The Crier

Put the “Win” in “Windsor.” Or, Gambling Made Easy

Gambling and investing are not so very different. Winning at both is just a matter of calculated risks

Adrian Drake · The Exchange · Feb 12, 2007

Two vices are common to nearly every major human civilization. One is drinking alcohol. The other is gambling.

Ever since man invented currency, he has found tools and methods to gamble it away. Playing cards, for instance, evolved from a Chinese practice of shuffling paper money a little over a millennium ago. Dice have also existed for eons. Craps, the most popular game involving them, was born in the elite parlors of Victorian England — although it was originally, and somewhat appropriately, called “Hazard.”

Why is gambling such an indelible part of our culture? Currency is, in a sense, a measure of our labor and exertion. We exchange our time and energy for it. The possibility of gaining a large sum of it quickly without work is alluring. The romantic appeal of the effortless dollar is perpetuated by fictionalized heroes like Brady Hawkes and Bret Maverick.

Adventurous as it seems, gambling is really nothing more than the practice of calculated risk-taking.

But adventurous as it seems, gambling is really nothing more than the practice of calculated risk-taking. And if a gambler is savvy, he will employ certain strategies to minimize his risk and maximize his profit. We’re always doing this on some level, whether we’re deciding which classes to skip (“Was that quiz today?”) or if we should raise the blinds with pocket jacks. Gambling is different from other activities in that the risks and payoffs are usually higher, and the outcomes are revealed relatively quickly.

Buying stocks is another good analogy. Because the stock market is associated with Wall Street rather than Skid Row, it’s more socially acceptable than casino gaming. But there’s no reason you can’t employ the same strategies in gambling that moguls like Warren Buffett use when they consider the optimal blend of equities and commodities to employ.

Beat the Odds, a how-to book by J. Edward Allen, helps do this. A friend of mine used it to win over $400 at Motor City Casino a few weeks ago, playing mostly craps.

Allen’s guide outlines winning strategies for popular casino games including black jack and poker (see the end of the article for outlines). In the craps section, it categorizes bets as “Most Conservative,” “Conservative,” and “Aggressive,” just as an investment consultant will partition investment strategies.

If you open a mutual fund at TCF, you’ll be encouraged to build a portfolio that balances high-return, high-risk stocks with others that have lower return, but are safer. Smart investors diversify their portfolio. A clever gambler will do the same.

Smart investors diversify their portfolio. A clever gambler will do the same.

Information always reduces risk. If you know the probability that an outcome will occur and the value of that outcome, you can reduce any choice to a formula. The same expected value ratios used to calculate the potential value of entrepreneurial ventures applies to gambling.

Let’s say you’re playing slots. If each pull costs you one dollar, and you lose your bet 90 percent of the time, win $2 nine percent of the time, and win $10 one percent of the time, your expected value per pull will equal 0 x 0.8 + 2 x 0.09 + 10 x 0.01, or $0.28. Because this is $0.72 lower than your cost in this case, you should avoid playing.

Never gamble blindly. In many cases it’s hard to know exact probabilities, but not always. Because you can calculate precise odds, games like black jack and craps are relatively safe. Stay away from games like baccarat and roulette. These games are exciting, and may seem enticing, but so did buying dot.com stocks in the mid-’90s.

Remember that approaching gambling with this mentality isn’t a panacea for failure. Whenever you gamble, you can lose. Don’t bet anything that you can’t afford to part with. And if things are going poorly, cut your losses.

But if you’re going to play, you might as well do it right.

Gambling tips:

Most casinos employ strategies to inhibit card-counting, so don’t expect any “Rain Man”-esque dominance with these. You’ll still need some luck, but if employed correctly, these strategies should reduce your risk to the lowest possible level.

Black Jack

• - If you have a total of 11 or less, always hit. You can’t bust.
• - If the dealer shows a 7 or higher, hit on anything totaling 12-16. The odds are high enough that the dealer has a 17 and must stand by house rules that it is worth trying to improve your total.
• - Always stand on a total of 17-21, regardless of what the house shows.

This all changes when you have an ace in your hand, which can count as a 1 or an 11.

• - A-10 is a blackjack. You win. Don’t worry.
• - Always stand on an A-9 or A-8. Never stand on A-6 or below.
• - Stand on A-7 only when the dealer shows an 8 or below.

Craps

As a Right Bettor:

• Most Conservative
• 1. Pass-line wager and full odds
• 2. One come bet with full odds
• Conservative
• 1. Pass-line wager with full odds
• 2. Two come bets with full odds
• Aggressive
• 1. Pass-line wager and full odds
• 2. Two come bets and full odds
• 3. Place bet on uncovered 6, 8, or both

As a Wrong Bettor:

• Most Conservative
• 1. Don’t pass bet, laying single odds
• Conservative
• 1. Don’t pass bet, laying single odds
• 2. One don’t come bet, laying single odds
• Aggressive
• 1. Don’t pass bet, laying single odds
• 2. One don’t come bet, laying single odds
• 3. A second don’t come bet, laying single odds