Comments on: Gambler’s Ruin and Why it Matters

By: Alana Marcus

Alana Marcus — Mon, 09 Aug 2010 06:39:55 +0000

wow, it’s really very great analogy! i am quite agree with your wonderful ideas.

By: laser pointer

laser pointer — Thu, 06 May 2010 07:44:06 +0000

I like it very much. agree with your ideas.

By: Online Colleges

Online Colleges — Tue, 19 May 2009 16:10:02 +0000

Great Analogy! People do need to be wiser when making big decisions these days, especially the way the economy has been going!

By: Sean Davis

Sean Davis — Tue, 05 May 2009 17:38:39 +0000

It’s *exactly* the right concept.

Why do you risk a maximum 2% of your account on on a trade? Why 2%? Why not 10, 20, 100%? If something is a 2% trade for you, then why is a trade that may be slightly better also a 2% trade? Kelly Criterion deals specifically with these concepts.

The only limitations it has in a “real market” are the limitations upon your analytical skills and creativity in order to apply it.

It is far from a “superb” summary of Gambler’s Ruin. He provides an outrageous example (betting your entire bankroll on a coin flip ad infinitum until failure) of something no reasonable person would ever do — metaphorically or otherwise.

The final three paragraphs provide the nuggets of wisdom; I take issue with all the crap preceding it.

By: John

John — Tue, 05 May 2009 11:48:58 +0000

A superb summary of Gambler’s Ruin, Andy. In my trading, I never risk more than 2% of my account in a trade for that very reason — the markets are stranger than anyone can imagine, and One Fine Day the market may go against me 10 times (or more) in a row even with a good strategy, so I need enough capital to ride that out. Limiting the risk in a trade is one way to preserve capital.

I disagree with a previous poster that Kelly Criterion (http://en.wikipedia.org/wiki/Kelly_criterion) is the right term to use. Kelly Criterion is about the optimal bet size for long term gain, but IMHO isn’t always appropriate in a real market.

By: Sean Davis

Sean Davis — Mon, 04 May 2009 22:52:12 +0000

I believe the point of your article is that it can be correct for an entrepreneur to pass up on certain positive expectation situations if the financial outlay is too great and/or the chance of success too small. An entrepreneur, like a gambler, has to evaluate not only the expectation of a wager but also its results profile, ie. get filthy rich 1%, break even 20%, be homeless 79%.

Your example of Gambler’s Ruin is a poor one, and in any case does not apply to the point you want to make. Kelly Criterion is the concept that is relevant here (and one you alluded to).

By: Cary Bergeron

Cary Bergeron — Sat, 02 May 2009 15:02:15 +0000

I completely agree with owning a niche. Once you find one that is profitable and has very little competition you need to make if your own.

By: Johnny Optimist

Johnny Optimist — Thu, 30 Apr 2009 13:55:41 +0000

I agree 100%. Grabbing a small niche and owning that niche can be rewarding for you when it doesn’t make sense for the big guys.
If you are innovative enough you can even make that small niche a large niche and effectively grow your own pie.

@Mark Thomas - I am a researcher by day, and small niche builder by night & early morning.

By: Mark Thomas

Mark Thomas — Wed, 29 Apr 2009 23:13:26 +0000

Agreed. Staying focused is essential.

What is everyone else’s background on here? I’m the CEO of a new start-up called Workyourcareer.com (formerly Moneybackjobs.com).

By: SEO Consultant Miguel

SEO Consultant Miguel — Wed, 29 Apr 2009 16:03:46 +0000

Excellent post. I have a mentor that is similar to you and he is really big into poker and poker theory. His house is riddled with poker strategy books. It appears that young entrepreneurs seem to gravitate towards gaming strategy as many of the lessons one learns from it can be applied to life and business.