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The Best Bet For The Singapore Earnings Season

The Motley FoolYou can’t be serious. You cannot be serious.

Can you remember who uttered those immortal words? It was indeed tennis supremo John McEnroe, when he railed against an umpire who called a ball that looked to be in, as being out. That was some 35 years ago.

The same sentiment raced through my mind recently when I watched a rank outsider at Kranji squeeze past the two hot favourites to finish first at an unbelievable price of 60-to-one.

The hand of fate

Welcome to the unpredictable and erratic world of gambling, where the outcome of events are determined not by bookies’ odds or by tipsters’ selections but instead by the hand of fate.

If you ever have time on your hands, try studying some bookies’ odds for any sporting event. It really doesn’t matter which event you choose. The end result will be the same.

If you are good at crunching numbers, you should quickly discover that regardless of the outcome of an event, the bookmaker will always walk away with a big chunk of the punters’ change. It is known as being over-round, which is at the heart of making a book.

The upshot – and this is the important part – is that the more often we gamble, the greater are our chances of losing money.

Why? Because the expected returns from gambling are negative, thanks to the over-round book. It is really that simple.

I didn’t see it coming

The hand of fate was recently revealed for all to see when Germany demolished Brazil by a scoreline of seven goals to one. No one could possibly have predicted the humiliating defeat for the host of the 2014 FIFA World Cup.

The National Council of Problem Gambling almost certainly did not see it coming. They, like many, were so convinced that the European side would fail in South America that it even ran a tongue-in-cheek campaign warning against betting on Germany.

Little did anyone know that Germany would progress all the way to lift the World Cup trophy outright.

Ironically, the NCPG’s message is not altogether wasted, unlike the Brazil football team, which was. Brazil suffered a further thrashing at the hands of the Netherlands in the third-place playoff game.

The message is quite simply that the outcome of gaming events cannot be determined in advance. Otherwise it would not be called a gamble.

What’s more, because the expected returns from gambling are negative, the more often we have a bet, the greater are our chances of losing money.

Tonsil removal

The difference with investing could not be starker, given that the expected returns from buying shares are, by contrast, positive. Or put another way, the longer and the more often we invest, the higher could be our returns.

Over the last ten years, the total annual return from investing in Singapore shares – as represented by the Straits Times Index  (SGX: ^STI) – has been around 8.8%.

Admittedly there might be times when shares could fall below our buying price. But that is one of the attractions of investing. It gives us an opportunity to buy more of what we like at a cheaper price.

Investing, unlike having our tonsils removed, is not something that we do only the once. We can do it over and over again. In fact, we should because the secret to successful investing is to continually add money to our preferred investments whenever we can.

The best bet

The benefits of stock market investing once prompted Warren Buffett and Charlie Munger to note that the risks of being out of the game are huge compared to the risks of being in it. That’s because the stock market is so favourable to the investor.

So, as we enter the Singapore quarterly-earnings season this week, get ready to take advantage of any market wobbles brought on by the predictions of experts or the ebb and flow of business activity. It could be the best “bet” you ever make.

This article first appeared in Take Stock Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.