Just like at the track, when betting stocks by buying shares, you are betting against everyone else. But that’s where the similarity with horse betting ends. The payouts for favorites at the track are typically pretty dismal. Only squares bet on the favorite all day long. You can win all day at the track betting favorites and not ever be able to pay your mortgage.
With stocks, however, one can, and I dare say should, bet on the price point with the best odds, where value is glaring. But in order to ensure that the payout is satisfactory, particular attention must be paid to position size. To succeed long-term, one’s goal cannot be the price points with a low implied probability of success, especially if dismal odds are required to compensate for a small position.
To learn more about how we place value bets, I invite you to peruse our How We Bet series:
Join the house in its bets against the squares!
There is a means by which one may trade when the odds are in one’s favor a high percentage of the time. This means that one is trading with the house against the general public as well as against contrarians — both segments of the betting population with a penchant for betting on their favorites at almost always the wrong time.How We Bet, Part II