R P S B
Relative Performance
Stock Betting
Investors can currently engage in a strategy in which an equal amount of money is invested in buying a long position in one stock and selling a short position in another stock. This is like pairs trading and can result in large gains and losses. Due to the necessary short sale this is a margin transaction, and it is also impacted by the movement of the stock market.
A simpler transaction can be betting on which of two stocks will outperform the other in an agreed period. The virtual Do Better Club facilitates its members betting a standard $200 unit amount, for 30, 90, or 180 days, on which of two stocks, chosen by the club members, will do better by the end of the agreed period.
The club, acting as a broker, attempts to arrange the necessary matching counterparties for each betting unit. The club members must have deposited in their club accounts the amount they agree to bet. The club charges the winner of a bet a fee of 10% of the winnings, for identifying the counterparty and arranging the bet. Dividend ex-dates are included in the performance calculation and stock indexes and listed ETFs can be used.
Club members can initiate a bet based on their analysis of the stocks or whatever information or beliefs they have regarding the stocks. As there are no securities transactions involved in the bet, securities regulations are not applicable. The securities transactions of the club members are neither known by the club nor have any bearing on the bet as to which of the two stocks will do better by the end of an agreed period.
Therefore, the winning better of a $200 unit will receive at the end of the betting period $380, $200 of which will be the amount bet. The net amount won of $180 on the $200 bet, 90%, is a high return, the Internal Rate of Return (IRR) of which being dependent on the betting period. The loss suffered by the other club member will be the $200 amount bet.
Club members may base their decision on the history of the stocks relative earning per share (EPS), price/earnings ratio (P/E) or price of the shares. Arthur Lipper Corporation, as a NYSE member, previously offered investing institutions such a graphic service for many stocks relative to the stock market index. Technology now would permit the same data to be presented for most stocks relative to each other.
We have acquired the domain DoBetter.club and are seeking appropriate affiliations.
Of course, those considering becoming involved in the DoBetter.club and betting on the relative performance of securities should review the matter with their attorney and tax advisor.
Arthur Lipper, Chairman arthurlipper@gmail.com
British Far East Holdings Ltd. 858 793 7100 PST
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