Yawar
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2011-11-15 1-50-05- |
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it is when it diverges that widely from the....
"market probability" of something happening. The best geniuses in any market (whether it's sports betting, puts/s, futures, Intrade contracts, etc) only have about a 5% edge on their very best plays (and once in awhile, can get as high as 60%) in all-or-nothing bets (i.e. a bet where you double your money if you win, and lose it all if you lose). For example - if the market thinks there's a 50% chance that the Patriots -3 will cover, then the best bettors out there might find an 'edge' that allow them to pick the Patriots, with 55% probability of a victory greater than 3 (assuming such an edge exists for that game, which it doesnt always). The same analogy applies with the stock prices in parts of the financial sector. The highest 'odds delta' on any all-or-nothing put/ bet that any genius made back in, let's say, January, would've been about 5% (i.e. 55% vs 50%). It's luck that things turned out as severely as they did. There were plenty of finance professionals just as smart as Farang who were *long* these stocks, and those professionals had access to the exact same articles and information Farang did. The reason that any bettor's edge rarely gets higher than 5% or so, is that everyone has the same information (and there are many unknown variables, and known variables with unknown values, and randomness mixed in - all of which leads to elements of randomness in the prediction results). The reason there are bettors who have an edge (i dont believe markets are efficient) is that they process the public information more intelligently than the market does. The fact that things turned out as severely as they did has little to do with Farang's predictive ability ... his arguments were based on publicly available information. At most, he had a 5% or so 'edge', assuming he had the same predictive skill as the best hedge funds (and that's a generous assumption). An analogy in sports betting is that you pick the Patriots -3 and think you're a genius if they win 50 to 0.
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