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Value Betting Versus Value Investing: Is One ‘Better’ Than the Other?

written by Mercurius

It is highly amusing to see the mainstream media offer such a different perspective on sports betting when compared to traditional investments. While the former is gambling and ‘bad,’ the latter is savvy investing and ‘good.’ Those informed about the global economic crisis of 2007-2008 may take a different view.

In reality, while there are advantages of investing over sports betting, there are also disadvantages and similarities. The truth is this: You will make money in both spheres if you follow the right protocols, and lose if you approach either method in a foolhardy manner.

Professional sports traders and bettors have long since embraced the concept of value betting. Meanwhile, the likes of Warren Buffett are held up as the poster children of the value investing movement. Let’s analyse both to see if there is a ‘winner.’

What is Value Betting?

The principle of value betting is to find a market where you have an ‘edge’ over a bookmaker. The issue is determining the true probability of an outcome. For example, if Manchester City are available at odds of 2.00 to beat Liverpool, the price suggests City has a 50% chance of winning.

However, if you believe the actual probability is higher than 50%, you have a value bet. Mercurius uses sophisticated software to analyse billions of data points. Ultimately, our technology lets us know the ‘real’ chance of an outcome. If it is a certain percentage higher than the available price, we place a bet.

What is Value Investing?

Value investing involves purchasing stock for a price lower than its intrinsic value. It involves performing detailed research into a company’s financial fundamentals to uncover the real value of shares. If a company sells shares for €25, for instance, but your analysis suggests each stock is worth €40, you have an opportunity to make a value investment.

True Odds Vs. Fair Price

Finding Value Bets

Bookmakers tend to plow much of their resources into the ‘major’ European leagues, such as the top divisions in England, Italy, Spain, Germany, and France. As a result, it is harder to find chinks in their armour when pricing matches in such leagues. Of course, it is possible because that is what we do at Mercurius!

Even so, we acknowledge that value bettors can thrive if they focus on obscure leagues such as the Finnish Kolmonen (fourth division), Lithuanian and Latvian Second Divisions, and the Estonian lower leagues. Bookmakers often struggle to correctly price games involving amateurs due to the inherent difficulties in finding team news, along with the low-quality of the teams.

From the punter’s side, this lack of information also presents challenges. However, dedicated research helped this writer to find value bets on an almost daily basis during each summer; that is, before mass restrictions!

Bettors assume that bookmakers don’t make mistakes. The software at Mercurius says otherwise. So does the growing number of individuals making a living from betting; or at least a side income. They do this by approaching betting as an investment.

Finding Value Investments

It should be evident by now that the premise is almost the same as with value betting. You look for ‘mistakes’ in the market and pounce. In value investing, the erroneous assumption is that the market is always right. The success of famous value investors suggests otherwise.

You can make a profit from ‘major’ companies. However, smart value investors also know the benefits of going off the beaten track. Illiquidity is an issue when you purchase the likes of small-cap shares, but it can also be an asset in itself.

The value investor is patient. We already know that investors speculate and invest billions of dollars on liquid stocks. This is just the same as sports bettors wagering on the outcomes of ‘major’ games and markets such as the first goalscorer where the bookie has a considerable edge.

Logically, you have a far greater chance of finding possible bargains by searching for illiquid stocks. As many institutions can’t, or won’t, get heavily involved in illiquid stocks, there are real opportunities available for the individual investor.

Risk Analysis

There is no such thing as the ‘perfect’ betting or investing system. As far as value betting goes, it pays to have access to software capable of mining an extraordinary level of data. It is possible to find consistent value bets without the aid of technology, but the process becomes extremely time-consuming.

When you enter a market, the volatility can count against you. All it takes is a significant in-play event, such as a sending off or goal, and your position becomes weaker. Even when you master the markets, bookmakers love to restrict winners. The best way to get around this sticky situation is to open an account on a betting exchange such as Betfair; winners don’t get banned there.

There are numerous risks associated with value investing, as well. The main issue is a lack of knowledge. To succeed as a value investor, you must do your homework! It is essential to gain an understanding of business, and terms such as Price-to-Earnings, and Margin of Safety.

Aside from self-education, here are two other risks to consider.

1 - Volatility

It is only inexperienced investors that don’t understand how volatile the market is, and we’re not talking about cryptocurrency either! The sooner you realise that the market is a human invention, the better.

Imagine you purchase a stock at €24 a share because your analysis says it is worth €45. It is a massive margin of safety and in theory, an excellent investment. Alas, some bad news about the company causes an irrational reaction amongst investors and causes the share price to plummet to €11.

In investing, purchasing on margin is commonplace as a means of increasing earnings when you get a prediction correct. In the scenario above, however, buying on margin could cripple you financially to the point where you have to leave your position, even though you may end up being right. This is no different from sports betting.

2 - Timeframe

When you invest in value betting in football, for example, you are in a position for a maximum of 105 minutes plus stoppage time (including the half-time break). In value investing, it is ALL about timing and patience. To quote Charlie Munger:

“The world is full of foolish gamblers, and they will not do as well as the patient investors.”

When you dip your toe into value investing, you better be prepared for a LONG swim. An investment of €2,000 could yield €300 a year. This is sound investing in anyone’s book. However, what if you experience a sudden financial expense? You may need to close your position to cover it.

One could easily make the argument that value investing requires a decent starting stake. The same is not necessarily true for value betting.

Conclusion

It would be remiss of us to ultimately champion value betting and recommend that our readers discard value investing. The fact is, there is room for BOTH methods of earning a second income. Value investing typically requires a bigger bankroll and a lot of patience.

However, you benefit from much higher liquidity than value betting, for the most part. You also don’t get banned for being a successful investor! When you get it right and exercise patience, value investing is an excellent way for your money to make money!

From the perspective of value betting, you benefit from a less ‘sharp’ market. While bookmakers often get the prices right on high-profile leagues, they are less reliable when it comes to lower-level football.

Although the idea that the stock market is always right carries little weight (Market Efficiency Theory), it is more accurate than the betting industry. More importantly, the betting market is decentralised, which means you get different prices for the same market. You don’t get that with the tight, centralised stock market where you pay the same price for the shares regardless of where you purchase them from.

A final advantage that value betting possesses, and it is a significant one, is its tax-free status (in certain countries such as the UK). Alas, betting is not legal in a wide range of places.

In contrast, you get pummelled on tax from investments, especially since it is included in your overall income. If you already earn decent money, the taxman will have a field day with your investment earnings!

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