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Value investing and value betting compared | Mercurius

Value investing and value betting: a comparison between two type of investments.

written by Mercurius

Value investing and sports betting aren’t really that different and you’ll learn that you can apply the same principles in your bets.

As we learned in the last article, an investor doing value investing buys stocks at less than their intrinsic value. Doing value betting, as well, means turning the situation to your advantage and betting only if the real probability of winning (read Value Betting for more info) is higher than what has been estimated by the market.

Let’s take a look at the 5 principles of value investing we mentioned in the last article.

  1. Companies Have Intrinsic Value. The price of stocks changes repeatedly, but the intrinsic value of a company doesn’t change. Bets follow the same logic, you should make a distinction between the value of a team and the odds:
    • the odds can be compared to stock prices because they both imply a payout, that is a possible return;
    • a team, like a company, has an intrinsic value (the performance of the team, its value and its real probability of winning)
  2. Always Have a Margin of Safety. Buying a stock at bargain price means that the odds of selling them to a better price are higher, thus making a profit.
    In sports betting, you can bet on matches whose real probability is higher than what the market price reflects.
  3. The Efficient-Market Hypothesis Is Wrong. Stock prices don’t mirror their real value and market trends, but if an investor can correctly read the values, he can turn them to their advantage. Likewise, the odds don’t reflect the real probability of an event, but the feeling of the bettors that bet altogether on a single odds, altering its price. This often happens because players only bet for fun and they bet on their favorite teams, instead of betting on those that have the highest probability of winning.
  4. Successful Investors Don’t Follow the Herd. Value investors don’t follow trends. When everyone is buying, they sell and vice versa. In the betting world, when everybody bets on the same odds, it lowers and the opposite one raises, gaining a better payout. That’s why a value bettor often buys the less popular odds.
  5. Investing Requires Diligence and Patience. Investing requires patience because investors need to wait for prices to be convenient and for the right time. Bets are a little different because timing is shorter, but, since we’re talking about a statistical approach, the variable is the number of events. Since a single bet doesn’t have a statistical value the kind of approach value investors use isn’t suitable, in fact, the expected results can only be proven after hundreds of operations.

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