Tuesday, September 30, 2008

Chinese New Year gambling experience

I want to share with you my gambling experience as a young boy. The Chinese New Year is also a time when parents allow their children to gamble with money. I remember we used to shun playing with the "kiasu" people. They place small bets and take small risks. As soon as luck goes against them they'll stop playing. If you were the dealer in the game, chances are you'll win very little from these people. As soon as your luck turns sour, suddenly all the little "minnows" wake up and soon put you out of business. We think of them as "parasites", but they are the smart ones who gamble to win and who make use of mathematical probability to their advantage.

In the share market I believe there are thousands and thousands of the "kiasu" type of traders. They place small but safe bets. They cut loss as soon as the market for the day does not go in their favour. That is why the share market is so unpredictable; it is the result of millions of "kiasu" bets. The minnows use probability in their favour; they cut loss quickly and they crystallize their gains quickly. If you are not a "kiasu" player, you will be like the card dealer I mentioned above. You will be eaten alive by the minnows. You take great risks and look for big gains. When you win, all the minnows shy away. When you are on a losing streak, all the minnows hop in for the kill. And they do so ever so surreptitiously.

A word of caution: even the minnows eventually get eaten up too by the market movers. Market movers are big players and they are also the ones who make the rules. They are the CEO's and the policy makers in government. They move one step ahead of the market.

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