Trading From The Gut – Intuitives vs. Quants

Data Analysis

We all know that computers are better than humans at performing rote, mundane tasks. They can even beat the best of us at games of skill in controlled environments such as Chess. But can they really replace us in areas of higher ordered thinking such as predictive analysis?

Intuition is a process that gives us humanoids the ability to know something directly without analytic reasoning and as an intuitive gambler myself, I find the prospect of my mind being replaced by a machine more than a tad bit depressing. However, with rapid developments in the field of Machine Learning occurring daily, we intuitives do have cause for worry.

Rise of the Quants

Data science has not only lead to hot careers and hiring sprees for Python and R programmers, the Sports Gambling world has been acquiring Quantitative Analysts or “Quants” as they’re called, into their fold for years.

After all, a good quant can cull huge swaths of data into patterns recognizable to humans and machine learning can be used to devise complex models and algorithms that lend themselves to prediction — perfect for the sports gambling world.

Quants are hired in sports betting to focus on predicting the outcomes of games the same way their counterparts working in Wall Street hedge funds focus on predicting moves for stocks, bonds, and other assets. But is the rise of the quants just a stepping stone to worse things to come for intuitives in the sports investing world?

Legendary sports gambler, Billy Walters, has allegedly profited millions off the casinos with the help of an army of analysts. Now, whether he has a high-powered algorithm working in the background or just some good old-fashioned insider information leaked from locker rooms, we may never know, but long-time Vegas pal, Jack Sheehan, states: “I can tell you nobody has ever approached sports betting with as much technical capability and computer analysis.”

Another handicapper in Silicon Valley apparently developed such a profitable algorithm that casino operatives were forced to join his service just so they could head him off at the pass by changing the lines before his subscribers could get their bets down. That game in itself has become a constant one of cat and mouse as casinos must devise more and more clever strategies to thwart the rise of the quants.

Intuitives and “Thin Slicing”

On the upside for us intuitives, The Wall Street Journal chronicled the story about the 2014 America’s Cup when Skipper Jimmy Spithill finally got fed up with falling further and further behind team New Zealand, and “decided it was time to stop obeying the computers and start thinking like sailors.” Spithill ended up navigating team USA to one of the greatest comebacks in sports history.

Author Malcolm Gladwell also documents an example of “thin-slicing methodology” in his book, Blink: The Power of Thinking Without Thinking. In it, he recounts the story of how a pile up occurred on a blind curve in a Formula 1 race. One racer after the next came screeching round the corner to add to the carnage, yet one driver braked in time to avoid crashing like the rest. Was he psychic? In thin-slicing, it is theorized that the subconscious mind can make sense of patterns that might not always be recognizable to the conscious mind.

The driver, in this case, had many years experience rounding that dangerous curve, and after he’d had time to think about why he braked, he recalled that something was different. Normally, the faces in the crowd would be looking at him as he speedily approached, this time they were looking off into the distance watching the fiery crash. His subconscious mind rapidly relayed the discrepancy and he jammed the brakes just in time.

In Gavin de Becker’s book, The Gift of Fear, real-life crime dramas are documented that serve as a warning for us all to heed our gut instincts in order to get out of bad situations before our victimhood is assured.

Billionaire currency trader, George Soros, praises his team of expert analysts, but his son quickly dismisses all this by revealing that his dad gets sharp pains in his back whenever he’s put himself in a bad trading position and that’s his real signal to start changing things around.

So, as encouraging as these tales of human intuition are, who will be the winner in the battle of the “heart vs. the head?”

Trading from the Gut

Personally, I prefer trading from the gut and Gladwell’s book got me to thinking that maybe intuitives aren’t actually psychic, but instead just good at subconsciously digesting patterns like a thin-slicer. I can recall two Superbowls where I made gut trades based on facial expressions and body language alone:

The first was Super Bowl XLI with the Colts vs. the Saints. I simply didn’t like the look on Peyton Manning’s face as he entered the stadium. The talking heads remarked admirably how determined he looked, almost like they were describing Rocky Balboa in his rematch with Mr. T’s character, Clubber Lang. But I didn’t like it. Peyton looked way too uptight. The look of seriousness seemed more like a forced, facial tension used to cover up some weakness and I immediately lost confidence in the Colts chances even though they were the favorites.

The next time I caught a good look at Peyton in a Superbowl was as a Bronco when they took on the Panthers. This time I felt completely different. Peyton looked calm as if he were confident in his game plan without needing to force a win. In hindsight, he must have known how much he could rely on his defense, but I didn’t need all that data. All I had was a flash of pattern recognition that surfaced from somewhere deep in my subconscious.

So, which trading style should you use? The trick lies in “knowing thyself” An intuitive trader will likely grow bored with a lot of number crunching; likewise the quant will think intuitive picks to be some form of nonsensical witchcraft. If you’re still not sure which one you are, you can take this personality test based on Briggs Meyers research:

One thing is for sure and that is that fact that snares lay in wait for both sides. An intuitive can make the mistake of jumping into bets based on meaningless hunches which can be hard to distinguish from flashes of brilliance. And the quant can easily get sucked down the rabbit hole of noise and end up chasing meaningless patterns that have no predictive ability whatsoever.

Which One are You?

Regardless, it’s always best to stick to your strengths and outsource your weaknesses to others who are more suited to the task. One sports investor I know works with a small group of quants and then tests their findings against those in his group of remote viewers. If the two sides agree on a pick, he places the bet.

So, maybe there doesn’t have to be a clear winner. Maybe intuitives and quants can coexist after all and stem the tide of worldwide computer domination.

Only time will tell.

"Downtown" Ricky Brown sports

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© Richard G. Brown 2017

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