Your Uncle Bob is absolutely sure about it… and lucky for you, he’s ready to put his money where his mouth is.
Maybe it’s betting whether Donald Trump will win the next U.S. presidential elections, there will be a recession in the U.S. by the end of the year, Brexit will happen by March 29… or who will be the next president of Ukraine.
If your Uncle Bob feels strongly, you can profit.
There’s a way to actually gamble on big events (and small ones too: Will Donald Trump with the Nobel Peace Prize? Will Jared Kushner testify in 2019? Will Kanye run for president of the U.S.?).
It’s called PredictIt.com. This gambling tool can also be helpful to us as investors – while you make money off of Uncle Bob… risk-free.
Making money by betting on events… and how it helps
PredictIt.com is an online platform that allows people to bet on the probability of outcomes of a range of possible events. It employs a system of contracts priced between US$0.00 and US$1.00. The price of “Yes” contracts and “No” contracts fluctuate based on demand – just like shares.
If you’re right, you receive US$1.00, and the losers get nothing. So if you buy a “Yes” share that’s trading at US$0.30, the probability of a “Yes” answer being correct is 30 percent at the time the bet is placed. And you’ll make a profit of US$0.70 per share if you get it right (when US$1.00 is paid out).
For example… right now, you can buy a “yes” contract on the question, “Will Trump be impeached by the end of 2019?” for $0.29. A “no” contract costs $0.71.
So if you buy a “yes” contract, and Trump isn’t impeached by the end of 2019, you’d lose your entire investment. If you bought a “no” contract, and he’s not impeached, you’d be paid $1.00.
Another example in practice…
Will the United Kingdom officially exit the European Union by March 29? As of March 5, a “Yes” contract costs just US$0.18 (even though “yes” that is exactly what the British government is saying is supposed to happen on that day). Meanwhile, a “No” share costs US$0.82.
The PredictIt site
That means that the market has serious doubts that Brexit is going to go as planned, and that it is likely to be delayed, or be altered.
PredictIt can be useful to investors because it’s more reliable than poll data. Why? The prediction market participants have skin in the game – they’re using their own money to bet on outcomes, while talking heads don’t.
And then there’s the wisdom of crowds. If most people think an event is certain to go one way (like Brexit being delayed or altered), you know the market is in for a surprise if the event in question actually happens.
How you can make money betting on events
One easy way to “hedge” bets using PredictIt is to profit from the emotionally charged approach some people take towards political events.
For example, you could in theory make a bet with your Uncle Bob – who’s a die-hard Brexiteer – that Britain will not formally leave the EU as planned on March 29.
Most people will take 1:1 odds on simple outcomes like this. So, let’s say you bet Uncle Bob US$50 that Brexit will not happen. Uncle Bob (who, remember, believes in Brexit above all) readily takes you up on the bet. Brexit happens, and you owe him US$50; it doesn’t happen, and he gives you US$50.
But according to PredictIt – unbeknownst to Uncle Bob – the chances of you winning (that is, Brexit not happening) are 82 percent.
So, how do you hedge your bet?
You can buy US$18 worth of cheap “Yes” contracts (for US$0.18 each). (Why US$18? 100 minus 82 equals 18).
Brexit happens, and you get $100. You give $50 of that to Uncle Bob, and you’re still up $32.
Alternately, Brexit doesn’t happen (as you predicted), and you get US$50 from old Uncle Bob. Your Brexit “Yes” contracts are worthless, so you’re out $18 there. But net, you’re up US$32.
No matter what, you win (even if the UK, and Uncle Bob, don’t).
Or… want to hedge against the U.S. economy falling into recession? Or whether 2019 will be the hottest year ever? Or Oprah running for president? PredictIt can help you, with 168 different “markets” or questions available for betting…
So while you definitely shouldn’t gamble with your investments, you can make money on gambling like this – and even use it to help invest – or hedge. Or take money from your poor(er) Uncle Bob.
Publisher, Stansberry Pacific Research