What image comes into your mind when you hear ‘professional gambler’?

A James Bond type, suave and handsome, standing at a roulette wheel, martini in hand and a gorgeous blonde draped over his shoulder? He pushes forward a huge pile of chips onto a number, and watches with smug certainty as the ball falls into the right slot…..

This is all absolute nonsense of course.

For a start, James Bond’s favourite game was baccarat not roulette. Secondly, if you shake a martini you chip the ice and just get a watered down drink. Thirdly, neither James Bond nor anyone else in the history of human civilization (fictional or real) has ever been able to accurately predict where the ball will finish on a roulette wheel. A roulette wheel is an efficient random number generator, and the only way to beat it is by having the odds on your side.

**So why do successful gamblers win?**

**How do some investors make loads of money, when most investors lose?**

Every successful professional gambler/investor in history has something in common; they bet with an** EDGE**.

An **EDGE** is having the odds in your favour. Over time, if the odds are in your favour then you’ll win.

So the reality of professional gambling is somewhat less glamorous than the James Bond fantasy. A pro gambler is much more likely to be found reading a newspaper, or playing with numbers in a spreadsheet than standing in a casino, drinking and flirting with blondes.

The reality of professional gambling is mostly a little dull, and unfortunately there’s no way of explaining the basics that will be a roller-coaster ride of page-turning excitement.

But….if you master the basics it is possible for you to become filthy stinking rich through professional betting.

**The Warren Buffett Approach**

Just look at Warren Buffett. He leads a frugal, slightly eccentric life, with his head buried in a newspaper most of the time. But depending on what the US stock market has done in the last couple of days, he may very well be the richest man in the world as you read this.

And all Warren Buffett has done his whole life is practice **‘value investing’**. He’s a professional gambler. He bets on the share prices of companies. Buys them for less than they’re worth. Sells them for more than they’re worth. That’s it. He understand randomness, he recognises value and he has developed investing methods to turn that value into an edge. You can do it too. Albeit likely on a smaller scale. But theoretically, once you understand how to find an edge there really is no limit to how much you can win.

So think of this article as studying for your O-Level (giving my age away) in professional investing.

Make yourself a cup of tea, settle down and be ready to make some notes. By the end of this article you’ll be ready to pass your exam, armed with the knowledge of how Tony Bloom, Phil Ivey and Warren Buffett made their millions.

Occasionally people manage to win without an EDGE. For example a lottery winner doesn’t have an EDGE. Neither does a guy who flukes a 6 horse accumulator bet. Or someone who buys a company’s shares on spec, just before their shares rocket in value.

Bookmakers, casinos, lottery operators and stock brokers all make a living by selling the dream; **‘it could be you!’**. But it almost certainly won’t be. For every guy on the front page of a paper celebrating a £multi-million lottery win there are countless millions of losers. 99.999% of people who buy lottery tickets will make a loss in their lifetime on their lottery ticket investments.

The ratio of winners to losers is broadly similar when you look at people who invest with bookmakers, casinos and stock exchanges. There’s a reason lottery operators get you to tick a box to allow them to publicise you if you win. By displaying you with your winnings, they sell the dream of **‘it could be you’**.

Same with big winners at the bookies. The ‘dream’ is what distracts their customers from the reality that the odds are consistently, and hugely against them. The truth that they are overwhelmingly unlikely to actually make a profit; that it **‘will’** be you. Their customers effectively pay a bookie/casino/lottery operator for providing them with a hobby. And a dream.

Professional investors are rare, and they are different. They are not seduced by the dream of a single big win. They take luck out of the equation, and turn the odds in THEIR favour. They get an **EDGE.**

But how do you get an **EDGE?**

The process of getting an edge is in 3 Steps;

**Randomness – Value – Edge.**

This article will explain what that means. How you get to the **EDGE**. It first involves explaining some theoretical concepts;** RANDOMNESS** and **VALUE**. But don’t worry, the payoff for learning the theory comes when you get to the **EDGE**.

**To Be A Good Punter You Need To Understand ‘Randomness’**

The first step to becoming a successful investor is to understand **RANDOMNESS**.

RANDOMNESS is a theoretical concept that you need to ‘get’ before you can move on. It’s invisible, but you have to know that it’s there, and how it works. Like a physicist has to believe in, and understand gravity, even though he can’t actually see it.

Understanding RANDOMNESS is the opposite of believing in fate. Events are not pre-ordained. Events are chaotic, random. Nothing happens ‘for a reason’. Things just happen because events that take place, no matter how small, have an effect on everything around it.

The influence of the laws of cause and effect are at play all around us, every second of every day. Everywhere in the universe. From the moment of the big bang. Anything that can happen, might happen. It will happen, if you wait long enough.

Everything that happens in the universe does so within a framework, the ‘laws’ of how the universe works. The rules of the game. Our best way of describing these laws is with;

- The standard model of particle physics
- Einstein’s general law of relativity

Essentially the force of gravity and the speed of light are fixed. Everything that happens in the universe conforms to these laws, but what actually happens within the framework that these create is random, chaotic.

There is loads of stuff in the universe, moving around, so it is interacting all the time with lots of other stuff. Even the tiniest event, the briefest collision between the most tiny and insignificant of these can set off a chain reaction that leads to a radically different outcome than would be observed if the tiny event hadn’t taken place.

Ok, enough already with the physics! What the hell has all this got to do with gambling? With sport, poker or the price of a company’s shares?

Everything.

**Because games of sport, hands of cards and the economies of the world all work in the same way as the universe, fundamentally. There are rules. And there is randomness. That’s all.**

Take a football match. The rules are fixed. There will be 22 players, a referee, a rectangular field and 2 sets of goals. The referee will blow his whistle and the players will start to play.

**What happens over the next 90+ minutes on that rectangle is random**. There is a discernible and predictable pattern to the randomness for sure. We can know that it’s likely that the better players will play better. The team with more of the better players is more likely to win. The number of goals scored is most likely to be between 2 and 4. Etcetera.

We can know these things, these ‘likelihoods’, by observation and research, considering data on previous similar occurrences, i.e. other football matches, especially those involving these teams and these players.

But what we can’t do is predict EXACTLY what will happen.

From the moment the referee blows his whistle to start the match there are a virtually infinite number of possibilities of how the game might play out. Every decision a player makes, every spin and deflection of the ball, every instruction given by the coach, each breath of wind, every noise from the crowd that the players hear, every decision by the officials….they all come together to create a narrative, a story on a timeline across the 90 minutes that describes exactly what happened. And if you played the match a trillion times, the story would never be exactly the same twice.

This is because every variable is multiplied by every other variable to come up with the total number of possible storylines.

In the infinite number of storylines a % of them will result in the score ending nil-nil. A different % will be 1-nil, 2-nil, 3-1 etc. A much smaller % will result in the score ending 8-4. If it’s possible that it can happen, it will happen, even if it’s a tiny % of the time.

Every possible outcome will be included in the % distribution of different scorelines that result from our infinite number of storylines. We can look to this distribution to observe the implications of the rules of the game, the framework within which it operates.

None of the storylines will end up yielding a score of 5,000-nil. The rules of the game are that you play for 90 minutes (plus a bit more) and that after a goal the ball gets placed back on the centre spot. The clock continues to run while the ball is returned to the middle. So there isn’t enough time for a team to score 5,000 goals in a football match. That possibility exceeds the framework of the game established by the rules, so it will never happen. Nothing will ever travel faster than the speed of light.

In our infinite number of football match storylines the upper end of the total number of goals scored might by something like 60. Incredibly, mind-bendingly rare though such a match might be – it is possible that one match could yield 60 goals. And if it’s possible that it could happen, then it will happen. Eventually.

Nothing will ever travel faster than the speed of light. That is one of our laws of the universe. Things can and will travel at any speed up to and including the speed of light, but nothing over that.

**Value Betting Is No Guarantee ‘Something Will Happen’ (Or A Bet Will 100% WIN)**

So what are the practical implications for a professional gambler of understanding this RANDOMNESS theory?

First, you understand that fundamentally predictions are useless. It is impossible to predict exactly what will happen because the number of actual possible storylines is infinite.

But it **is** possible to guess at the pattern of likelihoods in advance. That is the best we can do, and it what we must do.

We know that, within the framework, all the things that are possible **will** occur a certain % of times. The job of the professional gambler is to discern the pattern in the RANDOMNESS. **To say ‘how likely’ something is to happen. Not to say what ‘will happen’.**

Where the subject involves animate objects, like the players, officials, fans, pitch and weather of a football match then the pattern in the RANDOMNESS cannot be projected precisely. It involves an element of guesswork. Observation, such as watching previous matches involving the teams, or analysis by looking at a league table can make the guesswork more accurate than a guess plucked from thin air. Modelling the relative strengths of the teams and the players using sophisticated analysis, and then feeding that into an engine which works out a distribution of possible scorelines can get you pretty close to projecting the % distribution within the infinite storylines. But it’s still guesswork, even when it’s very informed guesswork using a computer model.

But where the subject involves an inanimate object such as a roulette wheel or a drum of lottery balls then we can be can be absolutely precise in discerning the patterns in the RANDOMNESS. So long as the roulette wheel (let’s use a European wheel here with a single 0) is well made, and working properly then the % distribution of the ball falling into each slot will be 2.7% over an infinite number of spins of the wheel.

It will be 2.7% in slot 0, and exactly the same % in slots 8, 13, 28, 31….. The % distribution of the ball falling into a slot numbered 57 will be 0%. The framework of a roulette wheel is defined by the rules of how many slots it has. Our wheel has 37 slots, so the number of times a ball will fall in a slot other than one of these 37 is the same number of times our football match will have with 61 goals. And the same as the number of times an object will move faster than the speed of light. Zero.

When two boxers get in a ring the better fighter will normally win. But the rules of the ring dictate that either fighter could win. So there doesn’t have to be a ‘reason’ why Buster Douglas knocked out Mike Tyson. Randomness means that it was inevitable that it would happen at some point, if you iterated that fight over many times. It just happened to be that night.

**When a roulette wheel spins it is randomness that governs which slot it falls into**.

There is no memory to the wheel, no number is ‘due’ to come up just because it hasn’t come out for ages. In 1913 in the Monte Carlo Casino the ball in a roulette wheel landed in a black slot 26 times in a row. The odds of that happening were over 67 million to 1. So while it was surprising to the onlookers (and ruinous to the ‘red backers’!) the sequence was actually no more surprising than any of the other 67 million possible storylines that the 26 spins could have produced.

**So the point of learning the theory of randomness is to realise that predictions are useless to a professional gambler, because they are impossible.**

It is impossible to see into the future. It is one of the immutable laws of nature. Part of the framework.

We need to understand that our job is to discern the patterns in the randomness. To say how likely something is to happen. Not to say what we think will happen.

Once we understand this principle we can move on to **VALUE.**

**Value Betting – The Odds In Your Favour**

VALUE mean finding investment opportunities where the odds are in your favour.

**VALUE is backing something with a 50% chance of happening at odds of 11 to 10.**

If anything can happen. And we can’t know what is going to happen. How can we profit from betting on something that is going to take place in the future?

The answer is that all you need is to be armed with an idea of how likely something is to happen. And then, to know that the chance of it happening is greater than the odds you get when you make your investment.

**It’s all about the odds.**

An investment is risking something in the hope of a profitable return. The profit you make when you win, divided by the amount you risked are **the odds**.

So if you bet £100 on a horse, and it wins, and you get £400 back then your profit was £300. 300 over 100 is 3 over 1. Your odds were 3 to 1.

On this occasion the horse won. But how likely was it to win? If we ran the race a million times, on how many occasions would our horse win? What is the pattern in the distribution of the randomness? Lets say out of a million races our horse wins 200k times. The pattern in the randomness is that our horse’s true chance of winning the race is 800k over 200k. Or 8 over 2, which is 4 over 1. 4/1 are the horse’s true odds.

If we bet a million times on our horse at 3/1 we would lose money. We would get back £800k having staked £1m. Our loss would be £200k. 200k is 20% of 1m. 3/1 is ‘bad value’ for that horse, to the tune of 20%.

But if we could get 5/1 about the horse the sums become £1.2m return on our £1m stake. The horse becomes Value, at 20%.

When I say the ‘horse’ becomes value, I don’t really mean the horse. I mean the odds of 5/1 are value. Where odds of 3/1 are not. The horse is, effectively, irrelevant. What matters is the odds that you get, not the horse itself. Every horse, no matter how slow has a chance of winning any race that it lines up for. Those are the rules. That is the framework that we are operating in.

So if a horse is so slow that it will only win 1% of the time then its true odds are 99/1. If you can bet on that horse, slowcoach that it is, at odds of 100/1 or better then it’s a Value bet.

What happens in the race on any single occasion doesn’t make the bet a bad bet. Single results don’t prove whether something was value or not, whether it was a good bet to make or a bad bet.

**The truth of value investing only reveals itself over time.**

There’s a paradox that gamblers have to get their head around. The difference between short term and long term. The only thing matters is winning overall, in the long term. **But winning on any one single occasion barely matters at all.**

Value investing is a war waged though a series of many, many battles. Winning or losing any single battle does not really matter. Looking back on all the battles, from a position of triumph having prevailed in the war, the fuss that you made about the loss of any single battle will seem ridiculous.

Value investing is nothing to do with trying to win every battle. The only thing that matters is having the odds on your side consistently as you fight the battles, so that as a the results of a great number of battle becomes known your superiority becomes apparent.

Even great football teams lose some games. The best poker players regularly lose loads of hands. The best investors buy shares in companies who go bust. The best golfers make bogies. Champion jockeys lose far more races than they win. Short term losses are ultimately irrelevant. All that matters is long term overall victory.

So this is the concept of value; investing with the odds in your favour.

**There is a neat, simple mantra for any professional investor to adhere to; Decisions Not Results.**

If you keep making the right decisions, keep betting with the odds in your favour, keep finding Value then as long as you stay in the game for the long term you will end up a winner.