What’s the difference between a good bet and a winning bet? Let’s look at some examples:
- A good bet is betting $10 to win $15 in a fair coin flip; a winning bet is winning $10 by betting $15 in a fair coin flip.
- A good bet is getting a university degree; a winning bet is dropping out of university and starting a unicorn.
- A good bet is buying a company with solid earnings at a discounted price; a winning bet is buying Amazon in 1998 and selling in 1999.1
Get it? A good bet is one that has good odd whether or not it wins in the end; a winning bet is one that is won whether or not the odds are good. That is, unless you can predict the future or are incredibly lucky, your best outcome will be with a good bet.
Although it’s simple to understand, it’s sometimes hard to do in practice. Like when you get beat bad in a poker game (even though you totally made the right decision), or your thesis is proven wrong on a stock you bought (that you researched thoroughly). It’s seldom reassuring to know that you made a “good bet”, when you’ve clearly lost. But try not to get down, it’s the culmination of all the little things that add up to something meaningful. It’s a string of good bets that make for good results. Which reminds me, the jackpot for the lottery is at $41 million this week…
- There is some controversy on whether or not Amazon is a good investment (not whether or not it provides valuable services — I love shopping on Amazon). One camp thinks that they’re going to go gangbusters once they raise their prices after they’ve crushed all their competitors; the other camp thinks that they’re incredibly over priced for the meager amounts of profits they have. Put me squarely in the second camp. I’m more of “good bet” not “winning bet” kind of person when it comes to investment, something more along the lines of Walmart. [↩]