Randomness cannot be excluded from handicapping

[Vinnie]

Very nice story Dave:

Thanks for taking the time to write and thank you for sharing..

All the BEST!

[Exotic1]

Originally Posted by Dave Schwartz

Mark,

You have once again shown yourself to be based in reality.

It is all randomness! But randomness based upon probabilistic fact.


Why does the house win in the long run at the crap table? Because the the probabilities relative to the odds favor them.

Permit me a story.

In the mid '70s I was working at the Golden Nugget in Las Vegas. Steve Wynn had just taken over. There was no hotel. Just 36 BJs, 7 crap tables and 2 roulette wheels. At the time of this story (I think it was April, 1976), I was sitting box in the crap pit on day shift.

On April 1st we were having a pretty good day. Back in those days most casinos kept what was known as a "walk sheet." The boxmen and floormen manually tracked every player that bought in for more than $20. (Out on the strip they typically set the bar a little higher but in the downtown casinos it was generally $40 or more.)

I learned very quickly that if the floorman asked, "How much is the guy in #3 in?" any answer other than "I don't know," was acceptable.

When a player that was being tracked walked away you would tell the floor, "In $200, out $120," or whatever the proper tally was. By the end of the day we knew whether or not the day was a winner based upon the walk sheets.


Back to April 1st. Early in our shift we had a pretty good winner going. So much so that by 4pm confidence was high. (Yes, these guys really did sweat the money that much.) The boss went on a break around 4:15pm for dinner and when he came back at 5pm one of the floormen told him that we had booked a $20k loser while he was gone. Then he said, "April Fool's!"

The boss was furious. "You don't make jokes like that!"

The "count" started every day at 5:30pm. The count team would make its way through the BJ pit and eventually get to the crap pit at about 5:55 or so. (I worked until 7, but swing officially ended at the nugget at 6pm.)

So, the boss has become paranoid about the potential bad luck caused by the floorman's joke. He tells the boxmen to move the dice as slow as possible.

About 5:30 a guy comes up and nails us for about $10k in like 6 minutes, which was enough to push us over to the losing side.


This went on for the entire month! Every single day we lost! The bosses (including Steve Wynn himself) are spending a lot of time in and around the crap pit. When a casino loses day in and day out, management begins to assume that someone is heisting the joint. Every fill is being checked. The cameras are being watched and reviewed with great scrutiny.

One day, maybe around the 20th or so, we had a good day going. So good that at 5pm the boys in the pit have lit up cigars for the first time in April. Wynn runs down from his office and demands that everyone put out the cigars.

I am on game 7 that day, the last game in the room to be counted. It is around 5:30 and my game is pretty dead. Just a couple of $2 players. I can see the count team at Roulette #1 (which is actually right next to crap pit.) The pit boss goes and tells everyone to move the dice real slow. I turn to my floorman and say, "It won't help. Someone's coming. Right now they are preparing to wreck our day." He tells me to shut up.

5:40pm. Out of no where, an idiot player walks up to the table and puts $500 cash each on the Big 6 and Big 8. (This is a very stupid bet because had he placed those numbers he would have gotten 7-to-6 instead of even money.)

The dice roll. Six. Eight. Six. Eight. Eight. Six. He's $3k ahead.

The guy says, "Can I bet the hard six and eight for $100 each?" Sure.

Now the dice change... hard six. That costs us $1,400. Hard eight. $1,400 more.

"Can I bet the field, too?" Sure. $500 in the field. We like this because if a six or 8 comes now he loses his field bet and maybe his hardway.

No such luck. "Two-craps!" Field pays double and we're down another $1,000.

"12 craps!" Triple! There goes $1,500.

Eventually he loses a little but by the time the count team gets there he has $12,000 of our checks in the rail. (And his original $1,00 cash is back in his pocket, which is considered very bad because if he loses he may just walk without reaching.)

As the count team leaves, things change. Dice roll, point-seven like 4 or 5 times in a row. The field never hits again and by 12 minutes after the hour he has lost every check in the rail plus $9,000 more from his pocket.

This is how the entire month went. Every time we were winner going into the last hour, someone, usually a single player, came along to beat us. One day, I was on a quarter game and it exploded for a $25k loss around 5:00.

They started using a "cooler" around mid-month. "Seven-out Sam" was his nickname. He normally worked swing shift, coming in at 8pm or so. Now he was ordered to be on call from 3pm on. He just got used to coming in around 4pm and then they'd call him in to replace the stickman on whatever table was hot.

A lot of people got fired that month. Amazingly, I wasn't one of them. Seven-out Sam lasted about a week when they discovered he really didn't have any magic. (He was on the stick during that $25k bird-game fiasco, calling away the last $20,000 or so.)

The streak ended promptly on the 1st of May.


Regards,
Dave Schwartz

PS: I am Dave Schwartz and I approve this message.

Dave,

Great story. Thanks for the time you spent sharing it.

[46zilzal]

Originally Posted by Charlie D

I have not read Taleb's book, but i do believe he is refering to stock investments and in stock investment there are very few, if any, past results or form from which to gather facts. No previous or little form means the chances of a random event taking place will be a lot higher, so in stock investment Taleb would be correct stating.


Just thinking out loud so don't shout at me if you think i'm writing BS.

First line explains it all....

[Charlie D]

Don't need to read the Taleb book when there are people like Formula, Dave and Mark around the internet.

[46zilzal]

Originally Posted by Charlie D

Don't need to read the Taleb book when there are people like Formula, Dave and Mark around the internet.

That is about the funniest thing you have ever stated and that accounts for many rivalry statements at the old Match up venue where rookiness was a common stumbling block in their content,,,,,,,just like this one!

[Charlie D]

No rivalry here, just had to keep correcting all those errors in your posts.

[46zilzal]

rookiness shows no boundaries but then again Goethe pegged it correctly years ago :Nothing is worse than active ignorance.

[Charlie D]

Nothing is worse than active ignorance.

You're right there.

[Light]

Randomness is a term we usually associate with upsetting positive expectations. When we win in horse racing,do we say it was random? Of course not.To me randomness (in horse racing) is one of the infinite losing patterns in a positive expectation. If you play the favorite you expect about a 33% hit rate. Randomness has its affect on the frequency pattern.That's why something like the Martingale system that relies on a constant frequency and not a variable frequency is not viable. Because random patterns are infinite,you can never have enough "data" to verify any "system". By "system" I mean any approach, be it manually reading the form and your associative thought processes or a computers protocol. Imagine the results of your system laid out across infinity. Is your system profitable or not? Well it really depends on what section of results you are talking about and when you actually bet in relation to random cycles.(Its all connected). Those sectional results are certainly affected by positive and negative randomness (which really isn't randomness at all, but that's another topic)

The point made earlier about having a winning "system" that is prematurely discarded because it starts out in a "bad streak" because it happens to be temporarily caught in a random negative pattern,is basically what what I'm talking about. As I said in my last post,your best ally is not to fight it.That only complicates things. Instead of being swept away by the turbulence of the storm (random negative frequency) center yourself in the calm eye of the storm till it passes.

[46zilzal]

His first work, Fooled by Randomness, was voted by Fortune magazine as one of the 75 smartest books of all time.

http://money.cnn.com/magazines/fortu...4826/index.htm

[46zilzal]

Originally Posted by Light

Randomness is a term we usually associate with upsetting positive expectations. When we win in horse racing,do we say it was random? Of course not.To me randomness (in horse racing) is one of the infinite losing patterns in a positive expectation. If you play the favorite you expect about a 33% hit rate. Randomness has its affect on the frequency pattern..

Name the process whatever you want but it is extant all the time nevertheless.

[Light]

Of course.

[markgoldie]

Dave:

Nice story. I hope you have it on Microsoft Office or something and you didn't take all that time to write it just for us. If you did, thanks on behalf of all of us for taking the time. Nice, clean writing style, by the way- good rhythm and pacing.

Anyway, I have a very good friend who for many years was a horse player. In the last 20 or so, he has been a stock analyist for one of the major Wall Street brokerages. His stock-picking style is based on a positive fundamentalist approach, which means (for those of you not familiar), that he looks at the strength, health, quality of management, and business opportunities of companies. He seeks companies that seem to have a good future and which are currently undervalued in the marketplace.

The other type of market player is the so-called "technical analyst" or "technician." This analyst doesn't care at all about the fundamental qualities of a company, but rather seeks to predict which way the market will move, knowing that all stocks will tend to follow the general movement of the market. Such analysts like to play the market more short term, because up and down movements have shorter life spans.

All the "sex appeal" is with the technicians. They employ all manner of data-based, computer-aided analysis of past market fluctuations to predict which way the market is going to move.

What does this have to do with horse racing? Well, a couple of things. First, I always thought it was a strange contradiction that my friend should be a fundamental analyst rather than a technician. Being a horse player, you would have thought that he would gravitate toward the faster, quicker-results nature of the technician rather than the boring, balance-sheet dissection of the companies through which he must plod. Being a "positive" fundamentalist would also seem a bit strange because one of the great strategies of horseplayers is to bet "wrong" so to speak. That is, play against the overvalued favorite for the less-valued longer shot. And so you might think that he would gravitate more naturally to playing "short."

Conversations with him over the years have been interesting. He attributes his gravitation toward positive fundamentalism in large part to his becoming a father. You see, in handicapping horses, we all tend to become social hermits in some sense. That is to say, it is self-defeating to trumpet a selection to the world because in a zero-sum game, the lowered odds based on our optimism comes right out of our pockets. In fact, it can make a winning selection essentially unprofitable (this, of course, due to the randomness of which we speak here and the fact that only a percentage of our "enthusiasms" will result in positive outcomes). And so, when we develop a good approach, we must hide it, keep it to ourselves.

As an aside, this is also why he feels that we must take most books written on handicapping with a huge grain of salt. What impetus could there be for giving away the secret to your success? None. Do we really think we're on the verge of a whale group giving away their programs so that everyone can do what they do? Of course not, and so books tend to be written by losers or possibly the marginally-profitable players with an ego-need to see their name in print.

At any rate, having children made him realize that as a father, you are in large part a teacher. That you badly need and want to share your insights with your children and that this desire to become a teacher for the common good is antithetical to a horseplayers mindset and existence. He might be a bit overboard here, but I think the essential gist of what he's saying is correct.

And so, positive fundamentalism suits his current life-view. Go out and scream the virtues of a company at the top of your lungs to the world. The more people buy, the more the price goes up and everyone is happy. There is no zero sum game in effect.

As for the inability of a group of successful stock pickers to repeat their short-term results: This is less due to fundamental randomness than it is the pressure to produce short-term results. As the greatest of them all, Warren Buffett has said, he has made only one essential bet in his career- that the American economy will do well over time. So in the long run, stocks go up. Naturally, as Lord J.M. Keynes famously said, "In the long run we're all dead." The question is whether you would like to have Buffett's balance sheet along the way. But that is an entirely different question.

[Overlay]

Originally Posted by markgoldie

As an aside, this is also why he feels that we must take most books written on handicapping with a huge grain of salt. What impetus could there be for giving away the secret to your success? None.

Agreed, as long as you're using a process of elimination to isolate the one horse that is judged most likely to win (as most books/methods do), and then betting it regardless of its odds.

[Dave Schwartz]

Nice story. I hope you have it on Microsoft Office or something and you didn't take all that time to write it just for us. If you did, thanks on behalf of all of us for taking the time. Nice, clean writing style, by the way- good rhythm and pacing.

I do now.