If you're not familiar with Wayne Allyn Root, one might get the wrong impression upon learning that his book is dedicated to Benjamin Graham, "Wall Street's original value investor and the first true contrarian."
You could assume that he's just another stodgy money manager who made a fortune running a value fund, and wants to see his legacy in print. But if you placed a wager on that proposition, it would be a dud. For this author is actually a straight-shooting professional sports handicapper, and his book is titled The Zen of Gambling. Mr. Root describes Wall Street as the "ultimate contrarian adventure," but it's his pronouncement, "Step by step, almost word for word and theory for theory, I have found that 'investing' on Wall Street imitates betting on sports," that is of interest.
If we designed a course on modern economic evolution, it would have to feature the ascent of professional sports into one of the largest businesses in the history of capitalism. Sports betting has followed closely on the heel, growing into huge moneymaking enterprises, including on-line betting sites.
Mike Orkin, a PhD in statistics and a gambling expert, said in his book Can you Win? that if you're going to gamble, do it with sports betting because unlike casino games, it's impossible to prove that you can't win in the long run. The same could be said for poker -- that crazy TV phenomenon.Gambling is sometimes dismissed as mere entertainment, but many don't know that probability theory was developed in the mid-1600s from the correspondence between two great mathematicians, Fermat and Pascal, who were analyzing betting games.
Primarily a book on using a contrarian approach to sports gaming, The Zen of Gambling devotes a chapter to stock investing and its relation to sports betting.
But of particular note to us is Mr. Root's astute observation that time is the one big advantage stock investing has over sports betting. If one can afford to wait out a position that has gone down, he says you can make more money in the market than with sports wagering. By its nature, a contrarian stock has a good chance of regaining the loss over time. But the outcome of a wager is instantaneous and this is attractive to bettors.
And therein lies two necessities for contrarian stock investing: patience -- which entails having control over one's emotions -- and a sufficient bankroll to ride out the inevitable losses and stay in the game. But if you can't participate in stocks, then trying to generate positive returns at poker or sports betting can still benefit from using a contrarian strategy.
Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter. This column first appeared on GlobeinvestorGOLD.com.