On my first trip to Las Vegas at 21, I arrived with an ingenious plan to win money that I’m sure thousands, if not millions of others have attempted with similar results. The plan was simple:
- Bring $310 to the roulette table.
- Bet the minimum ($10) on either black or red.
- After each winning bet, continue to bet the $10 minimum.
- After each losing bet, double the previous bet until you have finally won, then go back to the $10 minimum.
- So long as you never hit a losing streak of 5-straight losses (which carries of 2.38% probability of happening), watch your stack of chips steadily grow ($10 x the # of rounds you play) until it’s time to break dance at Studio 54.
After 20 minutes of implementing my strategy at the Luxor, I stared in disbelief at the electronic display board with 6 red numbers aligned in a neat, un-obstructed column. With no money in my pocket, I walked around the casino and was stunned to see how many other roulette tables were showing long streaks of red or black numbers on the display. It led me to think a little bit harder about the true odds of my double- down strategy… It dawned on me that I had only calculated the odds of losing on my first five straight bets (2.38%). I had not thought through the odds of losing five straight bets at any time over the course of playing several rounds. Once working through the math I realized my strategy wasn’t’ so fail-proof after all:
|# of Rounds||Odds of Losing 5 Straight Times at Least Once|
As you can see, the odds of losing your nest egg increase exponentially with the number of rounds play to the point where there is actually a greater than 50% chance that you will lose 5 times in a row starting after 33 total rounds. One could reduce these odds by bringing a bigger stack to the table and stomach a 6+ losing streak, but it ultimately gets you to the same place: If the odds of losing any particular bet are lower than 50/50, there’s really no magic formula for meaningfully swinging the odds in your favor. You’re simply trading risk for reward and Vegas is taking a little premium cut on whatever risk/ reward level you decide on. Now if you have the ability to count cards in Blackjack there’s a real opportunity to swing the odds in your favor (see “Bringing Down the House” by Ben Mezrich for a great tale on that), but that takes true real-time skill and expertise.
What does this have to do with investing? I’m sure there’s an angle I can pull in here, but honestly I’m just itching for a Vegas trip and wanted to share with you one of my ill-fated, “bullet-proof” betting strategies.