A little over a year ago I did what most people would see as a crazy thing. Unhappy with my performance at Colonial First State*, I decided to withdraw all my funds and deposit my money with various bookmakers. Thus my first bankroll was established.

Like most punters, my venture into sports gambling began with a rather shaky start. In the beginning I made a number of errors that prevented me from enjoying profits. However, after many hours of careful research, in the last year I've managed to grow my investment by an amount that would take Colonial a decade to match. Today I would like to compare sports gambling to the share market as an investment vehicle.

What I like most about sports gambling is that it is in essence an honest industry. The relationship between the player and the bookmaker is quite simple. You are trying to take their money. They are trying to take your money. Alternatively, you could view the situation as players wagering against other players with the bookmaker acting as a broker. However, whichever way you look at things, both players and bookmakers fully understand the rules of engagement.

Contrast this with the relationship between an investor and a stockbroker. Often, ignorant investors are duped into believing that they are receiving independent advice. Little do they realise that there is often a conflict of interest. Stockbrokers are looking to maximise their commission, they are not looking to maximise funds under their care. This is knowledge that they will generally not share with their hapless clients.

Consider the different effects of insider information. In sports gambling, any inside information that you attain can be used to beat your bookmaker senseless. In the share market, the use of inside information will land you in prison. Also consider the different effects of market stupidity. In sports gambling, any sentimental market reaction will generally create a favourable opportunity to wager on the opposing side. In contrast, a sentimental share market reaction can wipe a massive amount off a perfectly good stock that you just happen to be holding.

Sports gambling offers perfect control over your funds. You cannot lose money unless you decide to risk a portion of your investment. You can go on holidays for a month and come back safe in the knowledge that your bankroll will be intact. Of course there are instances of bookmakers folding, however this is a non-issue if you confine yourself to the very tightly regulated Australian bookmaking industry.

With the share market, you can take no action and yet still lose large sums of money. Take the investor who needed somewhere to park his funds before buying a house. Figuring WorldCom shares could not sink any lower, he plunged the whole amount into this single stock. Ouch!

I would like to briefly explore the concept of an efficient market. The following is taken from "The Art and Science of Good Decisions" by H. W. Lewis -

In an "efficient market", an individual can only beat the market by knowing more than the other participants in the efficient market know, or by analysing it better or faster than they do.

Both sports gambling and share investments are efficient in the sense that it is not possible to beat the market unless you have better than average information. When playing the stock market, you are participating in a generally well-informed market. To have "better than average" information is quite difficult considering the large investment firms who employ people specifically to manage trillions of dollars worth of funds. The average punter is a relatively uninformed individual who likes to bet on his favourite team. I know whom I would rather be taking on!

Most importantly, consider the different returns that are possible. A very good sports gambler should be able to conservatively achieve a 50% return on investment** each year. A very good share market investor will likely never reach that target. If an investor could achieve a long term average return on investment of 10% per year, he or she would be considered to be at the very pinnacle of the stockbroking profession.

It is not my intention to convey the impression that sports gambling is a swift road to riches. It certainly is not. In fact, 98% of sports gamblers do not have the skill, discipline and patience necessary to make a profit. Of the 2% that do make a profit, I suspect very few of those generate enough income to make the pursuit of this venture worthwhile.

The stock market does of course have a number of advantages over sports wagering. If you haphazardly throw funds into the stock market, then on the balance of probabilities you will come out ahead if you leave your money in the market for a sufficiently long period of time. If you haphazardly throw funds into a sports betting market, then it is almost a statistical certainty that you will be "taken to the cleaners".

Furthermore, the stock market is scalable up to a very sizeable investment. If you had $100 million, you could invest it at a large funds manager without difficulty. Conversely, I have trouble imagining any bookmaker who would accept the size of wager that a $100 million bankroll would demand***.

My advice to most people who wish to take up sports gambling as a serious investment is "Do not do it". If you are looking to make easy money, do not do it. If you cannot spare the money to establish a bankroll, do not do it. If you currently have a lot of stress in your life, do not do it. If you currently have a very busy schedule, do not do it. If you do not have a passion for sports gambling, do not do it. However, if you are a patient, disciplined gambler and take a delightful pleasure in beating the number, then you may want to consider sports gambling as an alternative vehicle for investment.

* Colonial First State is an Australian based manager of superannuation, retirement, and investment products

** The key to making good returns is to find a sport with weak numbers and many games. However this is a topic for another article.

*** Of course there are betting syndicates who use "beards" to make plays on their behalf, however this is the topic of another article