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This episode of MarketLife looks at trading, investing, and gambling, and how people try to put the odds in their favor.

Everything we do in financial markets is a bet. Hopefully an educated bet, hopefully a smart bet, but it’s all only a bet on the odds.

• We are going to be wrong sometimes, so it’s important to limit how much we lose when we are wrong.
• Don’t “bet the farm” or you will eventually lose the farm!
• We must have some way to put the odds in our favor, or there’s no reason investing.

Four ways people try to put the odds in their favor:

• Fundamental
  • Seeks to understand value
  • Top down or bottom up
• Macro (or Global Macro)
  • “Big picture fundamentals”
  • Making investments based on forecasts of economic and geopolitical developments
• Technical
  • Uses patterns in prices to predict future direction
  • Traditional technical analysis is subjective and visual
  • Many exotic cycles, waves, and methods, of varying usefulness.
• Quantitative
  • Using mathematical tools to understand statistical tendencies in markets
  • Can use price as an input, but also can incorporate other factors
  • Is there a way to blend quantitative and technical (or fundamental) approaches?

Also, if you like the music for this podcast, then be sure to check out Brian Ashley Jones, my friend, and a fantastic singer-songwriter. He has a new CD out, Out of the City (or here, on iTunes) that you might enjoy!

Enjoy the show: