When are a set of betting rates coherent? There are two competing views on this question – one pessimistic and one optimistic. According to the pessimistic view, no matter what set of odds you choose, you will always make a loss on some form of investment, if you follow conventional investing guidelines.
An alternative view is that with a little bit of knowledge and the right tools, it is always possible to make money from odds that seem incoherent at first glance.
In this article, we’ll discuss the different approaches to betting and investing in order to determine which one is right.
The Short Story
In the short story, “Goldfinger” by Ian Fleming, the protagonist is introduced to a world of high-stakes gambling, where he is able to turn his hand to profit. Mr. Goldfinger is renowned for being the world’s greatest gambler. After making a small fortune in World War II, he opened his own casino in Monte Carlo, where he continues his winning ways. He also happens to be a genius in computer science and in the development of nuclear weapons. Naturally, he is highly sought-after for his skillsets, and many consider him to be a genius because of his uncanny ability to predict the future. Finally, he is also highly motivated to ensure that the world continues to recognize his genius.
Mr. Goldfinger is a fascinating character. It is clear that he is a genius, and it is also clear that he is driven by the need to prove his intelligence. However, his methods are, as we’ve established, highly controversial and, as a result, highly illegal. Nevertheless, even today, his methods continue to draw interest from the financial community. The simple fact that he is still so highly thought of proves that there is still plenty to learn from his controversial methods. In the following sections, we will discuss each of his methods in turn.
If you’re new to option investing, then it is probably best to begin with the basics. Essentially, option investing entails buying a stock that is currently out of the money—that is, a stock that is currently cheaper than its current market price. The advantage of this strategy is that, over the long run, you will make money from the difference in price between when you purchased the option and when you eventually decide to sell it. This can add up quickly, especially if you’re using option buying to generate passive income.
The disadvantage, of course, is that you have to be willing to sit and wait for the price to go up. It is a much less liquid investment strategy than other, more traditional methods, such as buying and holding a stock, for example. There is also the additional issue of how to value your options properly, especially if you’re new to the strategy. Luckily, there are a few key things you can do to minimize your risk and allow you to get the most out of option investing. First, it might be a good idea to diversify your option holdings across several different industries, such as technology and healthcare. It is also advisable to spread your option buying across a number of different companies, rather than investing in a single stock. This will help reduce the risks of investing in a single company, as well as increase the chance of making money from options that go up in price.
Although your long-term investment strategy might be crucial to your overall financial health, it is not always the case that you will have the luxury of holding a single investment for the long term. Sometimes, you have to be nimble-fingered enough to make money from a quick investment that pays off big time.
The advantage of short-term investing is that you, as the investor, decide how long you will be willing to hold the stock/option. Naturally, when you decide to sell the investment, you will have to consider whether or not you made enough money to cover your initial cost. One of the most popular short-term investment vehicles is the tradeable stock index fund, such as the S&P 500 Index Fund (SPY).
With this particular type of fund, you’re essentially agreeing to buy a group of stocks that correspond to the 500 stocks that make up the S&P 500. Because it’s a broadly-based index fund, there is usually very little day-to-day trading in SPY. Instead, it is usually a case of waiting for the market to decide the stocks’ prices, and then, at the end of the day, either selling the investments at a profit, or using them to offset costs and generate a cash flow.
SPY’s popularity lies in its simplicity. For people who want to get into short-term investing, but don’t have the time to watch the markets closely, or don’t want to get too deeply involved in the minutiae of individual stocks, SPY is a great place to start. For experienced investors, however, there are other, more complex short-term investing vehicles, such as exchange-traded funds (ETFs) that involve more research and analysis than is typically required for SPY.
The disadvantage of SPY and similar short-term investing vehicles is that you’re assuming all the risk. Because these are actively managed funds, they will include the expertise of financial analysts who carefully monitor the market and make short-term trade decisions on your behalf. While this can make short-term investing a bit more convenient for the individual investor, especially in comparison to traditional methods, it comes with a price. The expertise of the fund’s analysts and managers, as well as the market information that they gather, all add to the cost of the fund. Finally, the fees associated with short-term mutual funds and ETFs are higher compared to those of traditional investment vehicles.
Once you’ve established a healthy foundation of short-term investments, then you can start to think about your longer-term investment strategy. In order to generate the greatest possible return on your investment, it is usually a good idea to consider the following three factors:
When it comes to your finances, it is usually a case of risk vs. reward. Generally, the riskier the investment, the greater the potential reward. In the long term, high risk investments, such as stocks, can have the potential to generate significant profit, as long as you are willing to accept the associated risk.
The disadvantage of long-term investing is that, over the long run, the stock market usually favors the wealthy. The greater the risk you are willing to take, the greater the potential reward. It is usually only the ultra-wealthy that are able to maximize their income through long-term investing. For the rest of us, the benefits of the lower stock prices of the last few years have made shorter-term investments the preferred choice.
To reiterate, the essential point is that no matter which type of investing strategy you choose, you will always have to consider the three factors listed above. In some cases, it might be a good idea to prioritize one factor over the others. For example, if you’re looking for the greatest potential return on investment, then you might want to consider the risks associated with your chosen investment vehicle and make a decision based on the level of risk you’re willing to take. Alternatively, if you want to minimize the amount of risk you’re exposed to, then you might want to prioritize time over money, or vice versa. Ultimately, it is a case of personal preference and the nature of your financial situation at the time.
Although your initial investment in stock might seem like a safe choice – especially compared to the more exotic investment vehicles that some financial planners and advisers might recommend – it is always preferable, and usually much more effective, to diversify your portfolio.