Thanks Steve !!
When I saw on Twitter that you were working on a draft blog about horse racing, my interest was immediately aroused, and judging by the number of responses you got I am far from the only one! Here are a few thoughts of my own:
I will start by saying that I regularly enjoy a small flutter on the gee-gees (and occasionally on other sports) and have done so since I was old enough to legally enter a 'betting shop', as they were called in those days.
The similarities between investing and gambling are several, and not that hard to see, but for me there is one overarching one: The vast, vast majority of both investors and gamblers do so in an attempt to make money in a way that doesn't involve selling their time or labour in conventional work.
So those investors who sneer at gamblers as being 'mug punters', and those gamblers who view investors as 'wide boys', perhaps want to look in the mirror!
My late father always enjoyed a bet. Not to excess, but as a kid I remember that every Saturday he would have a flutter or two, and my mother wasn't averse to it either. Even at the age of 81 she still has the odd bet - usually if the likes the name of a horse that is running in a race being televised on Channel 4 Racing (probably with more success than I do, but I digress...)
My mum jokes that I have inherited dad's 'gambling gene'. Whether or not such a thing exists I don't know, but I too, as I mentioned above, like a gamble. The point I am very slowly getting around to is this:
Whenever I get the urge to gamble, I will do so by having a couple of quid each way on some nag in a maiden fillies stakes in Ayr or something. By doing that, I am not tempted to apply that urge to my investing, on which I can focus solely on the purpose of making money.
I am under no illusions here. Overall, I lose money on the horses, i.e. I am the typical 'mug punter' I mentioned above. But that's fine - it's a hobby, a vice - so is drinking beer and I don't make money from that either!
It's a tiny fraction of a percentage of what I make on the stock market.
I know many people who have made a lot of money on the stock market over a sustained period of time, but I don't think I have met anybody who has done so by betting on the horses. I can think of at least two reasons for this:
- (a) Neither is a zero-sum game. Companies exist (primarily) to create wealth for their owners, i.e. you and I. Obviously there are many things such as dealing costs and director fees that counter that but I think that in principle at least it holds true. On the other hand, bookies exists to make money for their owners, so we as punters are on the wrong side of the counter. Who pays for the upkeep of those betting shops and websites? We do, of course. (I won't address here the merits or otherwise of investing in a bookmaker.)
- (b) My stockbroker doesn't care if I make money on my shares or not, as he makes his money on the commission he charges me. If anything he probably wants me to be successful so I'll buy more shares and he can charge me more. Conversely, if any punter starts showing signs of consistently taking money from the bookies, they will simply close his account or restrict his stakes to tiny amounts.
Another thing that investing and gambling have in common is the prevalence of the dreaded 'tipster' - those 'experts' who like to think they have some sort of superior knowledge, and often get paid for sharing that knowledge, but in practice know ****-all more than you or I do!
Then there are those people who day-trade stocks or the dreaded 'binary options', and those souls who pump money into those equally dreaded FOBTs (Fixed Odds Betting Terminals) in the high street bookies. Another parallel that I shall not attempt to address further here but I think it's obvious enough.
Finally, both investors and gamblers need to know that there are a lot of less-than-honest people in both fields. We all know about insider dealing and the dodgy practices and outright frauds on the AIM market in particular. Similar are the 'non-triers' in horse racing, when jockeys are instructed to deliberately run a bad race in order to get a lower handicap mark or longer odds for their horse next time around. In these respects, I would offer that the FCA and the Jockey Club are neck and neck in the Chocolate Teapot Stakes when it comes to enforcement!
Sorry for such a long and rambling email - it shows how much your tweet got me thinking!
All the best,