Most gamblers lose
Following a recent article in The Wall Street Journal, Barry Carter reminds everyone that the majority of people in poker, trading, and gambling never see a profit.
An interesting story this week from the world of prediction markets, as the Wall Street Journal reported that only 33% of Polymarket customers are in profit.
Of those winning customers, a mere 0.1% of them accounted for 67% of the total profits.
The inequality here is staggering but not surprising if you've been in gambling for a long time. In fact, one-third of customers being in profit is actually very good for prediction markets. It would suggest that they are a more profitable venture than gambling, trading, or poker.
The selection bias in poker
The often quoted statistic in poker is that around 15% of players are winning, profitable players, and around 1% of players make significant money from the game (which is likely to be enough to make a living from). So therefore, 85% of poker players are losers.
This may be difficult for anyone reading this to understand, because by definition, if you were reading this article, you were probably in the enthusiast category of poker players. You probably studied the game, and most of your peers studied the game too. As such, there is a selection bias where everyone you seem to know is a winning player.
Indeed, the majority of my friends in the game are serious players and, in many cases, professional players. I am a winning player, but I feel like a loser compared to some of my peers. In reality, I'm in the top 15%.
Being a good loser makes you a winner
It seems even more stark for investors and traders. Not only do a majority of people who trade lose, but the vast majority of professional traders cannot beat index funds, meaning that they would actually be better off simply putting their money in the S&P 500 and never touching it.
I suspect these statistics are universal. The majority of small businesses, for example, fail, probably in a similar proportion to the ratio of successful and unsuccessful gamblers.
What makes trading, prediction markets, gambling, and poker different is the uncertainty. We are never truly sure whether we were unlucky or made a bad decision when we lose in these fields.
Likewise, whilst the majority of people can expect to lose in these pursuits, we all experience winning moments. One of the things that makes these fields seductive is that we can pat ourselves on the back when a big result comes in and dismiss the losing moments as bad luck.
Ironically, one of the traits that ensures that someone is a successful competitor in trading, gambling, and poker is their ability to handle these losses. As Ari Engel once said, "losing is part of a winning strategy."
