Tuesday, February 27, 2007

Notes from a casino 3 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
That casino is not the SGX as you might have anticipated, but a real casino -- Genting. I was there over Chinese New Year and it was crowded with visitors. This writeup is about some observations at the resort, the casino in particular.

It is easy to see how the resort is a cash cow for Genting Berhad. Tourists have always been one of the most easy-spending groups of consumers, and a resort with a casino shows tremendous ability in facilitating the transfer of money. Consider: the tourist who makes the long and winding trip up to Genting Highlands obviously has half his mind set on gambling in its vaunted casinos, and will have brought a sizeable amount of money to last his gambling rounds. Once there, he either loses money at the casinos, or in the rarer case he wins money and then spends it on the resort's various other attractions anyway .... the end result is the same, the money flows through to the resort's topline. The enclosed nature of the resort, the many retail outlets and restaurants and amenities like theme parks and entertainment centres, all serve to draw casino money leakages back into the fold. Several thousand visitors a day, several hundred dollars for each visitor, all ready (and indeed, determined) to be spent .... no wonder it is a good business.

There are differences between gambling and stock market investment/trading. In gambling, the game is set with pre-determined and clear-cut odds while in the stock markets the interpretation of the odds is subjective and depends on one's reading of the situation. In a particular set of definitions, the gambler is one who plays the game despite the odds being against him, while the investor or speculator is one who thinks that his potential returns outweigh the the risks and is therefore willing to bet on it. The difference lies in the odds. Almost everybody knows that gambling odds favour the house. Given that the casino must necessarily win in the long run, what kind of strategy should the gambler adopt?

Ideally, he should not step into the casino at all. But since he IS stepping in, clearly he wants entertainment and to enjoy himself. The strategy should then be to utilise his betting money to last as long as possible, as long as marginal utility from gambling does not turn negative. Which means his money management and bet sizing should be geared towards this. Too big bet sizes and you can be wiped out by a few successive losing bets. Employ the martingale strategy too aggressively (ie. double on successive bets when you lose the current one) and you also get wiped out fast. And of course, if you're no longer enjoying the game (eg. having a losing streak, or been at the table too long) then it's time to disengage since utility from gambling is obviously negative while the odds still remain the same.... you're not going to cut down the odds through slogging on.

Walking around the tables, one can also draw visible parallels with the markets despite the abovestated differences. Each gaming table represents a counter. The players face off against the house, a situation most accurately mirrored in the structured warrants market where the market-maker is effectively the banker. The game and its outcome, whether of roulette, of baccarat, of blackjack, is what the various parties bet on. One can be amazed at how the casino dealers can be so polite to punters who are often gruff and impatient, until one realises that the last laugh is the house's; it effectively draws a commission through every bet a punter makes. The broker draws his income through commissions on every trade; in the casino things are a bit different because, as has been mentioned above, the house has a probabilistic advantage and this is the commission which is exacted on the punter. There is no free lunch in the world.

One cannot expect to beat the house in the long-term. However, if he is lucky enough to come off with winnings, he should thank his lucky stars and consider leaving the table. Too often, I have seen gamblers pile up their chips in a winning streak, and then, greedy for more, lose it all back. The desperate losing gambler tries to win back his stake but ends up losing more, spoiling his entire holiday. Human emotional interplay is most visible at the casino tables, and no less common on the markets.

I spent my time mostly in an enclave within the casino with computerised gaming. The action is no less "live"; there are dealers still rolling the roulette ball, or shaking the dice. However, this is done in a central area within the room while surrounding them are the computerised betting machines where gamblers can enter their bets directly on the touch-screen. The experience is altogether much more healthy (no smoke in your face), faster (dealer does not need to undertake token-changing, table administration etc; all handled via the computerised betting system), and easier to get seats compared to the main table gambling areas. Forthe casinos, it is probably more space-efficient, and also time-efficient (more gaming rounds within a period of time). I believe this is the way casinos should go in the future .... although they probably won't, because the less tech-savvy older generation still prefer the person-to-person contact.

It was refreshing to spend the New Year there. Unfortunately, after a post-CNY market surge, market sentiment has now taken a sudden downturn with two huge falls these two days. With the above observations from the casino listed above, it may be prudent to take some winnings off the table if you have done well. True, the odds may not be so obviously rigged in the house's favour in the stock market, but consider it as paying for a more objective view of the market by going partially short on it (when you sell, you are effectively short, whether you currently hold the stock or not). An objective view squares the apparent odds more clearly in your overall sizing of the situation.




Anonymous Anonymous said...

I would like to address the fact that I do parallel the current stock market to that of a gamble in a casino.

Professional gamblers are completely conscious of the fact the house always has the odds, but their success is derived by mitigating the risks to an extent where luck eventually helps them "beat the odds".

There is however a big difference between the casino and the stock market. The gamble in the casino is on a much smaller scale, and the actual exchange between winners and losers is always tangible and immediate which makes it a very efficient economy. In the stock market the effect of losses, and to the same end, winnings are not immediate. And one must not forget that nobody loses in the markets until they sell. If you never sell, well, I guess you never lose.

I play the game, but realize it is just that, a game. I do the DD (to the best of my ability), and would not play the game if I did not have to, because eventually every house of cards collapses.

3/02/2007 10:42 PM  
Anonymous Anonymous said...

Dear Anon: U may still lose even if u don't sell-- if the company whose shares u are hanging onto for dear life goes into bankruptcy and is wound up with negative worth.

3/04/2007 6:10 AM  

Great minds on the market.

1/14/2014 10:30 AM  

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