Profitable opportunities for speculation arise when prices move out of line with expected values. This is a principle that applies in all forms of speculation – whether it be trading on the financial markets, betting on a poker hand or gambling on sports events. The challenge for the intelligent speculator is therefore to identify events where prices move out of alignment with the statistical expectation.
This can only happen because other market participants make mistakes. One classic mistake that people make is to overestimate the probability of an unusual event, particularly where that event is in the public eye and given wide media coverage.
One current example in the world of sports betting is the eagerly anticipated moment when Indian batsman Sachin Tendulkar achieves the unprecedented landmark of becoming the only man ever to score 100 centuries in international cricket. Tendulkar is the greatest batsmen of the modern era, and rated by Wisden as the second greatest batsman of all time after Don Bradman – a technician so perfect that his every shot looks like the mathematically correct solution to whatever problem the bowler is posing, allied to a calm temperament and the patience and discipline to build long innings on difficult wickets.
Based on his record and reputation, many of his fans believe that the moment when he will score his hundredth hundred is imminent.
With the weight of emotion and money behind Tendulkar every time he walks to the crease, his predicted runs total is invariably set high by the spread firms.
From a statistical viewpoint, it may be set too high, based on an overestimation of the probability that Tendulkar will score a century in his next innings.
The little master’s statistics are as follows: he has played 639 international innings – 186 in Tests and 453 in one-day internationals. Therefore, his historic record suggests that the chances of him scoring a century in any international innings are less than one in six – far higher than most other international batsmen, but still an improbable event. Add to this that, at the age of 38, Tendulkar is not quite the force that he was, and that the burden of expectation upon him is now enormous, and the true probability of him scoring a century in any international innings may now be less than one in seven.
This provides an opportunity to profit by selling Tendulkar’s runs total at the start of each new innings.
One day, no doubt he will surpass the spread and score his hundredth century. On that day, I, along with millions of others, will applaud his achievement. Until that day, I will console myself by generating steady profits by selling the great man’s runs.