If it works for Elon Musk, surely it would for trading sports exchanges too right?
If nothing else – the use of ‘first principles’ is an extremely interesting way to solve problems. Particularly in a world where so many copy the originals.
Here’s a few of my thoughts having looked into the multi-billionaire recently. I think you’ll agree; traders can learn a lot from his thought processes…
Solving the Profitable Problem:
Becoming profitable isn’t exactly easy, not for many anyway. But a good question to ask is; are you taking the best possible route?
I’ve no shame in admitting – I certainly didn’t (I went the long way).
However, after watching a documentary about Elon Musk recently it led me to further clips on YouTube. One of the reoccurring themes amongst those clips was Elon’s way of thinking. Using ‘first principles’ as he puts it. On one level it’s easy to point out how logical this way of thinking is; to the point it’s just common sense. But on the other hand, very few of us do it.
In the modern world it seems that very few people start from a position of disbelieving everything. In fact, every other day I see some affiliate passing off others blogs as their own, quite the opposite…
Of course there’s some logic to modelling other peoples success, its certainly quick. There’s a problem though; you copy their mistakes and imperfections too.
There’s well-rounded arguments both for and against, but this way of thinking left me back at the markets. What fundamental truths have I not exploited yet myself? What solutions await?
Example of First Principles:
So how does the thought process work?
- What fundamental truth is present?
- Why is this a truth? Can it be challenged?
- Where is the opportunity/edge/change?
Extremely simple. Let’s apply that to a betting market example for clarity…
- Time delays exist between live activity and media coverage of betting markets.
- It’s a physical fact.
- Naturally there is an advantage to betting court-side or with a significantly faster TV feed.
There’s loads of instances you can apply this too. It’s a hell of a lot easier when you’re already aware of a specific advantage, but still, it’s a neat little way of thinking about things. Particularly if there have been technological advances and changes.
Let’s apply this way of thinking to a popular YouTube clip we recently shared.
Here’s a great example of reaching the objective via this way of thinking:
- Truth: Rule 4’s enforce change on market conditions.
- Reason: Withdrawn runners alter market pricing.
- Opportunity: Being the first to respond offers a biased outcome.
- Result: Leveraged results (profit) are quite possible.
There’s plenty of other changes, truths (physical and psychological) and limitations to explore within the markets. Over time I realised it’s probably best to priorities what you look at. For example; paying commission and Betfair’s premium charge is a problem, one that’s always going to be there. Solving that puzzle is lucrative, so why not look at it first…
Others, like catching a time edge are great – but they may not be there forever. So it doesn’t necessarily make sense to put them at the top of the list! Unless you can see an easy opportunity fast.
Note: The most important part of the process is to take the core elements and break them down totally. Take a little time with them, understand fully. Only then are you more likely to have a eureka moment as they call it. Successful trading is rarely the crystal-ball style predicting people think it is! The same as good business I suppose, as Elon has proven several times over.
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