Al Woods words
You’ve probably heard that investment management is like gambling in a casino. Is there any truth in this maxim? We spoke to Kane Kalas, a full time investment manager and former professional poker player who is still considered one of the elite players in the world, to get some answers.
Choice and risk – a key feature of both
Kalas would like to point out the similarities between gambling and investment management. Both involve choices and risks, and, in particular, the risk of exposing capital to potential loss in the hope of making a profit. But there are also some major differences that distinguish the two. From the time commitments required to engage in each activity, to the overall outcome expectations, it is important to note the distinctions between the worlds of invest and the game.
- Gambling and investing both involve an individual or group risking their own capital in the hope of making a profit.
- Investing and gambling have the same key principle: minimizing risk while maximizing reward.
- Bankroll management, or limiting the amount of capital risked on a transaction or bet, is a concept that must be mastered in order to be successful in investing or betting over the long term.
- Both professional investment managers and professional gamers must exercise great balance under pressure and avoid making decisions based on emotion.
- Overall, investors have all the odds on their side. The same can’t be said for all but the smartest players who lose long term for the house.
- Players are usually in competition with one or more known and observable entities – the house, for example. The house sets the rules and the rules don’t change often. Even in the case of poker, sports betting or horse racing betting, in which players face more than one person simultaneously, the number of competitors as well as the rules are more or less defined and observable. Investors, meanwhile, are in competition with “the market”. The market is a collection of individuals and entities including individual investors, fund managers and brokers, technical traders, high frequency trading robots, and others. The game played by other market players is not observable for the investor, nor is the amount of capital taken into account by each of these market players.
- Winning at gambling has more to do with theory while winning at investing has more to do with data. For all of the people analyzing past results at the baccarat tables in Las Vegas and around the world, none of them are in a position to gain a long term advantage with this strategy. The idea that an unrelated event, such as the winning baccarat banker, is more or less likely to happen because of what has happened recently is ironically called “player error.” Card counters, however, who make their decisions based on a mathematical theory that dictates whether a blackjack shoe is “heavy” or “light” are able to generate long-term profits. Investors, on the other hand, tend to do worse when they stick to the rules and better when they change their strategies on the basis of carefully controlled data. This scientific approach to investing has given the Renaissance fund, for example, a “quant” fund, tremendous returns. The Renaissance fund is perhaps the most exclusive and sought after hedge fund on Wall Street despite the fact that Renaissance does not hire any traders with a background in finance (Renaissance only hires traders with a background in the hard sciences) .
Investment – The Basics
Investing involves committing capital or allocating funds to stocks, bonds, annuities, real estate, bonds, or other financial assets, with the expectation of making a profit or generating income. Expecting returns is the main premise of investing. Reward and risk are inextricably linked in investing, with high risk usually coming with potentially higher returns.
Most investors recommend diversifying capital among several different asset classes in order to minimize risk. Investors analyze corporate earnings reports, price charts, risk and reward ratios, and often model a range of projected outcomes to get an idea of how profitable an investment is. Unlike gambling, investing generally involves the acquisition of a particular asset.
Game – The Basics
The very term “game” can be defined as a stake over a contingency. Sometimes referred to as a bet or bet, it basically means that you are risking your money on something that involves chance and the outcome of which is uncertain.
Like professional investors, professional players who are successful over the long term excel at risk management. Professional players gain their advantage in a variety of ways, ranging from mathematical advantages such as card counting in blackjack to information-related advantages such as betting on a sporting event with insider knowledge of a significant injury. Due to the complexity of poker, professional poker players can gain an advantage in a variety of ways, including mathematical advantages, informational advantages, and advantages in reading human emotions (and concealing one’s own emotion).
When playing slots or table games in a casino, punters play against “the house”, while in lotteries, poker, sports betting and racetracks, punters bet against each other. indirectly. In general, the players have the odds against them; a large majority of the total number of people who participate in any of the above types of gambling will be long-term losers.
Players, especially those who wager large sums of money, are often offered “comps” by a casino, including free hotel rooms, dining vouchers, and free table games. Some professional players are able to make a living from comps; they hope to break even in their gambling activities and “profit” from the value they receive from casino bonuses.
Kane Kalas’ point of view
Kane kalas has found ways to beat the markets since childhood. Kalas made his debut in the poker market; at 16, he invested his birthday money in home poker games with friends. At 18, he was one of the biggest earners in the online poker world and was a regular at Rail Heaven, the highest stakes poker game ever to be staged on the Internet. In 2021, Kalas is the winner of the biggest televised hand ever played and is considered one of the best poker players in the world.
Kalas became a full-time investment manager and part-time poker player in 2014. He is the Founder and Managing Director of Crystal Oak Partners and Crystal Oak Digital Assets.
Asked about the similarities between investment management and gambling, Kalas said:
“Both investment management and high stakes poker require composition under pressure, avoidance of overexposure and persistence despite volatility.”
Kalas’ basic philosophy – “trust data” – highlights the approach he has adopted for his two passions. Early in his poker career, Kalas feverishly mined the hands of the world’s top online professionals. He scoured the data looking for commonalities in betting frequencies and modeled his own strategy based on what worked for these professionals. Likewise, as a hedge fund manager, Kalas gathers and analyzes substantial market data to look for patterns and correlations. It uses a quantitative investment methodology, modeling the historical relationships between a variety of variables and the price action of a stock or group of stocks to make future predictions on whether the price of a stock will rise or fall. these actions.