September 2009 Archives

What Are My Odds?

By Philip K. on September 28, 2009 11:17 AM | 0 Comments
1 Day - 53% 
5 Day - 55% 
15 Day - 60% 
30 Day - 62%

One thing winning gamblers and traders need to realize is the proliferation of fake systems.  There are thousands of betting systems.  My favorite system was a joke from a friend, "The secret to winning blackjack is to double after every loss".  

There are even more voodoo systems for trading in the market.  

The noise about fake winning strategies from television, newspapers, and books will make you deaf.  The only way to be certain of a winning system is to subject it to valid  hypothesis testing (i.e. avoid curve fitting, data mining, and selection bias).  

A common misconception for testing systems is to assume the odds of calling the market correctly is 50/50.  

50/50 is flat out wrong.

It's been said many times, "the market is a like casino rigged in your favor".  If you randomly bought the S&P index on one day and sell it back the next day, you can expect to be in the black about 53% of the time.  The chart above very roughly approximates the odds of the market based on the number of days.  The average returns from when you're right is a lot less than from the average returns when you're wrong, but in terms of the number of times correctly the percentages above very roughly approximate the odds.

Knowing these odds, it's not surprising to find many long systems promising you the moon.  Long systems should already have a built in positive advantage.  It's a strong tide that already pushes you towards winning.  

Odds are if someone is losing money in the markets after a few years they're doing something wrong.

MGM Bankruptcy Watch P.21

By Philip K. on September 25, 2009 11:09 AM | 2 Comments
Citycenter is set to open in December.  Long siigghhhh.  It's a tremendously wonderful thing that Citycenter is hiring thousands of new workers in these difficult times.  Kudos for that.

The CityCenter casino complex in Las Vegas





















Unfortunately, everyone seems to have the wool pulled over their eyes and think/hope the Citycenter complex can revitalize the Las Vegas market.  (Time)

I'm telling you right now, it won't.

My Economist hat predicts the new development will bring a temporary spike in economic activity in the local area.  Once the novelty of the grand opening wears off, Citycenter will still be susceptible to the larger downward macroeconomic forces.  Any bump in the local block economy will face the greater downward pressure from changes in consumer attitude towards "Vegas Baby".  People are starting to save more money, as measured by the US savings rate, and Vegas partying and gambling are the complete opposite of this trend.

How can new markets be created in a declining market?  Opening more shops and more gambling tables will only serve to cannibalize the profits from the likes of Harrah's and Planet Hollywood.  

I feel bad for the the thousands of people Citycenter recently hired.  They should not count on any job security.  I would not be surprised if there's a round of layoffs for hundreds of people within 6-9 months of the Grand Opening.

If the Las Vegas economy really wants to improve themselves without waiting years for the larger economy to recover, they should focus on other industries.  Just a an idea, but Las Vegas is a giant desert with cheap labor and some minimal level of educated people.  Solar power anyone?

A Glimpse of the Gambler

By Philip K. on September 19, 2009 10:27 PM | 2 Comments
It has been a while since The Gambler in me has been to the casino or made a wager.  It's been about two weeks!

This is highly unusual considering that I make the bulk of my income from gambling.  Maybe it's something to do with trading.  In the past month, I've informed my higher ups that I'm giving up gambling to pursue being a full-time Investor.  Giving up thousands of dollars a month to pursue an unknown is risky and dangerous, but my higher ups and I agree it's a smart move.

Being back at the casino was a recreational affair.  Even though I've changed the amount of resources devoted to gambling, I still approached gambling from a professional perspective.  I suppose I can never give up this way of thinking, because it's too deeply ingrained in me.

I'd like to walk my loyal readers through this professional perspective.

The first thing I do when I walk into a casino is to redeem my free slot play bonuses.  This particular casino that I went to gives out free play for the stupidest things.  Just go through any promotional fliers and dumpy local magazines and you'll probably find at least a $100 worth of free play a month.

Before I use my free slot play, I enter a free sports contest.  The sports contest is a free weekly parlay card without any point spreads.  The parlay was easy.  Without any point spreads, I pick all the teams that are favored to win outright.  I fill out a few more parlay cards than the casino would like, but they don't stop me.  Each card is worth about $25 to $50 a week.

The funny thing about free slot play is that I never use them on slot machines.  I walk on over to my favorite progressive video poker machines.  The meters are pretty high today.  I whip out my phone and load up my excel sheet.  I punch in the values.  The game is worth approximately 1.82% for about $50 an hour in addition to the free slot play that has been loaded onto my rewards card.  $50 an hour isn't too bad.  That's more than a lot of people make, but there's no seat available.  The smarter than average local degenerates have locked down these machines.  Too bad.

I walk on over to the hidden corner with the older machines.  This particular video poker machine was made in the 90's and look it.  There's no LCD display.  The sounds sound like Nintendo midi sounds.  I'm not too upset playing old machines, because I'm a bit of a retro video gamer myself.  I can still beat the shit out of Mario Brothers in about 30 minutes.  I run my free slot play through this particular machine and cash out the free money.  The edge from this machine is about .15%, so I expected to get all my slot play out.  Unfortunately, variance deals me a cruel hand and I only get half of the free money out.  I'm complaining about only getting half of the free money that I'm suppose to be getting.  :)

I make my rounds through the table games.  While I'm doing my rounds, I'm keeping my ears open because there's a raffle contest going on every 15 minutes.  The first prize is about $25000 and an extra $25000 for my trading stake wouldn't be too bad.  I estimate the raffles to be only worth an extra $4.  Surprisingly, this raffle was the most exciting part of the day.  Little things.

I walk through the blackjack tables, the carnival game tables, and the poker tables.  I'm hoping that my x-ray vision is good today and I can see some face down cards.  After walking around the casino, it looks like I'll be dealing with the normal visible color spectrum.  My x-ray vision isn't working and I will have to do things the hard way.  Too bad.  When I can see face down cards, I'm making the big bucks.

I make a quick mental note of all the blackjack tables.  I hover over a freshly dealt blackjack table.  I stand around and count the cards as they are being dealt.  Too many low counts.  Next table.  Too many low counts.  Next table.  Okay, a few decent tables hovering around a count of +3 or +4.  I win some.  I lose some.  The amount I win is slowly edging upwards.  

One notable hand stands out.  The count is +5 for a 2% return on investment.  I sense this +5 hand is the last hand before the shuffle.  I put a big bet out on the table.   Everybody is staring at me.  I am betting 30x bigger than what most of the people at this packed table are betting.  Some people are holding their breaths as I'm about to play my hand.  The women at the table think I'm risky.  I give them my cool confident smile.    

I  get a a hand total of 11 and the dealer has a 4 showing.  I grab an extra big bet and double down.  I have two big bets on the table.  The girl to the right of me shakes her head.  I get a 4 for a total of 15.  No problem.  The dealer will bust with her 4.

The dealer flips an Ace.  Draws a card. She gets a 3 for a soft 18.  I lose both my bets.  People at the table shake their heads at me.  Too bad.  I walk away in fake shame as the dealer shuffles.

I continue my card counting.  Play a few more positive tables.  The money again goes up and down with a slight positive upwards, so subtle that I'm probably imaging it.

I wait for the end of the raffle.  I didn't win any of the raffles.  I'm not surprised, because of the of the estimated 1 in 2500 chance.  

I do my final accounting and I'm up a good amount today.  Tired from all the walking I get back to my car and drive home alone.

Social Security is a Pyramid Scheme p.5

By Philip K. on September 12, 2009 9:43 AM | 0 Comments
Among the few things I genuinely detest in this world, one of them is biased news and the other is Jim Cramer.  MSNBC has recent coverage about Jim's comments that social security is a ponzi scheme.  (MSNBC)

Jim Cramer has called Social Security the largest Ponzi scheme in history. To an extent, he's making a valid comparison. Like a Ponzi scheme, Social Security pays its benefits out of new contributions, rather than out of investment returns.


I'd hate to agree with Jim, but he's right.

Unrelated Pause

By Philip K. on September 11, 2009 2:34 PM | 0 Comments


This is what's been consuming my life for the better part of the week.  Well, in addition to trading, but that was backseat compared to this.  Awesome game. 

A little interesting fact, Ken Uston, an infamous card counter from back in the days actually wrote the strategy book on beating Pac Man.  No kidding.

Whether people want to admit it or not, trading, gambling, and working are all games.  It all revolves around making the right decisions.

I'll Have Some Pie

By Philip K. on September 3, 2009 9:54 AM | 0 Comments
Some humble pie.  My stop loss on gold has been hit and I'm out of my losing position.  On August 10th, I was short gold in DZZ at $20.53.  Today it's at $18.72.  I'll take the 9% loss on this position and cut it.  My loss is much less than that, but for the sake of site consistency I'll go with the 9% figure.

Upon introspective reflection, I could have done some things differently.

I've previously backtested a number of technical systems for gold.  My technical systems actually gave me a buy signal for gold.  I went against these technical signals and followed a more macro approach.  I am still of the firm opinion that gold is overpriced, but it can stay overpriced much longer than I have patience.

I hate technical systems with a passion.  I know how the math works and I see some of the statistically significant results, but some measurements like stochastic and oscillators aren't grounded in much intuition.  In this case, the technical signals were correct.

The lesson I'm taking away from this trade is that I can be right or I can make money.  I might be right about gold one day, but that indeterminacy is not enough to make me any money right now.


Update:  Uhh.  Gold futures have just broken above their top Bollinger band.  My backtests found a reversion when Gold touches either side of the band.  The recent breakthroughs are technically a sell signal for Gold, with about a 1.1% expected return.  Combined with my macro forecasts, now would be the better time to short gold. Would haves, should haves, and could haves.  Loser talk.  Even though macro and technical signals are aligned, I'd have to sleep on it.

Which Direction Will It Take?

By Philip K. on September 2, 2009 9:02 AM | 0 Comments
road-to-recovery-large.gif


Tough one.

Time of the Month

By Philip K. on September 1, 2009 9:01 AM | 0 Comments
Our favorite card counter, B. Gross has released his monthly newsletter.  This month was a particularly well written month.  There's even a somewhat humorous anecdotal golf story included.

Again, nobody should be relying on forecasts in the distant future.  10 or 20 years are too many years.  You have to respect B, though.  Putting his street cred on the line to make these type of impossible guesses and even writing a book about it once.  Maybe he follows one of the trader's axioms. He doesn't care about being right.  He only cares about making money.

I'm not even 100% sure he uses his long term forecasts in his bond trades.  I'd stabbed that he does something along the lines of bond arbitrage and global macro trades.

One particular paragraph stood out to me in this month's newsletter:

Global economic leadership. It's premature to award the 21st century to the Chinese as opposed to the United States, but if the last six months have been any example, China is sort of lookin' like Muhammad Ali standing over Sonny Liston in 1964 yelling, "Get up, you big ugly bear!" Not only has China spent three times the amount of money (relative to GDP) to revive its economy, but it has managed to grow at a "near normal" 8% pace vs. our "big R" recessionary numbers. Its equity market, while volatile and lightly regulated, has almost doubled in twelve months, making ours look like that ugly bear instead of a raging bull.


Bet on Red.

MGM Bankruptcy Watch p.20

By Philip K. on September 1, 2009 8:54 AM | 0 Comments
The MGM Grand over the past weekend just had a birthday pool party for Jon of Jon and Kate plus 8.  (LA Times Blog)

Is this the type of event that MGM wants to be known for?  Really?  Some advertising exec in back office probably thought so.

6a00d8341c630a53ef0120a534d662970b.jpg


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