The stock market has been an American institution for more than two centuries. Large and small investors bet that their valuation of a particular stock or commodity is superior to the overall market evaluation of that same stock or commodity. Stock bettors use all kinds of analytical processes to determine the true worth of their investment, concentrating on factors like price-to-earnings ratio, debt-to-income ratio and projected profits in relation to other stocks within the same sector. Good investors make a small fortune betting the stock market; bad investors lose big chunks of their life savings.

Sports betting has also been a part of the American way of life for more than two centuries. Early bettors concentrated on horse racing and boxing, but that spectrum widened considerably over the last century.  The current sports betting marketplace offers opportunities for investors with strong opinions to wager on just about every sport in existence. As I type this essay, bettors can currently wager on baseball, basketball, football, hockey, soccer, golf, auto racing, tennis, horse racing and boxing, among others, with a wide variety of wagers to choose. Professional sports bettors consistently show a profit from their preferred investment vehicle, while bad bettors are consistent losers in the betting marketplace.

Stock investors have the Wall Street Journal – jam packed with pertinent information to peruse each morning. Horse bettors have the Daily Racing Form, as well as weekly reports like the Sportsmemo Newsletter to gather their information. Stock investors watch CNBC all day; sports investors watch ESPN News. Live stock prices are available around the clock; live sportsbetting odds offer wagering 24 hours a day, 365 days a year. 

But sports betting and stock investing are viewed very, very differently by both the general public and government regulators.  Stock investors are welcomed by those who make money off those investments – namely, the companies themselves.  Governments around the globe encourage stock wagering, a nice respectable occupation or hobby in the eyes of most.

Sports bettors, on the other hand, are shunned.  They don’t wear suits and ties like their compatriots on Wall Street. Nor do sports investors enjoy the support of the general public or the government regulatory bodies. And the leagues that foster betting have a strong public distaste for that betting, despite the revenue that it brings into their coffers via improved ratings and additional advertising dollars. In fact, sports betting is officially illegal in every state except Nevada, despite its widespread popularity.

Sports betting and stock market trading are correlated in all sorts of ways.  It starts with the people who engage in both activities: risk taking, math-centric men.  A very large percentage of Wall Street brokers bet on sports.  Several of the biggest offshore sportsbooks were created by former stock traders looking for a different challenge.  Many of the bigger sports betting syndicates are populated with investors from the stock market.  While the activities themselves are viewed very differently in the eyes of the government and the general public, there are far more commonalities than differences both in the investment itself and among those who choose these ‘betting’ types of investments.

Stock investors can basically be categorized into two groups.  Fundamental investors concentrate on statistics like price to earnings ratio, which varies dramatically from sector to sector.  For example, numbers that indicate growth for a bank, stimulating a ‘buy’ rating, don’t necessarily look good for a biotech stock.  Fundamental investors are concerned with how the company is doing in relation to its competitors in the same industry, and how it is positioned for the future growth.

Technical investors are not concerned with the fundamentals, believing that those fundamentals are already factored into the price of the stock.  Instead, these investors look at long term patterns, both of individual stocks and the stock market as a whole.  They try to gauge market momentum, making future predictions based on the patters of the stock and the market itself, as opposed to the stocks perceived ‘actual worth’. 

There is a similar dichotomy of thought processes among sports bettors.  Fundamental bettors concentrate on the matchup itself.  Can one team’s defense stop the opposing offense?  Is there a coaching edge or a situational edge that’s likely to reveal itself in the final score?  Does the betting marketplace have a good assessment on these two team’s capabilities, or are there factors that simply aren’t accounted for in the pointspread?

Technical handicappers concentrate on long term patterns in the sports betting marketplace.  These bettors use math models that predict final scores with reasonable accuracy, using ‘tighteners’ to isolate the most profitable wagers to engage in for any particular contest.  Like stock investors, savvy bettors can show a long term profit for their work regardless of which methodology they use.

While stocks offer long term growth potential thanks to the overall performance of the market, sports bettors deal with a zero-sum betting marketplace.  The stock market gains, on average, two out of every three days and two out of every three years.  Sports bettors have no built in edge like this.  For the vast majority of winning wagers, there is a corresponding losing bet. 

Even with the built-in advantage of a long term rising market, many stock investors lose their money.  Remember, prices are determined by public opinion in the stock market, every bit as much as pointspreads are determined by public opinion among sports bettors.  The concept of ‘supply and demand’, as well as the concept ‘buy low, sell high’ are central to ensuring profitability in both endeavors.

Long term losers in the stock market are often referred to as ‘weekend warriors’.  Stock market losers tend to jump into the market when the market is good, while jumping out of the market when it is bad – the exact opposite of what they should be doing.  Like much of human activity, the stock market is driven by greed and fear. Bad stock bettors are greedy, wanting to make the same profits as other investors that they’ve seen and heard about, and they are fearful when the market starts to drop.

Long term losers in the sports betting world are generally referred to as ‘square’ bettors.  These bettors suffer from the same flaws as their stock betting compatriots.  They tend to bet on teams after a hot streak, when those teams have lost their value in the betting marketplace.  Similarly, long term sports betting losers tend to bet against teams that have been losing, again, staying on the wrong end of the value equation.

This simple example shows the flaws in a bad investors strategy, whether in sports or in stocks.  A good investor looks to buy a $50 shirt at Macy’s on sale for $40.  A bad investor would buy a $50 shirt at Macy’s after it’s been marked up to $60 due to popular demand. 

A good stock investor buys Yahoo stock at $40, when its value should be $50. A bad investor sees all the money that others have been making on Yahoo, and buy the stock at $60, when it should be valued at $50. 

A good sports investor will back the New Jersey Nets as four point favorites against the Cleveland Cavaliers, when the line should be New Jersey -5.  A bad sports investor bets the Nets -6, after the betting marketplace has over-corrected.  Whether in stocks or sports, the ‘buy low, sell high’ concept is very real and often the difference between showing profit or a loss from the investment.

The closest correlation from sports betting to the stock market comes from day traders, those who buy stocks for extremely short term investment – a few minutes, a few hours.  Day traders and sports bettors are interested in short term outcomes, not long term results.  With the exception of the ‘future book’, where bettors can wager on the outcome of an entire season, sports bets are won and lost in a matter of hours.  Day traders utilize the same short term strategies.

Commodity traders and sports bettors have numerous commonalities as well.  The concept ‘buy low, sell high’ is on full display in the commodity marketplace.  Like sports betting, commodity trading is a zero sum game – for every winner, there is a loser. 

The sports betting marketplace is far less efficient than the stock betting marketplace.  The stock market has uniform pricing at the time of purchase or sale, and information is disseminated extraordinarily quickly around the globe.  Sports bettors have numerous outlets to choose from when making a wager, and teams are priced very differently from place to place. 

A prominent, successful sports bettor ‘Fezzik’ created the ‘Fezzdaq’ to illustrate how much profit even an amateur bettor could make when properly trained in the vagrancies of the betting marketplace. Doing nothing else except for getting better than market pointspreads (‘rogue lines’), with no opinion on the outcome of the games themselves, the Fezzdaq rose from 1000 on 2/12/06 to over 10,000 by mid November of that same year.

The best investors are usually the biggest investors, those with the ability to manipulate the marketplace.  When a multi-billion dollar fund buys Yahoo, Wall Street listens. When Warren Buffet invests, others will follow.  Savvy stock investors track how much of the stock is owned by large institutional investors, and how much of the stock is owned by corporate officers.  When those that run the company are buying up shares, it bodes well for those who follow their moves.

In sports betting parlance, the billion dollar fund managers are ‘wiseguys’.  Wiseguys bet enough to affect the entire betting marketplace, and their followers tend to continue driving up or down the pointspread long after the value has been lost.  In general, those who bet with the wiseguys are much more likely to earn a profit than those who bet against them, until the marketplace has adjusted itself to reflect the new betting dynamic. But those who come onboard late, both in stocks and in sports, have lost the value that made the initial wager attractive to begin with.

Both the stock market and the sports betting world have their share of scandals.  In sports betting, particularly at the collegiate level where players don’t get paid, we see instances of ‘fixing’ or ‘point shaving’, where players are paid by gamblers to influence the pointspread outcome of the game.  Fixing games is viewed as the greatest sin an athlete can make.  But game fixing doesn’t really hurt anybody other than those who made uninformed bets on the wrong side, and the bookmakers who took the wagers on the winning side.

‘Fixing games’ is usually referred to as ‘insider trading’ in stock market parlance.  Corporate officers and those ‘in the know’ use insider trading to try to maximize their profits, betting on information not available to the vast majority of investors. Corporate officers also ‘cook the books’ on occasion, misrepresenting the financial position of the company in order to artificially inflate the stock price.

Scandals like the ones described above are significantly more far-reaching than sports betting scandals.  Millions of investors lost billions of dollars when Enron filed for bankruptcy after a series of intentionally inaccurate financial reports. Enron employees lost their jobs and many lost their retirement savings as well, when the stock went belly up. Clearly, insider trading and intentionally inaccurate bookkeeping are far more dangerous to the stock betting marketplace than game fixing in sports.

In conclusion, there really isn’t that much of a difference between the stock marketplace and the sports betting marketplace, with far more commonalities than differences among the markets themselves and among those who trade (bet) within those markets.  Unfortunately, for sportsbettors, the vast majority of the general public doesn’t see it that way, leaving sports betting as an illegal, illicit activity in many locations, despite its enormous popularity. 

Teddy Covers is a Senior Handicapper at Sportsmemo.com His sports betting insight and analysis can be found daily at http://www.sportsmemo.com.