VIEWPOINTS OF A COMMODITY TRADER

The race is not always to the swift nor the battle to the strong, but that’s the way to bet - DAMON RUNYON

 

According to Wikipedia, “A game of chance is a game whose outcome is strongly influenced by some randomizing device, and upon which contestants may or may not wager money or anything of monetary value. Common devices used include dice, spinning tops, playing cards, roulette wheels or numbered balls drawn from a container. Any game of chance that involves anything of monetary value is gambling. Thus, every gamble is a game of chance, but not every game of chance is a gamble.”

So, not all games of chance are alike?

First there’s skill.

Well, unlike dice or the roulette wheel there are some games of chance that require a skill, like handicapping horses or trading. In essence, the roulette wheel is ultimately fate, where trading is a choice. A game where a person can polish their skills and make choices has a great advantage over a person who places a bet against certain odds, and waits for fate. After all, there are a number of professionals that make a living as card players or traders, yet few make a career out of throwing dice.

Then there’s time.

All games of chance are dominated by time. As Peter Bernstein puts it in his book “Against The Gods- The Remarkable Story Of Risk,” “Gamblers think they are betting on red or seven but in reality they are betting on the clock. The loser wants a short run to look like a long run so the odds will prevail. The winner wants a long run to look like a short run so the odds will be suspended.”

He goes on to say, “Insurance companies conduct their affairs in the same fashion. They set their premiums to cover the losses they will sustain in the long run; but when earthquakes and fires and hurricanes all happen around the same time, the short run can be very painful.”

Well, that sounds familiar to a trader. Good traders know they must also be properly capitalized for the short run surprises to insure long run success. As Bernstein says, “Time is the dominant factor in gambling. Risk and time are opposite sides of the coin, for if there were no tomorrow there would be no risk. Time transforms risk, and the nature of risk is shaped by the time horizon: the future is the playing field.”

 

Then there’s choice.

In those games of chance where fate prevails, decisions are irreversible. We place the bet down on red and that’s it. There’s no going back. In trading however, we can sell something we just bought if we feel we made a mistake. Bernstein points out that Hamlet once said too much hesitation in the face of uncertainty is bad, “yet once we act, we forfeit the option of waiting until new information comes along. As a result, not-acting has value. The more uncertain the outcome, the greater may be the value of procrastination. Hamlet had it wrong: he who hesitates is half way home.”  

Hone your skills, respect time in the game and use your ability to choose, or use the rabbits foot. Remember however, that didn’t work out so well for the rabbitt.

 

 

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Filed under: Favorites, Trading Methods by Charles Maley
Tags: «Against the Gods - Against The Gods- The Remarkable Story Of Risk - Peter Bernstein »