Big Money! No Whammies!
The single proudest moment of my academic career came in the form of a “C-“. The thing is, I was actually a pretty good student. I know that my final GPA would fall far short of many of yours, but it was decent enough to take me to college. That “C-“ came during my junior year of high school and it was, and still is, the lowest grade I ever received.
Math and science were always a breeze for me. History was second nature, and I fought my way through English classes. Spanish did NOT come easy for me. My teachers assured me that if I kept trying, and kept working hard, eventually it would “click” as they put it. It never clicked. I managed my way through two years, but that third year was almost my undoing. As the end of the year approached my grade was a paltry 58 percent, earning me the dreaded “F”.
I had one chance to boost my grade above the 60 percent bar to avoid the mark of shame – the final exam. The premise of the final was simple enough. We were to write 50 sentences in Spanish. All in different conjugation and verb tenses. Only I had a problem, I didn’t know Spanish. As the test drew closer my stress levels spiked. Then, finally, it “clicked”.
I didn’t magically learn Spanish. That’s not what clicked. What happened is I realized I didn’t need to learn Spanish. I could pass this test simply by learning everything there was to know about one verb.
On the day of the final, I confidently walked into the classroom and wrote 50 sentences – 50 sentences about swimming. I’m still terrible at Spanish. But I “nadar”ed my way to a 100% grade on that final. And a “C-“ in the class. I’m told that the test was very different the following year.
“Press Your Luck” was a short-lived gameshow in the 1980’s. It aired for three years before being removed from the daytime lineup. Contestants answered trivia questions in order to win spins on the prize board. Similar to many arcade style games prized moved randomly around a board while contestants attempted to push a button stopping the board on prizes. After each spin they could choose to keep their money, or “press their luck” and go again, running the risk of stopping on a ”whammy” square and losing everything.
In May of 1984 Michael Larson arrived on the set of “Press Your Luck” as confidently as I walked into my Spanish classroom. That confidence was not because he had amazing reflexes, it wasn’t because he felt lucky, and he certainly wasn’t experienced at the game. He was confident because he realized that he didn’t have to “play” that game. In fact, he realized it wasn’t a game at all, and it certainly wasn’t random.
Michael Larson was an interesting guy. Prior to his appearance on the show, he had become convinced his next fortune would be made in television. So, he started watching a lot of it. This guy at one point had twelve televisions stacked on top of each other covering an entire wall. At one point, while watching twelve shows at once, he started to zero in on “Press Your Luck”. He thought he saw something. To confirm his suspicion, he bought some VCRs so he could rewatch episodes. Then came the moment he saw it. CBS couldn’t be that dumb right? Over and over, he watched tape after tape. And sure enough, the random board wasn’t random at all. The board moved in a very specific pattern, and most importantly, he realized that there were two squares, which NEVER displayed a whammy.
Larson walked into the studio confident because he knew something nobody else knew. The game could be beaten. Larson took CBS to the cleaners that day. His $110,237 ($288,000 adjusted for inflation) set a record for the amount of prize money won on a gameshow. He won so much money that CBS was certain he cheated. The network refused to pay Larson because they were certain that he must have broken the rules. They investigated. They looked. They tried everything they could, but they found nothing. He had beaten them. Fair and square.
In the aftermath of the wildly popular episode CBS replaced the game board with a new one. A new one that had 32 different patterns that randomly played. They also made sure in future syndication deals that Larsons episode would never again see the light of day.
I would venture that everyone reading this has at some point seen an ad or been told by a friend about some book or website that offers the secret to “beating the stock market”. The more modern iterations brag about proprietary algorithms guaranteed to bring big profits. I’m going to let you in on a little secret. None of them work. I’m not saying the market can’t be beaten. I’m not saying that you can’t sort through the data and find discrepancies. I’m just saying that the website that wants to sell you the secret is lying. And I already proved it to you with those two stories.
After I beat the system in my Spanish class, the system changed. It accounted for the strategy that used. Same thing happened on “Press Your Luck”. And, the same thing happens in the market. Just like in those examples, once the market figures out that the system has been beaten, it adjusts. Once the market adjusts, that system no longer works.
So, consider for a moment that you had discovered a “proprietary algorithm for beating the market” what would you do? Use the algorithm to beat the market for as long as you can before it gets discovered, potentially walking away with millions? Or would you sell your secret for $19.95 a copy, knowing full well that once you publish it, it will no longer work?