I truly embraced the concept of trading sports when I came to an important realization about all the other investments I had done in my life. They all lacked one critical component which was that I did not have, and was not privy to, insider knowledge. When I bought real estate, I knew the property areas, I vetted the properties, I tapped into the ‘comps’ in the area and had a very deep knowledge of the costs for upgrading the properties and the value those upgrades created upon resale.
But let’s face it, that isn’t the same as having your uncle as the governor of the state and telling you they are approving the state’s first casino license for the land plot directly next to the one I was buying (that happened to a very lucky friend of mine) or knowing that Oprah was buying the mansion on the same block. That is some insider knowledge that can make you some serious money. The reality was that I was just like every other somewhat savvy real estate entrepreneur and was just riding the wave of rising property values, of course, until they stopped rising.
When I traded stocks, I typically followed and traded companies that I knew on a personal or business level. I was a huge fan of Apple products pre-iPhone days and caught a nice run in AAPL stock for a few years. I must have been a genius, right? My super-hot girlfriend at the time, an exotic dancer named Sheyssa, had about 2 functioning brain cells, but she had one incredible talent (well OK, two;)…she made me feel like everything I touched turned to gold. I loved that and, admittedly, I still do. But in reality, I was just someone that bought stock in a company I liked and that company happened to succeed.
On the flip side, I also liked BlockBuster back in the day and thought no one in their right mind would pay $9 a month to watch Netflix on their computer. Genius! The point is that I was just like 99% of traders out there in the stock market – on the outside looking in.
In America, and many other countries for that matter, we have this association with stocks that makes us believe the analytics at our disposal are sufficient to predict the next market move. We think ‘fundamentals’ can help us find opportunities, but these fundamentals have been proven time and time again to be manipulated by those seeking to support the stock price.
On the other hand, technical traders face tremendous competition from other technical traders, programmed trading and outside influences like hedge funds and volatile market announcements. Can you really say that stock market trading is straightforward and transparent? I wouldn’t.
For years, trading was an insider’s game. Remember the movie Wall Street with Michael Douglas and Charlie Sheen? Information is power, the ultimate in the hierarchy of weapons to succeed in business. But that was the 1980s. Something interesting happened after that wild west period that changed the game forever…
The internet came, and with the internet we ushered in a new evolution of ways to beat the game. We made advancements like artificial intelligence, a self-learning computerized technology that figures out how to beat the world’s best chess players and how to beat the world’s best market forecasters. Let’s not forget algorithmic trading and the day the market collapsed on a computer triggering an automatic selloff.
This is no longer the day and age of inside information, but rather these are the days when the information is out for all to see. It’s the way we manipulate, analyze and derive conclusions from that data that separates failure from success.
Do you think the A.I. computer cares if it is analyzing a chess game, a stock, a commodity, a widget or…a sporting event? It simply accesses the data, finds the patterns and forecasts the likelihood of the next given movement or movements in the underlying ‘thingamajig’. What matters is liquidity, transparency, tools and market efficiency, and sports trading has this in spades.
The day I accepted this reality changed my financial life. I no longer concerned myself with investing in my next favorite smart gadget, or a company that helped the environment, or a sporting event with my favorite team. I simply look at data, the more data the better, apply my algorithms and analytics and let the pattern identification lead to high probability forecasting. What comes next is nothing short of magic. The returns we have been getting and back-tested over the last ten years have been amazing.
So, I know I have been hitting you with a lot of information and it is a lot to take in, but the next chapters will go into great depth to help you understand the ScoreMetrics Method. We’ll also take a deeper dive into how we actually build out our systems and tie them together into our methodology.