Beat the Market

It can be said with great confidence that inferring and predicting are important skills, most especially in high-frequency decision making under uncertainties, such as stock trading and sports betting.

It’s kind of like the world of professional poker. Most poker players are casual and amateur players. Sure, they might have a few big wins, but they all lose money in the long run. But a small percentage of players are pros. They make money overall.

What’s interesting is that if a pro and an amateur sat down to play a single hand against each other, the pro wouldn’t necessarily win. In fact, the odds would be about 51% to 49%. The pro might have a very slight edge, but it could really go either way. 

However, if a pro and an amateur sat down to play a thousand hands, the pro is always going to end up with more chips by the end. It’s about discipline and practice, not about any one specific hand. Just like trading stocks isn’t about one specific trade, it’s about your overall system and dedication to becoming a pro trader.

Even the top poker pros in the world were amateurs too at one point in their life. But they trained to learn a system and become part of the minority who wins over time. Critically, the pro doesn’t win all the time, they win over time. It might only be a 1% edge on every hand, but after 1000 hands it adds up to something significant. 

One key difference between amateurs and professionals is that while amateurs react impulsively to any win or loss, professionals take a breath and use all the information they can collect to predict where they should go next. They’ve trained themselves to use  a tactic that works just as well for poker as it does for stocks: probabilistic thinking.

When famed World Series Poker Winner Phil Ivey finishes a game, he doesn’t focus on whether he’s won or lost. He just reviews his process and looks for ways he can improve his approach for the next game. Like a machine, he feeds himself more data.