Any resident of Ontario who spends time watching YouTube videos, at least the ones I watch, would have noticed an explosion of ads for online gambling websites that offer the chance to enjoy the casino experience on your smartphone, tablet, or laptop.
No longer are young men, in particular, limited to betting on their favorite sports teams. Ontario residents will not have to wait until the next sports match to get the dopamine rush that gambling provides. Now, gamblers playing online can play slots, blackjack, and a seemingly infinite number of games for real money. No longer is one required to fly to Vegas or even drive to a physical casino two hours from their home. Crucially, the player’s amount of games in any given time period is limited only by the speed that they can tap their mobile devices.
I have never liked gambling but was fascinated by the underlying mathematics, and to a lesser degree the psychology behind the lure of easy money and the not-so-cheap thrills. Fairly early in my career, I had the idea of learning gambling math and applying it to portfolio engineering. I realized that most portfolio managers, especially in Canada, had the same individual securities in their funds yet had radically different performances.
Although many might disagree with me, performance depended to a greater extent on bet size and the timing of buys and sells than on almost anything else. Since managers didn’t understand this, their performance was largely random. Back in the late 1980s and 1990s, few money managers looked at gambling mathematics or, frankly, any other type of math other than what they learned before the eighth grade. This knowledge did, I believe, help give me a slight edge in portfolio management, but more importantly, it taught me to never, ever gamble.
Gambling is essentially a negative sum game. The longer one plays, the more likely a person is to lose their bankroll with near absolute certainty. This isn’t my opinion; this is mathematical reality. Unironically, many high-yield bond conferences used to be held in Las Vegas. The casinos were usually there promoting their enterprise bonds. If you ever want to get someone turned off gambling and they can read financial statements, even in a rudimentary way, just have them download the annual report of a casino company. Casinos only go bankrupt if their cash flow is too low to cover their massive capital expenditures. To my knowledge, they never go bankrupt because of gamblers winning big. I was also surprised at how much was lost by gamblers at casinos and that these losses, which are revenues to the gaming company, were dependent on foot traffic to a great extent. The luck and skill of their customers affected their bottom lines to no extent whatsoever.
If gambling is such a sucker’s game, why are so many young men getting hooked into gambling online? Simply, it’s like having a meth lab with unlimited production capacity in their pocket.
The first reason, which has probably existed for multiple millennia, is that few, until recently, understood the mathematics of gambling. There was simply not a widespread understanding that it was easy to win over a short period of time. You will at some point win, but eventually you will certainly lose. Then confirmation bias comes into play. Gamblers tend to remember their winning periods and forget their losing periods or make excuses for them, like portfolio managers.
The other reason is, obviously, the dopamine hit. What makes online gambling a serious potential problem is that that delicious rush of hormones is too easy. In this way, online gambling is to real-world gambling what internet pornography is to old-fashioned dating.
If the dopamine aspect weren’t serious enough, we have an entire generation, perhaps, of men who are lured by easy money, whether it’s government direct deposits to their bank accounts, investing in cryptocurrencies, or speculating on GameStop stock. Online gambling is more devastating than these other methodologies because users will almost certainly lose everything if they play long enough and if they bet all but a trivial amount.
In essence, the problem is that young men, many of whose lives are filled with an undercurrent of anxiety and desperation, have eschewed long-term goals, strategy, and planning for the temporary dopamine highs of drugs, pornography, and gambling, and the get-rich-quick promises of the crypto market and online casinos. They’re deluded that they can become millionaires in a few months without working or producing anything of value.
As if young men didn’t have enough pressures and temptations destroying their happiness, now they’re faced with an explosion of online gambling. The effects will grow and be devastating to millions. Many will never be able to accumulate any capital during the period in their lives when their fathers and grandfathers would have been saving for down payments on homes and saving for their children’s education and their own retirements.
Only 3 to 5 percent of long-term gamblers make positive returns, a number one would expect in a random world. There’s no magic “system” that will make money over the long term simply because the house’s take is too large. Americans lose over $100 billion a year gambling, and this will climb with the expansion of online gambling. Actually, I’ve found a way to make money from gambling that is reliable but takes some time. Here it is: Take 10 percent of your paycheck and buy a diversified portfolio of high-yield bonds in the gaming sector. Do this for years and you'll prosper.
