Turning $1,000 to $10,000 on Insight Prediction
Follow me on my journey to either glory or embarrassment
This article kicks off a series in which I attempt to turn $1,000 in to $10,000 by trading prediction markets. The idea is that I will provide monthly portfolio updates via Substack, and as I transparently track this portfolio in real time, people will follow along and root for it (or against it). If I succeed, it will be fun public journey. I fail, I will spectacularly fall flat on my face in front of the entire world. The uncertainty is half the fun.
This $1,000 seed money has graciously been provided by Insight Prediction, a prediction market startup that is still in Beta testing. Here is a link to their Discord server:
If you don’t know what a “prediction market” is, you should be able to glean it from context by glancing at the most popular markets on Insight Prediction (below). Think of it as investing in stocks, but rather than investing in stocks, you are investing in geopolitical events.
Insight Prediction allows you to trade binary options (“event driven contracts”) on these geopolitical events, contracts which range between .1 and 99.9 cents in price, and pay off one dollar if the conditions are satisfied and zero otherwise. A "Latest Yes Price" of 87¢ indicates that the event has an 87% chance of happening. If you buy one share of the "Yes" contract at 87¢, and it happens, you will be paid $1.00, with a 13¢ profit (14.9%).
Building My Initial Portfolio
In terms of topic allocation, I didn’t want to be exposed too heavily to one event (e.g. the Ukraine conflict), so I chose a wide range of uncorrelated markets. This is what makes prediction markets such useful financial instruments — they are uncorrelated with the stock market, so by incorporating a prediction market portfolio into your broader net worth portfolio, it functions as an effective (and fun!) hedge for your wealth. When the stock market crashes, prediction markets do not crash.
In terms of position sizing… position sizing is something that I struggle with, and I am hoping to learn. There are entire books and careers devoted to debating the optimal amount of liquidity and risk to take, and there is no clear consensus. I am expecting to develop my own personal strategy/style over the next few months; until then, I picked these initial 16 positions on a whim. Expect this to be overhauled as I experiment with different sizing philosophies.
My goal in constructing this portfolio is to maximize expected value (EV) — with every trade I make, I always have the concept of EV in the back of my mind. EV is a very popular term in the gambling/investing world, and I would urge you to go study the concept yourself. Here are 3 Substack articles that walk through the concept of EV in great detail:
Without further adieu, here is my initial portfolio, worth $1,000 USD:
Treasury - 13.8%
Cash - 1.8%
At first glance you might say I am dangerously illiquid — only 1.8% of the portfolio is cash reserve?! This is deceptive, though, since one of the unique features of Insight Prediction is that each user has a built-in crypto wallet that allows them to swap between cryptocurrencies and cash. So my BTC and my ETH *are* my cash reserves — I can liquidate this 13% slice at any moment and use it to place further bets, should the opportunity arise to make a play.
Australian Elections - 10.3%
Another reason why my portfolio is deceptively liquid is that 10.3% is invested in the Australian elections… which take place tomorrow! So, after tomorrow night, I will have a nice new chunk of capital to re-deploy in other markets (assuming the Labor party wins). Labor currently have an 83% chance of winning according to traditional gambling sites, and I managed to pick up shares on Insight Prediction for 81 cents. Unless a major upset happens tomorrow, I will have made a cool 23% gain overnight.
Will the NBER Declare a Recession in 2022? — 12.5%
I am not going to get too much into the reasoning for this trade, since it would take paragraphs and paragraphs and paragraphs to describe why I think a recession is likely. Maybe I will write a standalone Substack post, “We Are Already In a Recession.” In any case, I picked up 500 “recession YES” shares for $125. If the GDP print is negative next quarter, I will have quadrupled this slice.
I think this is good value... in fact, I think it is such good value that it is the second biggest slice of my portfolio. Generally speaking, the bigger the slice, the more confident I feel in that investment.
Will Russia Conquer the Donbass by the End of July 2022? - 15.8%
Speaking of large slices of the pie, my single biggest investment is in this Donbass market, where I am betting on Russia to conquer the Donbass within the next 2 months. Does this mean that I am rooting for Russia? No!!!! I am acting as a cold, calculating machine. It means that I saw these shares trading at 17cents and I think there is a much greater than 17% chance this outcome materializes — hence, positive expected value. I reached this conclusion after spending a couple of hours reading/researching on the current state of Donbass. It seems the Russians will take it.⚡️Zelensky: Donbas 'completely destroyed.' “In Donbas, the occupiers are trying to increase the pressure. It’s hell there, and that’s not an exaggeration” President Volodymyr Zelensky stated in his nightly address.
Will Ukraine be Partitioned? (200,000 km2) — 5.4%
Again — I didn’t invest in this market because I am hoping for this outcome — I simply think there is more than an 18% chance Ukraine will ultimately be partitioned, and I was able to snag some shares for 18 cents. Hence it is a +EV trade.
Will Ryan Enos Have a Paper Retracted in 2022? — 4.1%
I couldn’t help but invest in this market, since I was the one who originally broke the story on Substack:
Another reason I felt good about this particular investment is that just a couple of days ago, Ryan Enos deleted all his tweets (usually deleting your tweets is a sign of a guilty person). This is a new development. He used to have thousands of tweets; they are all gone. Hmmmm… sounds like there are gears turning behind the scenes….
Will the Republican Party Win the Senate in the 2022 Midterms? — 7.9%
This seemed like a no-brainer to bet on the Republicans.
Will there be an Armed Conflict Between Taiwan and China by 2023? — 0.7%
Do I think China will Invade Taiwan this year? No. But it could happen, and if it does, I will instantly multiply this money by 20 times. Taiwan war shares are cheap, and I am partial to lottery tickets. I view this market as a fun lottery ticket (the morality of betting on war notwithstanding) that is worth throwing a few bucks into.
Will Dianne Feinstein Remain a Senator for the Duration of 2022? — 1.6%
Speaking of the morality of betting on war, there are also some hairy questions raised by betting on someone dying. I wrote about the morality of deathpool markets in one of my first Substack articles:
Feinstein maintains that she will continue to serve as Senator until 2024, but I don’t believe she will make it that long.
Will 2022 be the Hottest Year on Record? — 1.6%
This is another lottery ticket that pays off 10 to 1. Pretty much every year nowadays breaks the hottest year on record, so I feel good that there is higher than 1 in 10 chance of this happening. Now I have to sit tight and hope for heat waves this summer.
Will Russia Lose Over 775 Tanks by May 31st? — 8.8%
I didn’t attempt to become an expert on tank warfare. I simply saw that 683 tanks have been destroyed so far, so there is a very small chance that an additional 100 tanks will be destroyed by May 31st, which is in 10 mere days from now. The market is pricing in an 88% chance this won’t happen, and this sounds about right to me, so I aped in.
Vladimir Putin Remain President of Russia Through 2022? - 6.7%
Will Volodymyr Zelensky Remain President of Ukraine by 2023? - 5.4%
The history of "Will X remain in power" questions seems to be that typically the answer is: yes they will. So I bet on both Presidents staying in power. I would be shocked to see either ousted this year.
Will Insight Prediction Become a Unicorn by the End of 2025? — 2.5%
This one is fun because the shares are trading at 1 cent and the deadline is in 3 years. So rather than treat it as a “bet,” am treating it more like I own a little bit of stock in the startup... I paid $25 for 2,500 shares. If Insight Prediction eventually turns into a unicorn (unlikely, but not totally impossible), I will have made a nice little $2,500. It is fun to be invested in what you are doing.
There you have it! That is my rationale for picking the slices of my portfolio that I did. The beauty is that if you think I am an idiot who is making terrible decisions, you can put your money where your mouth is and bet against me and directly take the money from my pocket. Or leave a comment and tell me what I did wrong:
Stay tuned to see how my portfolio evolves! In 30 days from now I will publish an update, so please subscribe to get it in your inbox. There should a whole new slate of markets by then. Maybe there will even be a monkeypox market.
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