This article is less about distinctions between gambling and speculating and more about the emotions of taking large enough risks. There are references at the bottom for details you may want to go into further.
This article will tell you my strategy to maximize winning at Roulette in Las Vegas.
One thing I personally found hard about speculating, or even moderately risky investing, was to risk large enough sums to make a difference if it worked out. I know I will be wrong and perhaps wrong more often than not. I know it's acceptable to have a total loss 50% of the time, if the 50% that succeed make 300%. However, like flipping coins, there is always a chance of making the wrong choice several times in a row. My worry was having a bad run of luck, bad timing, or making bad decisions from ignorance or flawed logic.
Looking back over my life this led to two over cautious mistakes. First, I did not take enough risk when I had a promising idea, so when it payed off the impact to my net worth was negligible. Whenever an investment was extremely successful, it became an uncomfortably large part of my portfolio, so I sold more of it to reduce the risk. Selling too much too soon turned a brilliant winner into a relatively small win. After years of making many good investments at the right time, I have less to show for it than others who made more mistakes, but stuck with larger risks when they did well.
What if casino gambling could offer a fast, well defined way, to practice the emotional aspects of winning and losing larger sums?
While Craps and Blackjack might have slightly better odds, Roulette has simpler rules and statistics. I defined the goal as finding the best chance to make 10x, minimize my chances of losing too much, and have fun while doing it.
A typical roulette wheel has 18 red, 18 black numbers, and two green 0's. If you pick one number and the ball lands on it, you win 35 times your bet and keep your initial bet. With two green 0's, there are 36 numbers that lead to a total loss and only one winner. This gives the house a 5.26% edge. Over time and many players the casino will come out ahead by that amount even if individual players in short sessions lose or make far more.
One way to get a better deal is to go to a casino that has a table with a single 0(European style). This cuts the house edge in half to 2.7%. With some advanced googling I found two places in Las Vegas with a single 0 table, the Bellagio and Wynn.
I considered many strategies and will focus on two simple baseline strategies. A key concept is that on a single 0 table all strategies and combinations have the same house edge per spin. This means the optimization is more about how long you want to play and how often wins come up. The less frequent the wins the more per win and the better your chances of making more money in less time.
The first baseline strategy is to bet on a single number. This has the highest payoff and lowest probability. The second baseline is the opposite extreme, which is to only do even odds bets. These are the red/black, odds/evens, or high/low numbers. It has the highest probability and lowest payout. An extra advantage with a European style table is if a 0 comes up when making an even odds bet then instead losing it the casino spins again and let you keep it if it wins the next spin. This cuts the house edge to a slim 1.35% that is as good as the best odds for craps or blackjack.
Both casinos with a single 0 had a minimum bet of $100 per spin. More on this later.
Remember my goal was to make 10x. With even odds paying 1:1 on an even bet this means to winning four times in a row. For example $100 becomes $200 if you let it ride, then $400 if it hits again, then $800, and finally $1600 on the fourth win. Less the initial $100 makes $1500. The probability of this happening is (18/37)^4 or 5.6% for every four sets sets of spins. In other words roughly one per 18 sets of four spins will pay this 15x. 18*4 = 72 spins total. If you use this strategy you will repeatedly let it ride and often lose on the second or third spin. Occasionally that fourth spin will hit!
A key concept is to come to the table with enough money to survive to see your plan through. With the four-in-a-row evens strategy you will win and lose roughly equally.
Most Casinos spin about 50 times per hour. This means it will take about 1 hour and 15 minutes to see two green 0s and one four-in-a-row even bet.
This brings up an opportunity to cut the house edge a little more and a key part of my strategy.
1. Know the odds and walk away as soon as you are luckier than average.
Let's say over a half an hour you have seen 25 spins, with one green, 12 red and 12 black. If you stuck with black you may have lost $1300 at that point, and won $1200 to be down only $100. The next spin is black, then the next, the next, and the next! $100 became $200, then $400, then $800, and finally $1600. At this point you may be tempted to keep playing. The odds never get better or worse but if you change your strategy in the heat of excitement you are giving back the edge you have in leaving early. "Quit while you are ahead" is good advice.
Just as you are hoping for four black in a row in this scenario there are slightly higher chances for a losing streak. Imagine you only brought $400 and get one green and three red in a row? The day would be over within a few minutes without giving your strategy much chance to work.
2. Be prepared to lose long enough to give your strategy a fair chance.
I won't go into the math but found a rule of thumb is to bring the amount you are hoping to win. In this example you want a $1600 win so you need to be emotionally (and financially) prepared to lose that much. The casino will help this. Hand the dealer the money and they will give you chips to play. Accept that the money is theirs and you now need to win it back.
What happens when the chips are gone?
3. Cut your losses.
If you were prepared to lose $1600, and you do, then that is the time to stop. In this example it is not likely to happen in a short period of time but with a few losing streaks it might. Gambling addicts may rationalize "I'm due" and keep going. Casinos count on this. It's a very bad strategy to dig deeper to come up with money to keep playing.
Although the edge is in the houses favor it's basically 18 vs 19. In effect, a slower, more complicated way, to flip a coin. In principle you could put your entire allocation on a single spin then walk away either way. Technically this is the best bet because it gives the casino's edge the least time to catch up to a lucky spin. Why not do this?
4. Have fun.
Winning is more fun than loosing, but winning is even more fun when you have experienced losses. It's an excitement amplifier so powerful some people get addicted to it like a drug. The bulk of casino profits come from the subset of people addicted to gambling. If you suspect you or someone you love might be capable of becoming addicted please jump to the last link below.
5. Leave after your strategy has had enough time.
There is a lot to do in Vegas! With an outside, even odds bet, you can play a long time. There might be a long run without many 0s or winning or losing streaks. I decided to stay long enough to see about 74 spins then leave with whatever I had and do something else.
6. Don't bet more than you can afford to lose.
Jennifer Shahade recommends poker players stake 1% of their net worth per tournament. Most poker players lose most tournaments, but when they win, they have huge winnings. Should you bet 1% of your net worth on a trip in Vegas? Maybe!
Let's say you are planning to retire next year and lose 1% of your life savings. Will this mean not retiring? Hopefully not. If you are that close to the edge you probably need to keep working anyway. If you gamble 1% and win 10x you just added 10% to your net worth and can consider retiring a few months sooner!
Someone about to retire is cautious because they have the least time to recover from mistakes. If wagering 1% is ok at that stage it's probably a good strategy for younger people too. Does this mean a 20 year old should bet 2%, 10%, 50%? Maybe. Part of this experience is to learn good habits, even if a larger bets make sense at that stage it takes a more complex strategy.
My case study
I initially decided it would be more exciting to have a big win even if it meant more losses along the way. This meant going to the extreme of a single number! Inside bets have a larger edge for the house but I was balancing fun and going for a larger payoff if it happened. This means in a typical set of 37 spins there should be one success for a 35:1 payoff. It could happen on the first spin, the 18th, the 37th, or not at all (the odds it doesn't happen at all is (1-1/36)^37 = 35%). Roughly 2/3 of the time I'd win $3500, less whatever I'd lost up to that point (which could be as much as $3500 if it was the 37th spin).
According to the rule of surviving enough losses to give the strategy a chance means being able to lose 37 times in a row for $3700.
It took a few months to get comfortable with loosing almost $4000 in an hour. My method was to think of the times I had lost money investing and speculating. I was only doing this one weekend and not as a way of life. The goal was to get comfortable taking large gambles with almost even odds. This is to practice courage with stakes high enough to matter but not so high as to be ruined.
A friend recommended going in the morning to avoid crowds. This is also better for me because I tend to be optimistic in the morning. By evening I'm tired and more pessimistic. A strategy that requires loosing several $100s in row needs optimism! We went to the Bellagio high stakes room first and the dealer gave me chips for cash. The first challenge was picking a single number. My original plan was to pick one someone else had picked for mutual excitement. But the high stakes room was empty that morning.
Most roulette wheels have a tote board showing the last two dozen numbers or so. Magical thinkers may choose numbers not seen recently as "due". Scientific thinkers might look at numbers seen more often as a "mechanical bias". I expect these tables to be well calibrated and truly random, but being more scientific went with the number that had come up the most recently, 17.
I bet on 17 and lost four $25 chips. Then lost two more spins. A lovely woman brought me a drink and I tipped $2. Then I lost another $100.
I knew going for a single number from the 37 meant possibly sitting for over an hour steadily losing without a single win. But the reality was a little boring and depressing.
After two more losses I noticed $600 was gone in about 6 minutes. How many other things could I have spent that on to have more fun instead?
I bet again and 17 came up. 17!
Wow my number hit! Only the seventh spin! This improbable result was close to the best case scenario! I was prepared to win on the first spin or walk away with nothing after 37.
I thanked the dealer, tipped him a $25 chip, and left with my friend per the strategy. My new pile of chips was worth $3500! Less the $600 lost means I made $2900 in 8 minutes. I took my chips to the cashier window for dollars.
On to the Wynn casino to see how it compares.
After a short ride we were in the Wynn. A world of luxuries with every detail considered including the smell. While low-end casinos might smell of decades of stale cigarettes, spilled drinks, and sadness the Wynn was the opposite. There was not exactly a smell, more like air cleaner than the cleanest forest hill. We found the high stakes roulette table and sat down to try again.
Just as the Belagio the high stakes room was empty this morning. The tally board showed 5 was the most common number recently. I was bored with the one number strategy and decided to place four chips around the 5 instead.
To meet the $100 minimum per spin meant putting $25 on each corner. The payoff for a corner is 8:1 each, or 32:1 if 5 came up. On the one hand this is less than the 35:1 from placing the whole $100 on the single number. However it makes winning more likely per spin! Looking at the table you can see if all the corners for 5 were selected than a 6 would pay 8:1 twice (16:1) and so would three other numbers. A 1, 3, 7, or 9 would each pay 8:1. Given the original idea was to make 10x this is not bad. It's more fun as well because none of the 37 possibilities result in winning $200, $400, or $800.
After playing about ten minutes, I lost $200 on the first two spins, won $400 on a side number, lost another $200, then made $200 on a corner, lost another $100, then made another $200 on a corner. At the time it was hard to tell if I was ahead or behind with more loosing spins than winning.
Then I noticed a different section of the table I had never seen before. The dealer explained it was a racetrack and I could bet $25 on a number, then $25 on each of the two numbers to the left and right of it(a neighbors bet). This track matched the wheel so whenever the ball almost lands on your number you still win from having bet on its neighbors. The catch is now the minimum is $125 per spin instead of $100. The upside is five ways to win of 37 (about one spin in seven). When any of those numbers hit then the $100 on the other four are lost and the winner gets 35:1. However now the winner is only $25 for a net 31:1 payout. The house edge for the neighbors bet is the same as other strategies.
I played the 5 and its neighbors for about five minutes, losing $125 three times in a row, then 5 hit! The neighbors were still lost for $100 but I made 35x on the $25 (875 - 100 = 775) to net $400. Not nearly as impressive as the big win at Belagio, but more fun along the way with more winning spins until a big win. I tipped the dealer $25 and cashed out my chips to enjoy rest of the day.
I was definitely in a good mood and felt like a winner. I tipped more and spent money on things I might not otherwise. Had I lost my original $3700 I'd be telling a sad tale.
One thing to consider is taxes. Apparently the tax rate is 25% for gambling. In my case the winnings were small enough the Casino skipped paperwork, the 300x rule makes Roulette and all table games very unlikely they ever worry about it. You can be certain I will carefully account for every $1 and report it. For one thing I'm publishing this detailed article! More importantly as a rule I pay all the taxes required. Most of us are paying a tremendous amount anyway, why risk extra headaches to sneak a little here and there? I sleep well knowing they might owe me if audited!
The final tally was $5075 won and $1475 lost for $3600 in 22 minutes! I have never made money that fast. Considering I came prepared to lose $3700 this isn't impressive. This is a key take away from this article. Any situation where you feel good about netting $3600 with $3700 at stake is a hint your money could be put to better use somewhere else. The generic math here was a house edge of a few percentage. Compare this to a US treasury bond paying 2% when inflation is 2%. Expectancy of breaking even is better than taking time and effort with an expectancy of losing.
Another lesson is that I could have quit after the first Casio for $3500 on the $3700 at risk. The second casino mostly traded back and forth for a small victory. The first case had the most variation with many losses likely but a big win if it hit. By making more, smaller, bets per spin the odds of a win were improved, but the size of wins shrunk.
A final lesson is to bet the right amount when you do bet. The one 0 table is only in the high stakes room. The main room has two 0 tables, and the lowest bets can be found at the three zeros table. The house edge is smallest for the highest cost per spin, but the payouts are larger to match the risk. This is a fast and easy way to practice sizing bets. Sizing bets is a core skill for speculating, investing and allocating assets. Too small is a waste of time and missing making the most of being right. Too large risks losing too much too fast, making it harder to recover from mistakes and bad luck.
As a lucky winner I need to pay my taxes, enjoy some of it, and donate some. I also feel like sharing with the people that were there on the trip. As a rule I'd like to donate 20%. That would be about $500 (rounding). Taxes are $900 which leaves around $2000. Perhaps spend $1500 on myself as a reward for taking some risk and sticking with my strategy to leave ahead. That leaves an extra $500 to spend on friends and family this holiday!
Speculation vs Gambling
Las Vegas Casinos
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