exit a position?

A) Because the market offers value.

We see this debate quite often on the gambling forums – whether or not to green-up. My answer is that you should only ever green-up if the market offers value. If you have backed at 2.0, and the current price is 1.5, some argue that you can’t go wrong with locking in a profit. I would argue that you lock in a profit ONLY if your valuation is that the correct price is above 1.5. If not, then this is a bad profit.

This is all great in theory however, but in reality and in the heat of the action, I must admit that I sometimes lay a big red total off simply because it’s scary seeing that red number on the screen. (I often have bets where I am red to the tune of close to £5,000, and winning or not, it sets the pulse racing which I am told is not good for me!) and while I might consider the value to be at 1.04, I am often happy to lay-off at say 1.06 just for that peace of mind and lower heart-rate).

And Brian, I appreciate the comment - this is in no way picking on you - just expressing a different viewpoint to hopefully stimulate some more debate.