Q&A on the baseball steroids scandal (FAQ)

1. What are steroids?

IUPAC recommended ring (left) and atom numbering (right) of the steroid skeleton. (Courtesy of Wikipedia)

There are many types of steroids, and most of them are natural and required by animals, plants and fungi to survive. The scientific definition is a terpenoid lipid characterized by a carbon skeleton with four fused rings, generally arranged in a 6-6-6-5 fashion. Common steroids include estrogen, testosterone, and cholesterol. Technically, cholesterol is a sterol, which is a combination of steroids and alcohol. The former two are in a category called steroid hormones. These steroids include the sex hormones, corticosteroids (topical steroids are used for skin rashes, etc), and anabolic steroids. Anabolic steroids are the ones used by athletes because their main purpose is to increase muscle and bone synthesis. Because they are related to the testosterone sex hormone, they also have effects of maintaining masculine characteristics, such as growth of  vocal chords and body hair. Anabolic steroids were first identified and synthesized in the 1930s.

2. What is the legal status of anabolic steroids?

Most countries classify steroids as controlled substances, which means that they are illegal to produce, distribute, possess and use without written prescriptions from authorized medical officials. These countries include the United States, Argentina, Australia, Brazil, Canada, the Netherlands (NL), and the United Kingdom (UK). However, they are readily available over the counter in Thailand and Mexico. Hence the underground availability of them in the U.S.

However, the status of anabolic steroids is recent considering its 1930s identification. They had no legal status prior to the 1980s and were common in many sports, including football and bodybuilding. It was not until the Ben Johnson controversial Olympic victory that they were placed under the Controlled Substances Act in the United States.

3. When were steroids banned in Major League Baseball?

1991. There is a huge misconception that steroids were not illegal in Major League Baseball (MLB) before 2004. This is completely false. The truth is that they were officially banned in 1991 when Commissioner Fay Vincent sent a memo to all teams and players that illegal drugs, including steroids are illegal. [1][2]

“This prohibition applies to all illegal drugs and controlled substances, including steroids or prescription drugs…“

The exact same memo was resent by the MLB office in 1997. [3] The reason 2004 is used as the official year was because the rule was not enforced from 1991 until the pressures of Congress forced testing to become official in 2004.

4. Who is responsible for allowing steroids to become a problem from 1991 to 2004?

MLB Commissioner during the Steroid Era

This is the ultimate question. Although guilty players have gotten most of the blame for the problem, logically they were only the end result of the problem. The commissioner and owners turned the other way because the lockout of 1994 had caused baseball to drop precipitously in popularity. An historic home run race between Mark McGwire and Sammy Sosa seemed the perfect antidote for low ratings. The players’ union, in trying to protect their players’ privacy and rights, instead seemed like they were protecting cheaters instead of looking out for the interests of innocent players. The players who used were at fault because they cheated and lowered the integrity of the game. However, it is unfair to fully blame players who felt pressured to take PEDs after seeing a culture that created unnatural stars. It seems, at least for the moment, that Arod fell into this camp. Innocent players should also shoulder some of the the blame because almost all chose the silent route when questioned if their was a problem in the game. Instead of looking out for the interests of the game, they chose to stick to union lines and protect cheating players that indirectly hurt themselves. It’s hard to fault fans that wanted to see more offense, especially home runs, simply because baseball without all the hits and runs can be construed as boring. Finally, testing for steroids and especially HGH was simply not at a point yet that MLB was comfortable with.

5. What notable players have been tainted by steroids, HGH or other performance enhancing drugs (PEDs)?

Barry Bonds, Alex Rodriguez, Mark McGwire, Jose Canseco, Roger Clemens, Jason Giambi, Miguel Tejada, Rafael Palmeiro, Andy Pettitte, Benito Santiago, Gary Sheffield, Lenny Dykstra, Chuck Knoblauch, David Justice, Mo Vaughn, Ken Caminiti, Matt Williams.

This is only a list of notable players. Tens of second tier players have also been outed by the Mitchell Report. Another 103 are on the list of 104 anonymous players who tested positive in MLB’s steroids survey in 2003. Alex Rodriguez is the first name to be leaked from that list.

6. Should players tainted by steroids allegations be allowed into the Hall of Fame?

This question won’t be answered for at least a decade. There’s a reason why retired players have to wait five years before becoming eligible for the Hall of Fame. This is to allow any attachments and emotions to the player to subside before making a more objective decision. However, the criteria for entering the HOF has always changed with the times and generations. As much as people question the statistics of the Steroid Era, baseball has always allowed questionable players into the HOF. Until the whole steroids influence is fully understood, statistics of all players who played during this era cannot be fully appreciated. At this point, the steroids players are simply the ones that have been caught. To assume someone is clean because they haven’t been caught is naive. It is getting to a point that either all players are treated equally in the Steroid Era (whether they were caught or not or were clean) or that no one gets into the HOF. However, this question won’t be answered for a decade and perceptions may change through the years.

7. What paths have players accused of steroids and PEDs taken when ‘outed’?

Ranging from complete silence or denial to complete admittance and regret, players have had a wide range of reactions when cornered by PEDs allegations. The ones that have been most apologetic have had most success in resuming their playing careers, even if it meant a tainted legacy. Those that have shown completely no remorse or have put the blame on non-believable entities have been vilified by the public. The paths taken by the most notable players include, from strongest denial to strongest admittance:

-Complete denial and knowledge of taking steroids, even when confronted by overwhelming evidence and federal investigations, continue to stick to their stance (Barry Bonds, Roger Clemens)

-Complete silence and avoidance of issue (Mark McGwire)

-Complete denial then silence when overwhelming evidence surfaced (Ralphael Palmeiro, Sammy Sosa)

-Vague admittance and apology when caught (Jason Giambi)

-Full admittance and regret but with excuses such as injury or peer-pressure (Andy Pettitte, Alex Rodriguez)

-Full admittance and then assisted officials with information about steroids, suppliers and other players (Jose Canseco, Jason Grimsley)

—–

Notes: This Q&A is not official and is simply my personal interpretation and understanding of the steroids scandal. I will add more questions and answers as they come up. If you would like to see a Q&A added on here, please add it in the comments section and I will gladly update the post.

The need for greed. And they all fall. What Arod, recession and global warming have in common.

Alex Rodriguez

What is going on with the world today? Many of the institutions and systems we grew up with and believed in have crumbled faster than a crumb cake in front of Santa Claus. This morning sports fans were shockingly (or not) met with news that one of the few remaining baseball superstars to not be tainted by the steroids scandal, Alex Rodriguez, failed an MLB steroids test in 2003. Considering that this news was corroborated by four independent sources, and based on past evidence of such news, this story likely has meat behind it. As the Barry Bonds’, baseball’s all-time home run king, steroids perjury trial heads to court, we wonder if there is anything sacred anymore in sportsmanship and fair play. The list now includes Bonds, Arod, Marc McGwire, Sammy Sosa, Roger Clemens and Raphael Palmeiro. All were heroes and idols to millions and millions of kids and sports fans.

Bear Stearns

Sports is nothing, however, compared to the deepening economic crisis affecting the country. But, then again we need to ask ourselves how did this country fall into such a dire situation in the first place? With news of unemployment reaching 7.6%, worst since 1982, most Americans are sensing a pessimism in the country and its leadership they have never felt before. Corporations that have long been stalwarts have wilted after years of trustworthy service. Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers and AIG, just to name a few. Even General Electric has fallen on tough times due to untrustworthy leadership expectations and financial exposure. Then there are the frauds of individuals, such Bernie Madoff, and corporations, such as Enron and Global Crossing.

Polar bear cub

Then there is the global warming and energy crises. Due to the  irresponsible and rampant use of oil and other natural resources, and the irresponsible output of chemicals into the air, river and ground, the natural balance of Earth has come under question. Dire predictions of sea levels, global temperatures, forestation, glacial coverage, droughts and diseases have left us wondering is there any hope left? Will there exist a viable Earth in 100 to 200 years?

It is truly amazing that all three of these problems have one major thing in common. Greed. Greed. Greed. What is most disturbing is that the situations did not become problems until the ultimate greed kicked in. Arod was already a once in a generation baseball player back in high school. It is fair to say that he did not do steroids as a teenager as his body structure was simply too small. Bonds was a skinny player with the Pirates but was already a five tool player on the path to the Hall of Fame. McGwire  was an amazingly talented rookie with the Oakland Athletics. Why did they feel the need to use steroids and become even better than they already were? Why risk already amazing career trajectories with such greed?

Similarly, the financial companies that have gone bankrupt or bought up were very viable and successful companies (some for over a hundred years) before the ARMs and hedge funds became en vogue. Why the greed to do such risky investments in order to raise the bottom line and stock price?  Was it all due to increasing stock compensation packages of executives? Was it all worth it? To dupe millions of unknowing citizens just for more personal money? What about Madoff? An already well-respected and wealthy investor; what caused him to risk everyone’s money (including hundreds of other wealthy individuals and companies), just to make more money for his firm?

Finally, the earth has remained relatively stable ever since the existence of man. However, since the Industrial Revolution and especially since the widespread use of combustible engines, there has been this disregard for the side effects of using such resources. Coupled with research in biochemistry and synthetic compounds, the effects of pesticides, mercury, lead and carbons have led to a precarious global balance. Millions of animal species extinct or on the brink of survival.

Progress?

Are humans, the supposedly most “intelligent” species with opposable thumbs, in fact, the dumbest species ever? Just imagine outsiders writing about the history of man and what they would write about, especially the past 150 years. Just imagine what they would write about western civilization. Just imagine what they would say about the population numbers. Or about technology and medical research? Is this the final goal of evolution? We have reached the ultimate in special survival… our only enemy is ourselves? The whole purpose of natural selection is the survival of the strong. However, part of natural selection is natural balance. A species never wants to become too powerful because then their food sources and natural enemies would disappear. Humans have, in essence, overcome both these natural laws. Through natural selection (our brains and opposable thumbs) we are far and beyond the most powerful species. In a relatively short time, our population and power increased beyond control. Humans have no more natural enemies. The machines we have created are unmatched and only destructible amongst ourselves. So what does this all mean?

The human world does not have a checks and balance system. Nature and other species have always acted as the equalizers. The closest thing that comes to that is the United Nations, and everyone knows how ineffective it is. Additionally, idealistic political systems such as communism and socialism have proven futile. Even checks and balance systems, such as the one in the United States, has a limited efficacy, as witnessed by the politics, lobbyism and other issues. Nature is having a difficult time balancing the effects of human greed and power. Diseases and natural disasters are becoming minimal in damage due to medical research and better disaster predictions. Without any natural enemies, we are left to govern ourselves and our future. As exciting of a possibility that is, the track record of that has been phenomenally pathetic.

Is gold ready to break out after today’s rise?

What’s going on with gold today? Gold prices touched above $900/oz today and by mid-noon was trading over $40 higher to $899 an ounce on February deliveries. The highest levels since October of 2008. As of 12:52pm, the SPDR GLD is up over $4.00 to above $88 (4.00+%). The volume of 24 million at 1pm is already twice as much as the average daily volume of 12 million. What is also surprising is that the EURO to Dollar index is dropping today, signifying a strengthening US Dollar. In most cases, these two measures should move inversely proportional to each other (Well, technically, gold rises when the EURUSD=X also rises). So what to make of this move today?

One, it’s easy to say that the huge movement up is all due to the stream of negative economic news. Most daunting was the release of Britain’s GDP, showing the country’s most severe contraction in nearly 29 years. Which also officially pulled the UK into a recession. Additionally, bad earnings from a stream of companies have made today a safe-haven buying day, which lends credence to why both the gold and silver prices are rising, and why the US Dollar is also rising, due to an influx in US Treasuries buying.

However, there are two technical signals that are also resonating quite nicely with the tech gold bugs. Let’s first look at the trading band GLD has been trading in since it’s low back in Nov 2008. I have drawn in the magenta bottom trading boundary which GLD prices essentially hit three times (11/08, 12/08 and 01/09). I have also drawn in the magenta top trading boundary which GLD prices hit twice (end of 11/08, 12/08). In order to keep within this linear rising trading band, GLD would have had to make a move to the upside in the next week or two. Today’s rise only keeps GLD within this trading band and does not signify a breakout. However, because it is a rising trading band, then that bodes well that GLD will continue to rise in the coming weeks. Should it break above the top trading band, we might see a very strong move upwards and well past $100/share. If it breaks below the bottom trading band, then the fundamental breaks and we can see GLD once again test its lows in Nov 2008. Because there is strong buying interest today, this bodes well for GLD.

GLD trading band since Nov 2008 low

The second bullish signal might prove stronger than the above signal. Let’s look at the 50-day EMA and the 200-day EMA for GLD since 2005. Something is happening here that hasn’t been seen since September of 2005 when gold began it’s next bullish leg up from the $400s/oz to $1000/oz. The 50-day EMA breaking above the 200-day EMA. Although the below chart does not show it, today’s bounce up definitely will push the 50-EMA above the 200-EMA. This is a strong signal and it is coupled with strong volume, which shows buying conviction on the upside. When two long EMAs cross each other they signal long-term trends. You can see that when the 50-EMA crossed under the 200-EMA back in Sept of 2008, GLD dropped for a few months. This break back above 200-EMA could signal strong upside for GLD prices. Coupled with the trading band shown in the first chart, and we major bullish signals for gold in the next few weeks. As in my 2009 Predictions in my previous post, I expect gold to top $1000/oz at some point this year, possibly in February.

Have fun!

GLD 50-EMA ready to pass 200-EMA

Being a sports fan in New York City. What team combinations have had the most success the past 25 years?

I was listening to Benigno and Roberts on WFAN on my 3 hour drive from New Jersey to Connecticut on Saturday afternoon. Joe and Evan, both Mets and Jets fans, were ranting with other Mets-Jets fans how that combination of sports teams to be fans of in New York City was probably the worst. Especially with the current Jets collapse after starting out 8-3 and the Mets’ two consecutive late season collapses, the heartbreaking is at an all-time high. Well, as a Giants and Yankees fan, it’s been the complete opposite for me. The Yankees made the playoffs 13 years in a row (and winning four championships), while the Giants just came off a stellar Super Bowl dream season, not to mention the 2000 run and this year’s 12-4 season. This led me to do a quick analysis of the different combination of teams of the four major sports that fans can follow in NYC, and which ones have the best happiness and least happiness. First, I will quickly review each team’s success the past 25 years (I chose 25 because I first became a sports fan of a NY team in 1984 with the Yankees, and it’s a nice round number for recent success). Then I will rank the combinations in order of success.

Success will be defined as follows:

ACCOMPLISHMENT	POINTS/OCCURRENCE
Winning season	2
Division winner	3
Playoff season	3
Playoff round won	5
Conference championship	15
Championship	20

Points explanation: To be clear, the team accrues points every time one of the accomplishments occur. For example, if the Giants win the Super Bowl this year, they would get points for every single accomplishment, not just the 20 points for winning the championship. That means a championship year for a football division winner would net the team 2+3+3+5(3)+15+20 = 58 points! That also means not all four sports championships are created equal, but they are pretty close, The reason for this is because the excitement and level of accomplishment increases up to the championship game. Usually when a team wins a championship, the fans are  relatively satisfied for the next few seasons. A division-winning playoff season coupled with a loss in the first playoff round would net the team 2+3+3 = 8 points. In essence, a championship is loosely equal to seven playoff seasons. Ties in football and the old ties in hockey are counted as non-games when calculating winning percentages.

So, here are the results of the nine New York City metro area sports teams and their successes the past 25 finished seasons. I will update this when the football, basketball and hockey seasons are finished with their 2008 seasons. That means I do not include the Giants accomplishments or the Jets collapse for this season in my analysis.

NEW YORK CITY METRO AREA SPORTS TEAM PROFILES
TEAM	RECORD	WIN PCT.	WIN YRS	DIV WIN	PLY YRS	PLY RECORD	PLY RNDS RECORD	CONF CHMP	CHAMP	SUCCESS POINTS
Yankees	2235-1741	.562	21	10	13	78-50	17-9	6	4	366
Mets	2087-1892	.525	16	3	5	30-24	6-4	2	1	136
Giants	215-182	.542	13	7	12	15-9	15-9	4	3	278
Jets	180-218	.452	10	2	8	4-8	4-8	0	0	70
Knicks	1005-1013	.498	13	4	16	89-86	18-16	2	0	206
Nets	882-1136	.437	10	4	13	52-59	10-13	2	0	151
Rangers	863-807	.517	12	3	15	70-76	14-14	1	1	183
Islanders	788-898	.467	10	2	12	41-62	8-15	1	0	117
Devils	918-752	.550	18	7	18	118-98	22-15	4	3	341

WIN YRS - years above .500, DIV WIN - years team won division, PLY YRS - years team made playoffs, PLY RECORD - playoff record, PLY RNDS RECORD - how many playoff rounds team won and lost, CONF CHMP – conference champions, CHAMP - championships

It’s not surprising the Yankees have had the most success the past 25 years. The Devils championship success in the 1990s make them a close second. Although the Mets had 16 winning seasons, they only made the playoffs five of those years because their records were probably closer to .500 than .600. The Jets by far are the worst team. They are the only ones to not even have a conference championship. Conference championships are a major key to a fan’s happiness. All fans hope for is their team to make it to the final round… to the World Series, Super Bowl, or Championship.

However, the success points by themselves don’t mean much because we can’t compare teams across sports. We need to calculate the total possible points for each team and each sport. In our six points categories, the maximum is 25 (example: 25 possible playoff seasons) except the possible playoff rounds won. The only sport in which playoff rounds won is dependent on the team is football, where there is the extra wild card round. If the team was involved in a wild-card game, then that’s another possible playoff round to be won. In non-playoff seasons, total possible playoff rounds is 3, discounting the wild-card round. From the total possible points each team could have accrued in the past 25 years, we can calculate a success percentage for each team.

The success percentage of the NYC sports teams in the past 25 years, from best to worst:

TEAM RANKINGS
RANK	TEAM	POINTS	TOTAL POSSIBLE POINTS	SUCCESS PERCENTAGE
1	Yankees	366	1355	.270
2	Devils	341	1575	.217
3	Giants	278	1490 (8)	.187
4	Knicks	206	1575	.131
5	Rangers	183	1575	.116
6	Mets	136	1355	.100
7	Nets	151	1575	.096
8	Islanders	117	1575	.074
9	Jets	70	1485 (7)	.047

The ordering stayed the same when we used success points except the Mets jumped ahead of the Nets because there are less total points in baseball than basketball (mostly due to playoff rounds). The Yankees effectively led all categories except the number of playoff seasons and playoff rounds won. However, unlike the other three sports, baseball is the hardest to get into the playoffs, even after the wild cards were introduced in 1995. The futility of the bottom four teams coincidentally have a team in each sport. That means a fan of the Mets, Nets, Islanders and Jets have been wallowing in the most misery for the past 25 years. The top four teams are also one in each sport. A fan of the Yankees, Devils, Giants and Knicks would be the happiest four-team fan in the area.

Now that we have a success percentage associated with each team, the fun part begins. We want to find the team combinations that give fans the most happiness. However, to be realistic, we realize that many fans are not hardcore or even big fans of all four sports. I know a lot of fans that are only into baseball and football, but not the other two. Or they are fans of other cities and teams (traitors) for some of the sports. To allow for combinations that don’t include all four teams, we will simply take the average success percentage of the teams involved.

Before giving the results of a lot of the possible combinations, let’s highlight the very popular baseball-football fans:

NYC HAPPY FAN RANKINGS FOR BASEBALL-FOOTBALL FANS
RANK	TEAMS	HAPPY FAN PERCENTAGE
1	Yankees, Giants	.229
2	Yankees, Jets	.159
3	Mets, Giants	.144
4	Mets, Jets	.074

Wow! If you are a Yankees-Giants fan you have been three-times happier than Mets-Jets fans the past 25 years. The funny thing is that if you are a Yankees-Jets fan or a Mets-Giants fan, the Jets and Mets pull down your overall fan happiness. Being a Jets fan pulls your Yankees fan happiness down by 41%, and being a Mets fan pulls your Giants fan happiness down by 23%. Or to be an optimist, the Yankees and Giants pull up the happiness of Jets and Mets fans. Hehe…

Here are the results of most of the possible combinations of being a NYC metro sports fan. There are too many total possible combinations to list, from 1-team fans up to 4-team fans, so I will make some assumptions in order to remove unpopular combinations. I will assume that multi-sport fans have to be at least a baseball AND a football fan. That means we will only allow combinations in which each must contain a baseball and a football team.

NYC HAPPY FAN RANKINGS
RANK	BASEBALL	FOOTBALL	BASKETBALL	HOCKEY	HAPPY FAN PERCENTAGE
1	Yankees				.270
2	Yankees	Giants			.229
3	Yankees	Giants		Devils	.225
4				Devils	.217
5	Yankees	Giants	Knicks	Devils	.201
6	Yankees	Giants	Knicks		.196
7	Yankees	Giants	Nets	Devils	.193
8	Yankees	Giants		Rangers	.191
9		Giants			.187
10	Yankees	Giants	Nets		.184
11	Yankees	Jets		Devils	.178
12	Yankees	Giants		Islanders	.177
13	Yankees	Giants	Knicks	Rangers	.176
14	Mets	Giants		Devils	.168
15	Yankees	Giants	Nets	Rangers	.167
16t	Yankees	Giants	Knicks	Islanders	.166
16t	Yankees	Jets	Knicks	Devils	.166
18t	Yankees	Jets			.159
18t	Mets	Giants	Knicks	Devils	.159
20	Yankees	Jets	Nets	Devils	.158
21	Yankees	Giants	Nets	Islanders	.157
22	Mets	Giants	Nets	Devils	.150
23	Yankees	Jets	Knicks		.149
24t	Mets	Giants			.144
24t	Yankees	Jets		Rangers	.144
26	Yankees	Jets	Knicks	Rangers	.141
27	Mets	Giants	Knicks		.139
28	Yankees	Jets	Nets		.138
29t	Mets	Giants	Knicks	Rangers	.134
29t	Mets	Giants		Rangers	.134
31	Yankees	Jets	Nets	Rangers	.132
32t	Yankees	Jets	Knicks	Islanders	.131
32t			Knicks		.131
34	Yankees	Jets		Islanders	.130
35	Mets	Giants	Nets		.128
36	Mets	Giants	Nets	Rangers	.125
37	Mets	Jets	Knicks	Devils	.124
38	Mets	Giants	Knicks	Islanders	.123
39	Yankees	Jets	Nets	Islanders	.122
40	Mets	Jets		Devils	.121
41	Mets	Giants		Islanders	.120
42				Rangers	.116
43	Mets	Jets	Nets	Devils	.115
44	Mets	Giants	Nets	Islanders	.114
45	Mets				.100
46	Mets	Jets	Knicks	Rangers	.099
47			Nets		.096
48	Mets	Jets	Knicks		.093
49	Mets	Jets	Nets	Rangers	.090
50	Mets	Jets	Knicks	Islanders	.089
51	Mets	Jets		Rangers	.088
52	Mets	Jets	Nets		.081
53	Mets	Jets	Nets	Islanders	.079
54t	Mets	Jets		Islanders	.074
54t				Islanders	.074
54t	Mets	Jets			.074
57		Jets			.047

By far, a pure Yankees fan has had the most happiness the past 25 years in NYC. This is followed by the Yankees-Giants fans not interested in basketball or hockey. Throw in the Devils hockey fans with that combination and you are just as happy. The best four-team combo, unsurprisingly, is the top four successful teams, the Yankees, Giants, Knicks, and Devils. My combination of the YGKR is ranked 13th in happiness. If I had been an Islanders fan and not a Knicks+Rangers fan, I would’ve just been as happy. At first glance, this might not make sense since the Islanders success percentage is much lower than the Knicks or Rangers, but because I would not be invested in a fourth sport and team (hockey), the success of the Yankees and Giants keep me very happy even with the Islanders lack of success. The Knicks and Rangers haven’t had enough success to override that extra sport disadvantage. Interesting…

On the flip side, the Mets and Jets dominate the bottom half of the rankings. Their city rivals’ (Yankees and Giants) success coupled with the fact that you can’t be a Mets-Yankees or a Jets-Giants fan (those that are should be forced to move to a one-team city) give their fans plenty to be sad about. If you are solely a Jets fan, you have it worst; being only  happy 4.7% of the time the past 25 years. And for Joe and Evan of WFAN, well, you two have the second worst team combo.

Anyways, hope you enjoyed this little exercise. If you have any comments or suggestions, please leave a comment below (You will be anonymous). Or leave a comment on what team combo you are. Sorry I couldn’t put all the possible combinations on a chart. There are too many to list. And frankly, how many Nets-Rangers fans are there (without being fans of baseball and football)?

To finish up, please vote for the teams you are fans of below. Of course, you can pick multiple teams.

When is poker gambling? Analogies to investing in stocks.

Screenshot of Texas Hold'em Poker 3D

To those people that play poker for its competitive atmosphere or its mathematical excitement, it is not gambling. However, to the outsider or the concerned family member or friend, poker is gambling and any attempts to justify it are simply excuses. I am more in the former camp, but I also know that there are varying degrees of how one plays poker that determines how much poker is a game of skill versus luck. Playing poker is very similar to investing in stocks or mutual funds. A person can play it such that luck is the overriding factor in whether he or she wins (like playing the lottery) or the person can become informed and knowledgeable in all the aspects of the game (like the game of life). Educated poker is about rules, probabilities, psychology, and strategy. Educated investing is about laws, microeconomics, macroeconomics, markets, company details, management details, buying strategy, and selling strategy.

Poker and investing is gambling when…

1a. You pick random hands to play even when the odds are against you.

1b. You pick a random company to invest in.

2a. Even when you know you have a losing hand you keep raising and hope to bluff or scare your opponent into leaving the hand. In other words, you risk going down with the ship. You don’t know when to cut your losses.

2b. The company you invested in keeps missing its target numbers. Instead of cutting your losses, you hope for a turnaround that seems further and further out of reach. You don’t know when to cut your losses.

3a. You don’t even know the probabilities well enough and what the odds are of the next community card being in your favor. You are playing blind, so to speak.

3b. You know what the company basically does, but you don’t read its quarterly reports or anything about P/E ratios, operational cash flow, debt levels, etc. You will be blind to micro-economic problems that can drop the stock like a rock.

4a. You misjudge your opponents’ hands. Being too optimistic in your chances, you turn blind to the fact that your opponent might be holding a pair of Kings because you are hoping that two diamonds come down on the turn and river.

4b. You become attached to the company you invested in and are blind to emerging companies with better technologies or other competitors whose pipeline is looking better than your company.

5a. You keep losing hands. Your track record of winning in poker is below 50%. However, you have a hard time stopping and your losses eat inside you even when it’s over.

5b. You keep losing money in your investments. Your track record of picking sound investments is below 50%. However, you have a hard time letting go and you keep pouring in money into the same losing investments.

6a. You have no long-term poker-playing strategy or your strategy is not working. However, you ignore this or you have blind faith that it will eventually turn in your favor. Gambling is about false hope, blind attachment and ignorance of your true abilities.

6b. You have no long-term investment strategy or your strategy is not working. You know when to buy but have a hard time determining when to sell.

7a. You are too emotional. You take losing hands very hard. They eat inside you hours or days afterwards.

7b. You are too emotional. You take losing investments very hard. They eat inside you for days and even months afterwards.

8a. You are too risky. You regret bets that don’t pan out. You wish you didn’t plop down $20 on a hand that you knew you’d probably lose anyways.

8b. You are too risky. You regret investments that don’t pan out. You wish you didn’t plop all that money on a technology that had only a tiny chance of succeeding.

.

I like the saying that poker is short-term luck and long-term skill. The goal for the player is to decrease the length of that short-term luck to as short as possible. By maximizing skill, you minimize luck, and the game becomes less about gambling and put you more in control of the outcomes. The problem with playing the lottery or slot machines is that no matter how much you learn or the type of intricate strategy you use, the big chunk of luck can never be reduced. However, poker and investing can be done such that the luck or gambling aspects of the game is greatly reduced.

Why do you think the same poker players are at the final table in poker tournaments all the time? Doyle Brunson? Why do you think investors like Warren Buffet are consistent winners in their investments? The homework those guys do can be loosely equated to Michael Jordan and Tiger Woods’ attention to detail.

Good luck! Well, good skill!

Related link:

The Mirage of the Martingale

A Letter to America

Dear Fellow Americans,

The land of the free and the home of the brave...

Tomorrow is one of the most important days in recent American history. It is a day that will affect the short term prospects of America and the standing of America in the world for the next century. The events and actions of the past eight years have accelerated the damaging path the country has embarked on for the past thirty years. The irresponsible actions have left America crippled economically, politically, morally and psychologically. Both parties have been hijacked by the special interests of corporations, ideological groups and personal interests. The values in which America was founded on have been distorted. The decision made by America tomorrow will go a long way in determining if we continue this egregious path of self-destruction.

The debt at the national, local and consumer levels are not only due to the actions of the past eight years. The decision by the Supreme Court in 1978 (Marquette National Bank of Minneapolis vs. First of Omaha Service Corp.) to deregulate interest rate caps at the state level was the precursor to the inundation of credit cards and the mortgaging of personal futures for the present. Although Reaganomics has been credited with bringing the country out of the vitriolic stagflation of the late 1970s, it has had a long term effect that has eaten away at the fiscal responsibility of the federal government. At the core of Reaganomics was reducing tax rates by reducing government spending which in turn was achieved by reducing costs associated with regulation and social programs. However,  unexpected costs from the burgeoning Cold War resulted in large trade and federal budget deficits. In order to cover such deficits, the government began borrowing heavily both domestically and abroad. This decision to mortgage the future of the country for the present instilled a belief that debt is good, even to other countries, such as China, Japan and India. America became a borrower nation instead of a loaner nation, which it had been for decades during its prominence.

The deregulation of these two critical issues are the main causes of the current economic problems. It instilled bad habits at all levels of society. Although quality of life continued to increase the past thirty years, it was mostly at the cost of the future. Both politicians and individuals began feeling entitled to such luxuries and expected it to last forever. However, as analyzed by Pulitzer Prize winner Jared Diamond (Collapse: How Societies Choose to Fail or Succeed), it is this infectious mindset that causes great societies to fail. This country is at that critical juncture. Do we reinstate the values, sacrifices and hard work that made this country great or do we continue down this destructive path?

In addition to the present economic and ideological problems that endanger the quality of life of America, there are many massive elephants in the near future that can derail any sense of comfort in the nation. A fundamental restructuring of social programs like Social Security, Medicare and Medicaid is required in the next one or two presidencies before the effects of the baby boomer population cripple the flow of aid from the system. The high quality of life has left Americans lazy, fat and indifferent, and the medical costs associated with treating related diseases and health issues threaten to destroy the already broken health-care system. The super-highway system that supported the rise of American power is also the bane of the country’s dependence on foreign oil and its lavish automobile lifestyle. Furthermore, the infrastructure of America is crumbling and poses a danger to the lifeblood of a large country like America. A massive government infrastructure initiative is required within the next twenty years. The only question will be where does all the money come from? As globalization continues to redistribute the wealth and power of the world, the education system and America’s ability to compete are also being tested. American children  continue to fall behind other countries at all levels of education, from middle school to college to graduate school. This country has been able to sustain its technological competitiveness partly through the immigration of top-level students from countries such as China and India. However, the current backlash on immigration coupled with the increasing prestige of other countries’ higher education systems, begs the question of how America will sustain its technological edge? Corporations and special interest groups as super-humans continue to eat away at the fabric of America. Their selfish narrow-minded view of profit and ideology permeate all levels of society, from individuals to the government. Ideology has especially polarized the country into two hardened stances, secularity versus ideology. The effects of this has left the country fearful and suspicious of each other. Finally, the effects of the internet and other entertainment-related technologies cannot be understated. Although they have created luxuries beyond anyone’s belief and increased the free flow of information, they have also created a schizophrenic society of 24 hour media frenzy and questionable freedoms of morality. The neutrality of journalism and the mental well-being  of society are at stake. Coupled with the constraints of global warming and moral responsibility, the above problems must be faced responsibly.

These problems will definitely be difficult to face and resolve. Most of these have been simmering for years, but have been effectively ignored. However, what has always made America great has been its ability to come together as a country and sacrifice for the greater good of the country and the world. The sacrifices by this country during the Civil War and World War II for the greater good cannot be forgotten. Although society was simpler and less polarized then, the country must come together once again to face the unprecedented wave of issues that threaten to send America down the road of self-destruction.

Tomorrow begins that choice. Tomorrow the country decides which path to take, one of sacrifice for the greater good or one of continued wantonness. Tomorrow begins the day where America can begin reinstating the values that made this country so great. A country of uniqueness not found anywhere else in the world. A melting pot that protects individual rights and helps others at times of need. A constitution so strong that the thought of a revolution is unfathomable. The land of opportunity and openness. A land of thousands of parks and natural resources. The separation of church and state and the freedom of religion. The land of the best medical care and higher education system. A land of tolerance and hope. And the land of the free and the home of the brave…

Whomever you vote for tomorrow, please think openly and clearly. Without any bias of age, race, religion, and fear, think who will be better for America. Who will lead America towards a path of redemption and strength. A path that requires sacrifice but cherishes American freedoms. A candidate that realizes that what America needs now is a problem solver with pragmatism and humility, and not one fixated on idealism, intolerance and fear mongering. Look closely at your choice, and know that when you go home afterwards, there will be a better America tomorrow. A better America for yourself and your family, and also for its great citizens of today and tomorrow.

America’s tomorrow begins now…

Thank you.

Silent Archimedes

Five can’t miss PBS programs – Frontline, NOVA, Nature, POV and Independent Lens

Even with all the hundreds of cable channels pushed upon us…not to mention Netflix and YouTube, some of the best programs are still on your local public broadcasting service (PBS). Here I list my top five favorite ongoing shows on PBS. What makes it great is that PBS also makes them accessible online if you missed them.

1. Frontline

Frontline

is a public affairs television program of varying length produced at WGBH in Boston, Massachusetts. Marking its 25th anniversary season, FRONTLINE has built a reputation for powerful reporting that tackles the tough, controversial, and complex stories that shape our times. From Martin Smith’s probe into the decisions leading to the tragic aftermath of Hurricane Katrina, to Michael Kirk’s investigation of prisoner abuse at Abu Ghraib; from Ofra Bikel’s examination of America’s racial divide over the O.J. Simpson verdict, to special reports like The Age of AIDS and provocative journeys like Hedrick Smith’s search for the answer to the question, Is Wal-Mart Good for America? FRONTLINE gives its award-winning journalists and filmmakers the time needed to thoroughly research a story and the time on-air to tell the story in a compelling way.

2. NOVA

NOVA

is a popular science television series from the U.S. produced by WGBH Boston. It can be seen on the Public Broadcasting Service (PBS) in the United States, and in more than 100 other countries. It has also won a variety of major television awards, most of them many times over. Nova often includes interviews with scientists directly involved in the subject, and occasionally footage from the actual moment of a particular discovery. Some episodes have focused on historical aspects of science. Examples of topics include Colditz Castle, Drake equation, elementary particles, 1980 eruption of Mount St. Helens, Fermat’s last theorem, global warming, moissanite, Project Jennifer, storm chasing, Unterseeboot 869, Vinland, and the Tarim mummies.

3. Nature

Nature

is a long-running wildlife television program produced by Thirteen/WNET New York. It has been distributed to United States public television stations by the PBS television service since its debut on October 10, 1982. Nature is one of the most watched documentary series in the world. It is a weekly one-hour program that consists of documentaries about various animals and ecosystems. The series has won more than 400 honors from the television industry, the international wildlife film community, parent groups, and environmental organizations – including 10 Emmy Awards, two Peabody Awards, and the first honor ever given to a program by the Sierra Club.

4. P.O.V.

P.O.V.

is a PBS television series which features independent nonfiction films. P.O.V.’s films have a strong first-person, social-issue focus. Since 1988, P.O.V. has presented over 225 films to public television audiences across the country. P.O.V. films are known for their intimacy, their unforgettable storytelling and their timeliness, putting a human face on contemporary social issues. The series has garnered both critical and industry acclaim over its 20-plus years on television. P.O.V. programs have also won major industry awards including three Oscars, 19 Emmys, 36 Cine Golden Eagles and 11 Peabody Awards.

5. Independent Lens

Independent Lens

introduces new drama and documentary films made by independent filmmakers. Each episode introduces new documentaries and dramas made by independent thinkers: filmmakers who are taking creative risks, calling their own shots and finding untold stories in unexpected places. From a Texas drug sting, to a plane crash in the Andes, to a research lab where beleaguered physicists search for the “God particle,” Independent Lens takes viewers behind the scenes to discover untold stories. Step inside a boisterous courtroom with 1960s revolutionaries Abbie Hoffman and Bobby Seale, or sit down to an intimate dinner with Pakistan’s Pervez Musharraf—let this season’s line-up take you across the span of history and around the globe. Learn more about the U.S. deficit, and dive into hot-button issues like gays in the military, Islamic extremism and gang strife in South Central L.A. Meet a trained kamikaze pilot and an inspirational Kenyan activist who is protecting human rights through the simple act of planting trees.

Watch them…

The Mirage of the Martingale

Like all those people looking to find the edge in Roulette at the casino, I fell into what I call “the Mirage of the Martingale“. The Martingale’s premise is in putting money only on 50/50 bets, like the flip of a coin. In Roulette, the closest to this is the RED/BLACK bet, ODD/EVEN bet or 1-18/19-36 bet. It is not a full 50/50 bet because the two green slots (0 and 00) reduces each bet to a 47.3684% winning probability instead of the 50% winning probability in 50/50 bets. (Remember, American Roulette has 38 slots, 18 for RED, 18 for BLACK, and 2 for GREEN. This creates a 2.6316% for landing on any specific slot. The house edge is the two GREEN slots, or 2*2.6316 = 5.2632%)

Standard American roulette table

The basic strategy of the Martingale is when you lose a 50/50 bet, you double your bet on the next spin. That way, if you win, you cover your last round’s loss and also gain your initial bet’s amount.

For example, let’s say you bet $5 on BLACK in round 1. The spin turns up RED. You are down $5. In round 2, you now bet $10 on BLACK. If the spin turns up black, you cover the $5 you lost in the first round, and you also make $5. If you lose, you are now down $15. In round 3, you now bet twice the last round’s bet, or $20. And so on and so forth… Assuming you lose 5 BLACK bets in a row until winning on the sixth, your betting sequence is 5, 10, 20, 40, 80, 160, … and your profit sequence is 0, -5, -15, -35, -75, -155, 5.

In short analysis, this sounds like a fool proof idea because you assume that if you keep betting on black, at some point it will land on black, and you will cover your losses.

Upon further analysis, there are some obvious problems with the Martingale. The problems are both in the mathematics, and in the practicality of using such a strategy in a casino.

1. First, the mathematics. At first glance, the probability of a losing streak of 5 seems very small. For every spin, there is a 1/2 probability of winning or losing. Five in a row has a 1/2 * 1/2 * 1/2 * 1/2 * 1/2 = 1/32 = 3.125% likelihood. If someone asked you if you would bet $5, and the chance of you losing is 3% and the chance of you winning is 97%, you would take that bet in an instant. However, this 3% is nice when you are talking short term (although you might be unlucky). For example, if you stay at the table for 5 rolls, your chance of hitting that losing streak is a small 3%. However, the longer you stay at the table, the more you are exposing yourself to the Law of Large Numbers and the Central Limit Theorem (see images below, courtesy of Wikipedia).

(a) fewest trials	(b) second fewest trials
(c) many trials	(d) very many trials
As the number of trials increases, the output plot starts to resemble a bell curve. Even the unlikely outcomes eventually occur, based on their respective probabilities. In gambling, unwanted outcomes will eventually show up if enough bets are placed.

.

Eventually, that 3% will show its ugly face. This is also true for losing streaks greater than 5, such as 6=1.56%, 7=0.78%, 8=0.39%, etc. On a positive note, as the length of a losing streak increases, the probability decreases and you can stay longer at the table without fear of the two above theorems/laws. For example, the chance of a losing streak of 8 is only 0.39% for any 8 straight rolls. However, a losing streak of 8 means you would have to wager $640 on the 8th round, and this is all an attempt to get your original $5 back!! A person with a limitless purse would not care, because they know eventually they will break this losing streak and cover however big their loss is. Unfortunately, the casinos know this! Which leads to our second problem…

2. Every casino has a minimum bet and maximum bet on the roulette table. A typical “cheap” table usually has a minimum of $5, and a maximum of $100 or $200, or for short (5,100) and (5,200) table. When I started going to casinos at 18, I always wondered why the maximum bets are so low. Now I know. The maximum limit of a (5,200) table would limit a person using the Martingale strategy to a maximum losing streak of 6. That means if you bet $160 on that sixth spin and lose, you lose $315. You cannot bet $320 to potentially cover your losses because that is over the max limit of the table. You must carry that $315 loss with you!! All for an original $5 bet! That risk proposition doesn’t seem so good now.

These two problems might not fully convince some people to not use the Martingale strategy. The first thought is I will make enough money before I hit a losing streak of 6. Now we talk about how to bet on winning streaks and why they are not practical to overcome the odds of hitting a losing streak. The most common method is the Anti-Martingale Strategy:

The Anti-Martingale Strategy - The betting strategy is the same as the Martingale except you double your bet when you win. However, you must have winning streak level where you bank your profit, and then begin betting at $5 again. Let’s say you make your level at 4. So when you win 4 in a row, you bank 5, 10, 20, 40 = $75. Not bad huh? The problem is a winning streak of 4 only occurs 1/2 * 1/2 * 1/2 * 1/2 = 1/16 = 6.25% Remember, a (5,200) table only allows a max losing streak of 6. If it happens, you lose $315. As mentioned, these losing streaks occur 1.56% of the time. That means win streaks of 4 occur exactly 4 times more than losing streaks of 6. Both of these are the only two instances in which non-even money is exchanged. All other streaks are break even for you. So, for every time you lose $315, you only make 4 * $75 = $300! You are still short $15. And all these computations above don’t include the house edges on the greens. Which would mean a slightly larger loss on your end! No matter how you change the length of the winning streak when you bank your money, you are on the short end. For example, say you bank every time you win two in a row = $15. This occurs 25% of the time. This occurs 16 times more than your losing streak of 6. That means for every time you lose $315, you make only (16 * 15) = $240!

Our LS6-WS4 Martingale/Anti-Martingale Strategy on a (5,200) American Roulette Table looks like this:

I tried modifying the Martingale and Anti-Martingale and even ran simulations in Matlab. The numbers never ever add up. In the end, it still comes down to luck.

Anybody disagree or have ideas about at least slowing down your losing in a mathematically dependable way? I apologize if the math is somewhat off, as I did this on the spot, but I think no matter what, it’s impossible to use the Martingale effectively in a casino.

**Update 05/21/08 ** – Yesterday’s NBA lottery draft is a perfect example that anything can happen, even with the probability against you. Probability is simply that, the likelihood of something happening and not happening. If something has a nonzero probability (even if it’s 1.7%), it can still happen at anytime. That’s what happened last night. The Chicago Bulls, had a 1.7% chance of landing the #1 pick in the draft. Eight teams were ahead of them (in terms of probability). Miami had the highest probability to land the top pick, with 25%. So guess what happens? That 1.7% happens, and the Bulls get the top pick!! (As a Knicks fan, I was rooting for the Knicks 7.6% chance, but instead of picking even 5th, they ended up 6th)

Related link

When is poker gambling? Analogies to investing in stocks.