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Building good instincts about risk and probability can help you invest successfully. It’s a lot easier and cheaper to develop these instincts when you don’t have your savings on the line. Here are some unusual ways to improve your skills in reading the probabilities, and stacking the odds in your favor.

Playing Chess
A chess game doesn’t have a clear predefined path. The average chess game involves roughly 40 moves, and each move can play out in 400 different ways. That means the number of possible outcomes after the first few moves are 400, while the possible games of chess after the first few moves is greater than the number of electrons in the universe.

Chess, like investing, is about opening one’s self up to possibilities. Investors never know exactly how an investment is going to turn out. All they can do is try to keep moving the odds in their favor. Playing chess can help investors internalise the fact that when they make an investment, they don’t actually know how it will turn out – but they can certainly make calculated guesses.

In fact, there is a second lesson investors can learn from chess.

The implications of robotics and artificial intelligence on the economy and on investing are getting a lot of attention these days. There are fears that robots will eventually leave everyone unemployed. But there are lessons to be learnt from the experience of several chess-playing artificial intelligence algorithms that have been developed by IBM, Google and other software companies.

In 1997, reigning world chess champion Gary Kasparov was beaten by IBM’s Deep Blue supercomputer. Ever since then machines have beaten champion players on almost every board game attempted. The conclusion is quite simply that computers can learn to beat humans at any strategy game. Actually, there’s more to the story. Humans playing with computers can beat computers playing without the aid of a human. The lesson here is that the optimal solution is one that combines the creativity of humans with the number crunching ability of computing power. This lesson applies to investing, careers, jobs and productivity.

Playing Blackjack
Playing games that involve chance, such as Blackjack, is one of the quickest ways to learn about probabilities. If the player follows statistical Blackjack strategy, such as keeping in mind the variables of when to hit and when to stand based on the cards already dealt, they effectively have a framework for decision making in blackjack. Following a strategy will generate small returns over time. The winnings will not be massive, and there will be lots of small losses – but over time the wins will add up to more than the losses. That’s how investing works too.

Invariably, anyone new to Blackjack will begin to stray from their strategy and bet based on hunches and emotions. They will try to recover losses by increasing their bet size, and they will be based on the belief that they are on a winning streak. They will soon find this just doesn’t work in the long run. This is when an investor can learn how not to invest. They will also learn that any winning strategy will have good periods and bad. This is similar to the way investment styles tend to perform well during different periods.

By the way, poker is also a good way to learn about probabilities. Over time, Blackjack and Poker players learn that you have to know when you have an edge, and that you should only bet when you have an edge. Of course, this is true for investors too.

Digital Marketing
The digital age has ushered in an era of precision marketing. Online businesses know exactly what each sale costs them, as well as the profit they will make from each sale. If the average sale costs a company $4 in advertising costs, but they make a profit of $5 on each sale, they know they can generate 25 per cent on each dollar of ad spend. If each sale is costing more than the profit on each sale, they know they need to tweak their model, rather than continuing to fund a losing ad campaign. With such a clear business model, it’s easier for companies to raise funding. Investors have a fairly good idea of the profits their investment can generate for the company. They can also work out how the company will compound its profits and how it might benefit from economies of scale.

Not all businesses have such a clear relationship between the cost of each sale and the profit from each sale – but investors can at least think of potential investments in similar terms. Doing so can allow an investor to differentiate between businesses that actually have a profitable business model, rather than those that are just hoping for the best.

Summing Up
These are just a few examples: Investors can also learn from the strategies used by football goalkeepers during penalty shootouts and they can learn from the strategies baseball coaches use to select teams; numerous board games have lessons to offer, as do sports betting and other casino games.

The more different examples you can draw from the more you can internalise the concepts of risk and probability – the same principles that underlie successful investing.