An Edge Is An Edge

You should use that idea.  Las Vegas is built on a thin margin, less than 3%.

The value of the edge is a function of two variables.  The edge and the number of repetitions.  Not every bet loses but on average the casino pays out about $97 for every $100 bet.

The house cannot lose to everyone.  Winning is inevitable. They process thousands of bets per hour.  The law of large numbers is on the side of anyone who has an edge and enough transactions. Large gains for the casinos.

Assuming Las Vegas is entertainment instead of an investment plan, what do we learn from this? 

Tiny variations create large returns after many repetitions.

Suppose I can do something, say pick an investment, and with a little care I can improve yield by 2.0% per year of what it would have been, and by being a little careless I can hurt myself by 2.0%.  6% becomes 6.12% or 5.88%.  Trivial right? Not quite.

After 35 years I would have 8 times my money at 6.12% or 7.39 times at 5.88%.  If my goal was 8 times then I reach it about 1.5 years earlier at 6.12%.

It looks like this.  From The Slight Edge, by Jeff Olson.

success-curve4 the las vegas effect

There is little difference in the short run. $250 more per $100,000 after a year, but a long time or many repetitions makes a big difference.  You must pay attention. As Andy Warhol says,

“You need to let the little things that would ordinarily bore you suddenly thrill you.”

Get used to the idea of seeking an edge.  Perfect won’t happen, but excellence can. 

Success is a few simple disciplines, practiced every day; while failure is simply a few small errors in judgment, repeated every day.
—Jim Rohn

It is a habit and fortunately, one that is not especially difficult to implement.

Start with the things you do most often.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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