Value Betting vs. Investing in Stocks [Comparative Analysis]
Apr 11,2021 at 08:32 amBack to Blog
How many times during a discussion about making money have you heard people say, “Investing in stocks is like value betting on sports”? We’ve heard it way too many times, and we want to make things clear for everyone. Sports bettors and stock market investors indeed have a lot in common. Both sides think that they can make money by predicting the future and risking some capital, but sometimes they make decisions with their heart instead of their brain. Not to mention that both investors and gamblers hate losing.
However, there are a lot of factors that you need to consider before choosing between value betting and investing, such as capital, the time you can spend learning, execution, and the legal aspects. By following the correct protocols, you can make money from both types of investments. Still, at the end of the day, it’s just a matter of personal preferences.
This article will cover all these aspects and offer you a comparative analysis between value betting and the stock market. By the time you finish reading, you will be able to choose which type of investment is more suitable for you.
Let’s get started!
What is value betting?
The main idea behind value betting is to find events where research can bring you an advantage over the bookmaker. The goal is to calculate the actual probability of an event’s outcome. For instance, if Real Madrid has 2.00 odds of defeating Barcelona, the betting platform suggests that Real has roughly a 50% chance to win.
If, based on your analysis, you consider that the true odds are higher than 50%, then you’re facing a value bet. Using advanced statistics software that computes billions of data points allows you to determine the “real” chance of winning a bet. If the result is a higher win rate than the oddsmaker provided, you should wager your money on that outcome.
Before you start your search for value betting opportunities, we recommend choosing a suitable online betting site that offers you access to a wide range of sports. The main issue right now is that the market is flooded with sportsbook operators. Thus, if you’re a complete beginner, you might have difficulties finding a suitable platform.
But how can you determine which bookmaker is better and why?
Our suggestion is to take advantage of a gaming platform analysis and comparison tool, where betting professionals test and research the best online bookmakers. Their goal is to curate top-rated betting platforms and help bettors make more informed gambling decisions. Using this method will allow you to find a reliable platform where you can identify value betting opportunities.
Expected Value and Variance
Value betting is a long-term strategy for profit, where the volume of bets you place plays a crucial role in your success. Therefore, you have to wager as many bets as your budget and time allow to reach statistical significance.
In fact, most people intuitively think that they need to place way fewer bets than the true value. The truth is that you have to place a few thousand bets before you certainly know that your strategy works. The variance will have a significant impact on your results if your bet sample is small. In contrast, the results will move more towards the expected value in time. Check out this chart:
Also, remember that betting is not an exact science. Value bets are placed on single odds, meaning that you will sometimes lose since you aren’t covering all the possible outcomes (like in arbitrage betting). But in the long run, you will be profitable. Learn more about expected value and variance here.
Why is value betting special?
Bookmakers don’t need to win every bet to stay profitable. They need to win enough wagers to make money, so there is no advantage for them to provide highly accurate odds. Instead, they offer odds that are good enough to beat most of the bettors. Offering perfect odds is expensive and completely unnecessary.
Thus, value bettors look for weaknesses in the bookmaker’s system. Think about it – the operator is responsible for pricing thousands of events. Still, a bettor can only bet on a few of them at a time. While 99% of their events are priced to the platform’s advantage, there is a 1% that are not, giving you the chance to become profitable.
Instead of being a regular bettor and choosing events from the 99% pool of non-advantageous bets, you can use a service like Betlamma to help you identify the 1% profitable betting opportunities. By doing this, you will consistently have a positive value, and over time, your bankroll will increase. That’s the key difference between casual betting and value betting.
Investing in the stock market
Compared to value betting, investing represents the act of committing capital to an asset, like stocks in a company, and expect to generate a profit. The expectation for a return is the core value of investing. Of course, the risk goes hand-in-hand with stock market investments: low risk means low expected returns. At the same time, higher profits are generally associated with higher risk.
Investors need to decide beforehand how much money they are willing to risk. As a rule of thumb, it’s ideal to risk 2-5% of their bankroll on a particular trade. Their long-term goal is to diversify their portfolio across different assets. Still, risk and expectations can vary, even within the same class of assets, especially in larger ones, like equities.
For instance, a blue-chip stock that trades on the New York Stock Exchange like Apple can have a different risk-return ratio than a penny stock in a smaller company. The core of risk management strategy is spreading the bankroll across different asset classes, which will minimize the potential losses.
Enhancing holdings performance with technical analysis
To maximize their chances of winning, investors spend time learning how to interpret stock charts and analyze study trading patterns, called technical analysis. This strategy allows investors to leverage the charts and accurately predict a price’s direction in the future.
Please note: Your returns can also be influenced by the spread or commission you need to pay to the broker to trade on his behalf.
Is the stock market more profitable?
Not exactly. Now that you have a better overview of both the stock market and value betting, you might be feeling like we’re comparing oranges with apples. Well, you’re not far from the truth. However, if you calculate the potential returns from both types of investment, you will quickly realize that value betting is way more profitable than investing in the stock market.
Let’s have a look at a simple example:
If you invest in the FTSE index, you have approximately 9% expected annual return. In comparison, using specialized analysis software for value betting will bring you at least a 5% return in less than a month or even within a week.
For demonstrative purposes, let’s assume that you would get a 5% return on investment (ROI) every week, and there are 52 weeks in a year. If we compute the annual return, the calculus is as follows:
1,05^52 – 1 = 1164.28% ROI
While you won’t likely get such a massive return from the first year of value betting, your ROI will undoubtedly be higher than the 9% you would get from investing in the FTSE index.
The problem with value betting
If you’re using a value betting strategy, you will surely win money, meaning that the bookmaker will lose money. That’s the thing operators hate the most – constantly paying out huge sums to a bettor.
Therefore, they will immediately ban you or add an extreme betting limit to your account, like C$1 per event. If this happens, you won’t have any better alternative than withdrawing your remaining funds and looking for a different platform.
However, you might reach a point when you run out of betting platforms to join. But don’t worry, if you’re smart with your bets, it might take them a long time to figure out how exactly you’re winning so often. You’re probably already very profitable by that time, so restrictions shouldn’t matter that much.
Legal aspects and taxes
While investing is widely accepted, sports betting is not legal in some countries worldwide. Thus, before you decide to become a value bettor, it’s essential to know if your country allows you to join a gambling website.
But, there is an advantage when it comes to betting – the winnings are tax-free. That’s because if you were charged tax on gambling profits, you would need to be allowed to deduct the losses from the taxable income so that this arrangement wouldn’t be in favor of the state.
On the other hand, stock market profits can be taxed anywhere between 10-35%, so you should consider this factor before deciding what type of investment you want to choose.
The bottom line – which investment is better?
It depends. While the stock market is a more reliable investment, since you’re not likely to be banned from the trading platform, value betting is way more lucrative. On the other hand, value bets are more volatile with limited upside, and you need to be actively involved in the process. In comparison, stock market investments are passive, and all you need to do once you’ve locked in a trade is to monitor your profits and losses.
Of course, value betting will never replace the wealth-building capabilities of the stock market, but it doesn’t have to. Instead, it would be best if you view this investment as a kickstart in the process of generating some additional income.
We hope that you found this article helpful in your search for a suitable investment opportunity. Good luck, and remember only to invest money you can afford to lose.
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