A Very Different Approach – Gambling With An Edge

On February 23, my blog addressed the subject of quitting while you’re ahead and other similar strategies that do absolutely nothing to the expected return of a game. I received a number of comments to that blog, including the one I’m going to share with you today: 

“I stop when I’ve won a decent jackpot, usually a four-of-a-kind that kicks out $200 or more. I’m good with winning a $200 hand. $200 will buy a nice evening out with my wife, so really, we both win.”

This is so far against my philosophy of gambling successfully that it seems possible that I’m just being trolled. But maybe not. I’ll address it assuming the poster was honestly presenting his view. 

The poster didn’t mention what game he was playing. If he was playing quarters, a $200 win is 800 coins — and a fairly rare event. If he was playing dollars in a game like Double Double Bonus, every four of a kind pays out at least $200. I’m going to speculate that he was playing dollar DDB, five coins at a time. 

Presumably he means that he quits when he is $200 ahead. It is easy in DDB to be behind $400 before you hit your first $250 quad. I’m guessing that this is not what he meant. He’s still behind $150, and it’s hard to see how spending an additional $200 on a night out with his wife makes it a winning night — at least financially. 

So, let’s assume he’s behind $200 and hits a $400 jackpot, putting him $200 ahead. Okay. His rule says to quit and go on a date with his wife. This sounds like it might be a successful marriage, but clearly not successful gambling.

This strategy says that however much he wins (except, perhaps, for the occasional royal), he spends it right away. When he loses, (which happens very often in this game, no matter which pay schedule he’s talking about), presumably he just grins and bears it. This makes video poker a game where he’s financially a significant loser. Few net wins, and plenty of (often large) losses.

This might make sense for somebody who has more money than he knows what to do with and gambles strictly for pleasure. It’s an expensive hobby, to be sure, but if he enjoys it and can afford it, who’s to say he’s wrong?

My entire gambling philosophy is that gambling is a source of wealth. Not income. Wealth. That means that when I win, I set that money aside to guard against the inevitable losses that I know are coming. I don’t know when. But I’ve been at the gambling game long enough to know that another losing streak isn’t too far away. I have a gambling fund, of sorts. When I lose, the fund decreases. When I win, it grows. 

Since I only play games where I have an edge, over time the gambling fund tends to grow. If it doubles, I’ll withdraw some of it and invest somewhere. It might take a few weeks, or several years, to double, but it usually does. Sometimes, though, the fund gets down close to zero and I need to add more. That’s the nature of gambling, especially in a heaven-or-hell game like DDB.

Let’s say I have $30,000 in this fund. That might be an appropriate size for a dollar DDB player. It would be overly large for a quarter player. It would be woefully short for a $10 player. Each person has to decide how much should be in this fund.

The individual dollars in it are not time-stamped. That is, the money I earned last week is no more or less important than the money I earned four months ago. If I lose $1,000 and the fund goes down to $29,000, I don’t know when that money was originally earned. Accountants talk about first-in-first-out or last-in-first-out in order to keep track of the dates of various assets. That’s important for tax purposes, but not for what I’m doing, so I don’t worry about that. I don’t care. I care about how much is in the fund.

For me, how much I’m up or down since I got out of bed this morning is a largely irrelevant figure. I write it down in my daily log; — partly for tax purposes; partly to evaluate whether I’m playing a winning game; partly to keep track if I need to add to or subtract money from my gambling fund.

When I spend money on food, housing, dates with my wife, my car, or whatever, the money doesn’t come from the gambling fund. When I receive income from wherever I get it, it doesn’t go into the gambling fund. It’s in my living expenses fund. It’s totally separate, unless I make a distinct transfer one way or the other from the two funds. Or my third fund, which is invested in the stock market and elsewhere.

The idea of taking my wife to an extra dinner because I won $200 today is very alien to me. As would be making her starve if I lost today. Winning and losing at casinos is just a part of my life. I lose more often than I win (although my wins are bigger than my losses, on average.) Keeping Bonnie fed and entertained is a different part of my life. An important part. And it goes on whether I’m ahead or behind since I got out of bed today.

I earlier made a distinction between wealth and income. Income is a flow of money. The opposite of expense. Wealth is however much money you have. It’s the sum of all the income and expenses you’ve experienced since day one. Whether you’ve gotten this wealth from employment, investment, a divorce settlement, the sale of an asset, theft, or any other way, it’s however much you have. In my case, my wealth is divided among gambling fund, living fund, investment fund, and a mad-money fund. Transfers are made in and out of each fund as necessary. As described in this article, gambling wins and losses add or subtract from the gambling fund. 

It’s perfectly okay with me that you don’t look at gambling and money the same way I do. I hope the way you look at it works for you.


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