Open Letter to FACTS: The difference between the stockmarket and a casino

Posted by admin on January 2nd, 2005 filed in Uncategorized

Open letter to Families Against the Casino Threat in Singapore :

On your site, you have stated the following reasons for opposing the existence of a casino in Singapore:

…none of us wanted our children to grow up thinking that gambling is okay as long as economics dictate so. There is no justification whatsoever for a society to knowingly allow the negative energy associated with casinos, any space in Singapore.

As concerned parents, we say: It’s time to draw a line.

We are ordinary Singaporean families. We want to raise our families without the temptations and threats presented by a casino operation.

When the fundamental values of growing a family is affected by economic expediency, we as a society, must have the maturity and the courage to say “NO”. Whatever the so-called economic value that is touted.

From what I can gather, you have two main objections to gambling. Firstly, you oppose it as a matter of principle, because it is wrong. Secondly, you oppose it because of the harms that it can cause to society.

1. To your first objection, I believe the onus is on you to explain why gambling is wrong. I don’t believe that public policy is formulated with “negative energy” in mind, and rightly so. If you could raise any reasons in which gambling is wrong in itself, I would be glad to either publish a rebuttal, or retract this objection.

Secondly, if you don’t want your children to think gambling is right, then it is YOUR responsibility to educate them that you believe it to be wrong. It is neither the government’s responsibility, nor the responsibility of others.

Thirdly, even as you believe gambling to be wrong, there are others who do not agree with you. Is it right, that you choose to impose YOUR choices in life upon them? If you dislike gambling, then don’t gamble. If you don’t want your children to gamble, or to think that it is right, then educate them thus. But leave your lifestyle choices in your homes, and not out into other people’s lives.

One of your founders, Fong Hoe Fang, was a social work student who, in the 70s, “saw countless families and individuals destroyed by gambling and it’s accompanying evils”. The real question is, what was the type of gambling involved? What are these “accompanying evils” that you speak about?

I do believe that a modern-day casino is a very different animal from the unregulated gambling dens that you speak about in the 70s. There are no loan-sharks hovering around the tables, nor gangsters or triads that gave gambling a bad name in the 70s. The gaming industry is heavily and strictly regulated by the government. At best, the casino would be a clean, transparent and well-run business. In the worst case scenario, it would be no worse that China Aviation Oil. The “accompanying evils” you speak so fearfully of have no place in our modern society, nor in a well-run modern casino.

Ultimately, you have failed to show how or why gambling is wrong in itself. Your argument against the presence of a casino in Singapore can only stand if you show that there are resulting harms to our society.

2. Before we continue, it would be useful to consider some comments made by Mark Cuban , a dot-com millionaire entreprenuer and investor. Here: http://www.blogmaverick.com/entry/1234000570021684/

It’s not unusual to hear people refer to trading stocks as no different than going to Vegas. They are right. Gambling is gambling.

The question really is, which gives the opportunity for a better outcome?

If you play the slots in vegas, you can read what the payout ratios are for each casino. 97 pct. 98 pct. If you play long enough, the casino will end up with 2 or 3 pct of your money. Unless of course you go up to the winning side while you play, and quit while your ahead.

The stockmarket equivalent would be to buy an At The Money Long Term (LEAP) Put for 2 or 3 pct of the stock price. The put would protect your downside for several years, and the stock would only have breakeven or upside potential over that period. It’s a nice thing, except that it’s much, much, much more expensive than 3 pct. As a point of reference, IBM which is trading at about 94 today, has a price of $5.90 for Jan 2006 95 puts. It’s $7.90 for Jan 2007 puts. Just to protect yourself on the downside for less than 2 months, till the 3rd week of Jan 05, will cost you $2.40, or about the same percentage as the hold the house puts on you in playing slots in Vegas.

Of course that’s for slots. If you play blackjack. The odds are better and every now and then in your favor. If you play poker, you are playing against the other players, and the house only takes its commission. Just like your broker takes its commission.

Unlike the stockmarket, you know the rules exactly. You know without question, the house is going to play by the rules. The gaming commission appears to actually enforce rules of play, unlike the SEC.

Just to refresh your memory, the recent scandal of China Aviation Oil should be a reminder that there are worse examples of gambling out there, and the stockmarket is the perfect example. And yet, while some people do suffer from making the wrong choices in investment, I don’t see broken families and an increase in crime. Why do you not protest against the stock market then?

Unlike a casino, in which the odds are clearly defined, and where there are strict rules that govern the code of conduct of the operators, the stockmarket is more the dangerous free-for-all you fear. Investors often don’t know what they’re getting themselves into, putting money into stocks and shares based on scanty or even non-existent information. Casinos openly state their odds at the table. Companies listed on the stock-exchange find means and ways to fudge their accounts. Why do you not protest agains these companies?

But more importantly:

Most casual gamblers, who are the majority of the money spent, go to vegas expecting to lose money. It’s part of the entertainment experience. People put money in mutual funds and in their brokerage accounts and pick stocks expecting to make money. They don’t find any value in losing money on a stock, fund or other traditional investment.

Public companies play so many games with their numbers it’s ridiculous. Should they expense options or not? Per forma vs GAAP? One time write offs? Buying company after company? Writing down inventories then reselling them?

People go to casinos because what they are paying for is the thrill of the game. Even if they lose money, it falls in line with their expectations. NOBODY invests in the stockmarket expecting to lose money, and neither do they derive any pleasure from losing their investments. And yet, you do not protest the stockmarket, or the companies who fleece their investors.

Until you confront this double-standard within your thinking, I think you cannot truthfully claim to have any moral authority in your objections towards the casino.

You have not provided reasons for objection to gambling in itself. You have not provided evidence that the presence of a casino necessarily translates to an increase in social ills. You have not shown yourself to be credible by displaying blatant double-standards when you object to gambling and yet say nothing about the other den of iniquity, the stockmarket.

Until then, you cannot, as you claim in TODAYonline , convince people that you truly believe that children should not “grow up thinking gambling is okay”.