Business or Gambling, that is the question

[It's Snake Pliskin]

This was posted by one of our expert advisors here on ASF:

...how a methodology actually improves their trading from Gambling to Business.

How is this done, for beginners and advanced alike. I`m sure it could be a good discussion.

So for clarity sake: How does a trader improve their trading from gambling to a business?

Two things to consider before the discussion:
1. Are traders gamblers?
2. Are traders businessmen?

To enhance your understanding lets look at the word "gamble":

gam·ble ( P ) Pronunciation Key (gmbl)
v. gam·bled, gam·bling, gam·bles
v. intr.

To bet on an uncertain outcome, as of a contest.
To play a game of chance for stakes.
To take a risk in the hope of gaining an advantage or a benefit.
To engage in reckless or hazardous behavior: You are gambling with your health by continuing to smoke.

v. tr.
To put up as a stake in gambling; wager.
To expose to hazard; risk: gambled their lives in a dangerous rescue mission.

n.
A bet, wager, or other gambling venture.
An act or undertaking of uncertain outcome; a risk: I took a gamble that stock prices would rise

Now lets look at the word "business":

busi·ness ( P ) Pronunciation Key (bzns)
n.

The occupation, work, or trade in which a person is engaged: the wholesale food business.
A specific occupation or pursuit: the best designer in the business.
Commercial, industrial, or professional dealings: new systems now being used in business.
A commercial enterprise or establishment: bought his uncle's business.
Volume or amount of commercial trade: Business had fallen off.
Commercial dealings; patronage: took her business to a trustworthy salesperson.


I will opine a bit to get it going.

Objectives: where are you going, and why?
If you can`t answer the following question you should stop now:

What am I doing this for?

Mr Tech/a has posted in another thread some reliable material:
https://www.aussiestockforums.com/forums/showthread.php?t=3754


Snake

 

[wayneL]

Trading (if done properly) of course has features of both business and gambling.

But here's couple of views to throw into the mix:

I used to be in the furniture manufacturing (upholstery) game. The fabric merchants would come around and peddle their indent lines. Sometimes we would bite and indent a quantity of a particular fabric.

Will it sell? Will it sell on our furniture? Will it sell at a price we can make a profit on? If it didn't sell, not only did we not make a profit on the fabric, but also the underlying piece of furniture as well. Will I have to sell it at a loss to recoup some capital?

I could invest thousands of dollars spend weeks of my time on building a new design. Will it sell? Will it enhance the reputation of my company? Will it bark at me every morning when I walk in the shop? (had a few of those) Will I have to send the piece of crap to the auctions to get rid of it?

Is this all not an uncertain outcome? A gamble if you will?

If someone opens a shop on a high street selling widgets. Will the widgets sell? Will enough widgets sell? Will enough widgets sell to pay the rent/overheads and my wages.

Is this not an uncertain outcome?

I guess it all comes down to research, planning and management; the oft quoted positive expectancy.

Business can become a gamble and gambling can become a business (eg Crown Casino)

Indeed, "What am I doing this for?" is a paramount (if not rare among traders) consideration. Often it's just a fuzzy notion of "making money" or "getting rich".

For some trading most certainly is a gamble. For many it is "The occupation, work, or trade in which a person is engaged"

Just a couple of points to add to the discussion.

Cheers

 

[kgee]

well if bloomberg has a sports show based on picking the winners it kinda suggests that both gambling and business are intermingled

 

[swingstar]

I agree with wayneL regarding uncertain outcomes in business. The alarming statistics (whether they're true or not I don't know, they're often quoted though) of businesses that fail says to me that no one can really be certain of a business's outcome.

Trading has risks, but you can certainly have some idea of the overall outcome. When I place a trade, I don't care so much about the individual trade, I'm looking at the longer term picture.

With trading, you are basically exploiting or customising an already existing 'business' architecture - the stockmarket - it has a history. To an outsider, a single trade might sound like a gamble, but if you have an idea of your system's longer term expectancy, it is certainly not gambling. At least no more than starting or investing in a business, and in fact IMO, probably less.

 

[tech/a]

Gambling in its pure sence has no structure.

You walk up to a roulette table and put X on Black.
Or sit at a Blackjack table with $500 and play.

Business Has structure its structure is designed to make a profit.
How you come to that profit--be it Trading,Playing Roulette or Blackjack or selling Upholstery goods is not important.

The structure of business---the how you derive profit---is the single most important key to all business.

Some are better at business structure than others and Business structure need also be DYNAMIC---your market will change and to stay profitable OR become more profitable,business must have the ability to morph into prevailing Market conditions.

Lets take Trading as the Business example.
To be successful it will need

***** (1) Capital---it shouldnt be undercapitalised
(2) A proven methodology that cuts losses and maximises gains by either having more wins and profit that losses OR far bigger wins than accumulated losses.Positive expectancy.
(3) Its costs and Directors drawdowns must be at a level which the business can handle.
(4) Taxation must be considered.
(5) Have a Blueprint with which to "Benchmark".
(6) Have a reporting proceedure which monitors business success and clear action plans for best and worst case scenario's.

As a business establishes it should have an expansion programme and a clear structure to shift it to the next level/s.*****

How successful That business will be or could be will be determined by the mechanics of the internal structure of the business and to a large degree the thouroughness and business acumen of its Directors or Management team.
Often care to detail is overlooked in persuit of the BIG PICTURE.

As an example of internal structure---- I could if I had the capital have 10 Techtrader methods running in the one market---that would be the market which is powering ahead of others,OR
I could have 3 other methods running in tandem with the Longer term method OR I could have a method of switching off my Long Trading and Switching to Short Trading,OR Trade Futures or Commodities--- or all of the above---endless.

Youll note there is no mention of How I trade or what I trade---thats simply the Commodity and Plan of business.
The above is THE STRUCTURE OF BUSINESS *****

Without it most have the Commodity and a chosen plan of a business but NO BUSINESS STRUCTURE with which to carry out their business.

Just like renting a shop and Selling upholstery---90% will fail however those figures will sharply decrease with a sound REPORTABLE and MEASURABLE business structure.

I sincerely hope people can see the subtle yet POWERFUL difference to a trading with a plan.

 

[coyotte]

IMHO Gambling has aquired a undeserved bad reputation by the vast majority who do not know how to gamble !
ie: TAB Punters, Poker machine players, Lotto players etc --- these groups simply do not care about or understand ODDS , They are HOPING for a BIG WIN whilst at the same time getting a bit of entertanment --- this is not gambling in its true sense.

A TAB Punter for example is like a "Day Trader " who instructs his broker to "BUY" XYZ @ the OPEN and SELL @ the "CLOSE" , hoping to make a profit !

A Professonal Punter on the other hand would attend the track and obtain the best FIXED price , ONLY on the selections that are @ greater odds than that he/she has calculated ----- worlds appart-- but both are for some reason classed as gambling .

Pocker Machine,Lotto Players are all playing with the ODDS stacked AGAINST them, where as a CARD COUNTER is playing with the odds stacked their way
---- again worlds apart --- but gambling



As a Share Trader you are placing a BET that " XYZ will rise to a profitable level -- before dropping to a stop loss " ---- SAME as all the above gamblers how well you do will be determined by your attitude to ODDS .

As far as being a business , S/Traders who are looking at making their major income from trading would do themselves a favour by looking at how Professonal Punters used to operate --- these guys only had two days a week to make their profits !

 

[tech/a]

Professonal Punters used to operate

Care to elaborate on how they operate? or used to.

Calculating the odds of a horse against others in a field is simply a singular opinion which obviously if offered by the bookie at odds better than those the Pro Punter came up with demonstrates my point---wont guarentee a win the bookie gets it right just as often.

Just as a fundamental UNDERVALUATION of a company wont guarentee profit if you buy it! Its just one opinion.

Again this is the nuts and bolts of the gambler tools of trade and plan of action----and if thats all he is doing then he is simply GAMBLING its not even close to a business.

 

[nelly]

Hi y'all....I'm not a mathematician by any means...not good at calculating big numbers..........but I've lived awhile.......and have come to realise everything is a gamble......everything with people=emotion, in the equation is a gamble........no matter how much research/preparation/education you have done.
Cheers.. :drink:

 

[coyotte]

Care to elaborate on how they operate? or used to.

Calculating the odds of a horse against others in a field is simply a singular opinion which obviously if offered by the bookie at odds better than those the Pro Punter came up with demonstrates my point---wont guarentee a win the bookie gets it right just as often.

Just as a fundamental UNDERVALUATION of a company wont guarentee profit if you buy it! Its just one opinion.

Again this is the nuts and bolts of the gambler tools of trade and plan of action----and if thats all he is doing then he is simply GAMBLING its not even close to a business.

It may have not been close to a business in the sense that a well run business can ussually forcast future earnings .
But as wayneL points out that in his furniture factory , it was a gamble on new designs, materials etc , which comes back to that most small buisness purchases are bet that you are able to Sell @ Higher Prices.

Pro Punters in the main used to operate in the 70s & 80s when Bookies where in the process of changing over from the traditional method of "making a book" to the current method (ratings) --- one could compare this to the stockmarkets where they have change from F/A to T/A


A Pro Punter would only operate on Sat Metro & Wed Metro/Prov Races and only in those races where the ability of the field was known.
Would select about 3 races from a meeting --- and concerntrate on the top 4 contenders in each field , if any of these top 4 come up during the course of betting @ odds greater than calculated than a proportional bet was placed
so as which ever selection won you was in a overall profit --- if the Rating Service you was using was good enough , then a overall 10% PTO was quite common ---- But as with all gambling Money Managment was the KEY factor , because as sure as night follows day, the run of outs would allways follow the run of wins ---- as with any business , there is allways the quite cycles



The point i was trying to get over is not in a business sense but the 1st law of gambling --To win long term you must allways have the odds on your side -
This is why casinoes allways win --long term

In all respect , you can draw up all the business plans going for S/T but in the end it is a gamble --- ignore the 1st rule @ your peril


Cheers

 

[IGO4IT]

Sorry guys, I don't understand the concept of the comparison between trading & gambling!

Any business in my opinion is a gamble to some extent.

Considering that outcome &/or future income/loss from any investement is never guaranteed (Never here is really Never, as is 100% impossible) & considering that only constant in life is death so anything we do in life is a gamble in a sense that we don't know the outcome.

We try our hardest to use previous theories that worked & ways of implementing new ideas & at the end there's no one that can create an investment with a guaranteed outcome which by turn makes all investments gambles as there's no theory that has an insurance policy on it to succeed.

Did I go too far

cheers,

 

[flyhigher]

In my opinion, trading is a business but a risky business. Let us see how many fund managers and traditional businesses survive for last fifty years. Definitely traditional business. Warrant Buffet is exceptional. Long term capital managment, tigher fund, soros, the disaster list goes on and on. Even past performance can not be future indicator. For displined traders with trading plans, it is a business. For lots of retail investors (including me), it may be a gambling.

 

[swingstar]

To IGO4IT and flyhigher, statistics and the law of averages will say otherwise. If you test a system on a large population of historical data, it is reasonable to expect the mean longterm. Not exact and not even certain, but likely. You could have multiple systems for different markets to better your profits, as I doubt any mechanical system performs exactly the same in every type of market.

 

[coyotte]

To IGO4IT and flyhigher, statistics and the law of averages will say otherwise. If you test a system on a large population of historical data, it is reasonable to expect the mean longterm. Not exact and not even certain, but likely. You could have multiple systems for different markets to better your profits, as I doubt any mechanical system performs exactly the same in every type of market.

Ring a Casino and tell them you have a system !
They'll send a Limo around

 

[swingstar]

Ring a Casino and tell them you have a system !
They'll send a Limo around

If there is a game that...

* allows you to get out of a losing position
* allows unlimited profits on a winning position
* can be analysed (not just random)
* has fifty years of historical data

Tell me, and I'm in!

 

[It's Snake Pliskin]

Ig,
Your name is difficult to remember.

Sorry guys, I don't understand the concept of the comparison between trading & gambling!

For the value of this thread it should relate to gambling as a trader not as a gambler in a casino.

Any business in my opinion is a gamble to some extent.

Considering that outcome &/or future income/loss from any investement is never guaranteed (Never here is really Never, as is 100% impossible) & considering that only constant in life is death so anything we do in life is a gamble in a sense that we don't know the outcome.

True. It`s the propensity to take the uncertain to extremes or beyond what most would call normal.

We try our hardest to use previous theories that worked & ways of implementing new ideas & at the end there's no one that can create an investment with a guaranteed outcome which by turn makes all investments gambles as there's no theory that has an insurance policy on it to succeed.

Did I go too far

No you didn`t.

 

[It's Snake Pliskin]

Ah,

For displined traders with trading plans, it is a business.

Does just having a trading plan constitute a business plan?

Are they one, or independent of each other?

Maybe the trading gamblers only have trading plans, maybe. Though, I would think business traders have trading plans and business plans.
I use the term business trader to differentiate the two and don`t mean institutional traders.

Discipline is the psychological aspect so is irrelevent in answering the previous two questions.

It comes back to the question: What am I doing this for?

 

[It's Snake Pliskin]

Business Has structure its structure is designed to make a profit.
How you come to that profit--be it Trading,Playing Roulette or Blackjack or selling Upholstery goods is not important.

The structure of business---the how you derive profit---is the single most important key to all business.

Some are better at business structure than others and Business structure need also be DYNAMIC---your market will change and to stay profitable OR become more profitable,business must have the ability to morph into prevailing Market conditions.

Lets take Trading as the Business example.
To be successful it will need

***** (1) Capital---it shouldnt be undercapitalised
(2) A proven methodology that cuts losses and maximises gains by either having more wins and profit that losses OR far bigger wins than accumulated losses.Positive expectancy.
(3) Its costs and Directors drawdowns must be at a level which the business can handle.
(4) Taxation must be considered.
(5) Have a Blueprint with which to "Benchmark".
(6) Have a reporting proceedure which monitors business success and clear action plans for best and worst case scenario's.

As a business establishes it should have an expansion programme and a clear structure to shift it to the next level/s.*****

How successful That business will be or could be will be determined by the mechanics of the internal structure of the business and to a large degree the thouroughness and business acumen of its Directors or Management team.
Often care to detail is overlooked in persuit of the BIG PICTURE.

As an example of internal structure---- I could if I had the capital have 10 Techtrader methods running in the one market---that would be the market which is powering ahead of others,OR
I could have 3 other methods running in tandem with the Longer term method OR I could have a method of switching off my Long Trading and Switching to Short Trading,OR Trade Futures or Commodities--- or all of the above---endless.

Youll note there is no mention of How I trade or what I trade---thats simply the Commodity and Plan of business.
The above is THE STRUCTURE OF BUSINESS *****

Without it most have the Commodity and a chosen plan of a business but NO BUSINESS STRUCTURE with which to carry out their business.

Just like renting a shop and Selling upholstery---90% will fail however those figures will sharply decrease with a sound REPORTABLE and MEASURABLE business structure.

I sincerely hope people can see the subtle yet POWERFUL difference to a trading with a plan.

Thanks for that Tech.

Having a clear and realistic expectation for exiting a business before, and during the life of a business is paramount.

When will I stop, and why?
I would think traders and investors should be aware this.

 

[swingstar]

I know why I'm doing it, and I'll stop or at least spend less time doing it when I achieve my goals.

 

[tech/a]

Does just having a trading plan constitute a business plan?

A Trading plan is simply the way you are going to enter the market on an individual basis.The Trading business plan is what you do during the time in the market on an accumulation basis.

Are they one, or independent of each other?

Individually they are quite seperate.
Cumulative they are one.

I know why I'm doing it, and I'll stop or at least spend less time doing it when I achieve my goals.

And you may well reach your goals much sooner had you been more professional in your trading business.
It hit me fair between the eyes when I was 25.My business at the time turned over $300K and made me approx 10%
My Mentor had a larger business Turning over several Million and making him around 15%.
In a single year he made around 14 X more than I did.Wow 14 yrs of profit in one!Clearly to me at that time being a better business man had its rewards.

We try our hardest to use previous theories that worked & ways of implementing new ideas & at the end there's no one that can create an investment with a guaranteed outcome which by turn makes all investments gambles as there's no theory that has an insurance policy on it to succeed.

In Business I have to disagree. There are business models which if followed you cannot fail. That doesnt mean that the application of those business models on EVERY business will guarentee success.
Seemingly this is a contradiction---infact some business ideas are flawed from the beginning and if this is the case then the Business models of which I speak will flush this out well before the business gets going on its road to failure-------Exactly the same for a Trading Plan prior to "Opening " Business.

The point I was trying to get over is not in a business sense but the 1st law of gambling --To win long term you must allways have the odds on your side -
This is why casinoes allways win --long term

I see the point you are making--Casinos KNOW that the odds are in their favour the average trader has no idea-----My point EXACTLY
Traders should do everything they can to be sure the way they trade has a positive expectancy.

That doesnt mean that you need to win more often that you lose.I win only 35% of the time and do very well.
There is much you can do to achieve positive expectancy.Youll need software and data.But as an Example I have tested 50000 portfolios over an 8 yrs period using the Formulas of T/T.Of those portfolios NOT 1 made a loss.
I have a blueprint from those 50000 portfolios and the current publically traded porfolio has remained within the parameters of that blueprint.

"The Business is profitable" and in times of drawdown I have been able to look at the Business blueprint to avoid disaster---had it traded outside of the parameters (which it could) I could shut the business down.

Ring a Casino and tell them you have a system !
They'll send a Limo around

If you had 10 million to play they probably would,but if you took $10 million off them then they would probably ban you.There are many many professional gamblers BANNED. If you dont think casinos can be beaten in a business sense then THINK AGAIN. Swingstar could well be one of those banned.
The law of BIG NUMBERS works for EVERYONE.

See money BIG money is made from OUTLIERS ,your in business to take advantage of these when they come. (Sure businesses can and are designed around small % deviation from a mean) But generally business profits most when we find outliers which we can take advantage of---for me in my Construction Business that is a 1 million $ project as my average project is $20-40K they come along a few times a year and when I get one then the bottomline goes nuts. I cant just do 1 million projects I still have to be in business doing the "Bread and Butter" work.
My business model ensures profit during those periods when the outliers are in hybernation-----Trading is no different.

 

[RichKid]

...........
I used to be in the furniture manufacturing (upholstery) game. The fabric merchants would come around and peddle their indent lines. Sometimes we would bite and indent a quantity of a particular fabric.

Will it sell? Will it sell on our furniture? Will it sell at a price we can make a profit on? If it didn't sell, not only did we not make a profit on the fabric, but also the underlying piece of furniture as well. Will I have to sell it at a loss to recoup some capital?..........

What's an 'indent' in this context Wayne? I'm not that familiar with the term.