How Much Should You Bet?
For as
long as I can remember I’ve heard (some) bettors lament their lack of “money
management” skills.
“My handicapping is fine,” these punters say, “but my money management stinks.”
“My handicapping is fine,” these punters say, “but my money management stinks.”
Generally,
I file these comments with others that I’ve found to be equally insightful over
the years. Comments like:
“The day you take complete
responsibility for yourself, the day you stop making any excuses, that's the
day you start to the top.”
~ O.J.
Simpson
“I tripped and fell into a lifeboat.”
~ Capt.
Francesco Schettino
“It’s not the first hooker that I’ve
helped out... I was being a good Samaritan.”
~ Eddie
Murphy
“I had an adverse allergic reaction to
some medication.”
~ Charlie
Sheen
Yet a
recent betting challenge that I conducted changed my mind about the importance
of money management — at least in part.
The object
of this proposed month-long challenge was to compare and contrast straight
(win, place, show) and exotic (exacta, trifecta, pick-3, etc.) wagering approaches.
However, due to excessive whining about the races/tracks I chose for the
contest, I decided to end the “festivities” after just four days, thereby
preserving what was left of my sanity.
Consequently,
not much was gleaned in regard to the two different betting approaches
(straight vs. exotic), but I did learn a ton about bet planning.
Most — if
not all — of the challenge participants were seasoned players, yet few of them,
it seemed to me, had a coherent strategy or plan relating to bet sizing and/or
capital growth.
One guy, a
self-proclaimed professional gambler, lost over half of his mythical $1,000
capital (the amount everybody started with) in two days! On the other side of the extreme, another guy was making
$2-$6 bets each race.
Now, if
one is just playing around, it’s OK not to have a betting plan — far be it for
me to suggest that grandma needs to be optimizing her bets on the prettiest
horses; but if one is trying to make money at the racetrack, some type of bet
optimization strategy is essential.
Among the
most well-known bet optimization methods is the Kelly Criterion. Named after
its inventor, John L. Kelly of AT&T Bell Laboratories, the Kelly Criterion
is a formula designed to boost betting profits by determining the ideal
percentage of capital to be staked on each wagering event.
The
formula is as follows:
Wager Amount = (winning rate
- losing rate / avg. winning odds) x bankroll.
(Note:
Remember your order of operations — division before subtraction.)
Hence, if
one typically wins 1/3 of his/her bets and they pay $7 on average, the amount wagered
to optimize profits would be approximately 6.67 percent of capital (1/3 – 2/3 ÷
2.5 = 6.67 percent).
Because
there is such risk of tapping out if one overestimates his/her true advantage,
most bettors will use a fraction of Kelly to determine their stake (and some
will adjust it based on the post-time odds and their perceived advantage). In
the Challenge, I used a modified Kelly number and assumed losses in each race, which allowed my daily wagers to
be an equal amount and protected me — as much as the formula allows — from a rash of misfortune (my clever euphemism for
“losers”).
Related to
bet sizing is a plan for capital growth. Among the most illuminating things
said in regard to the Challenge was this (by a good Facebook friend):
“Although four days is a small sampling, it's a sampling nonetheless. Neither straight or exotic wagering is producing substantial results. That could change, but again, the four days have sent us a message.”
“Although four days is a small sampling, it's a sampling nonetheless. Neither straight or exotic wagering is producing substantial results. That could change, but again, the four days have sent us a message.”
Sadly, I
have a feeling that the sentiments above are shared by the vast majority of
horseplayers — and they reflect a complete lack of understanding as to how
bankroll appreciation occurs.
Take, for
example, my own Challenge results. In four days, I accumulated the following
stats:
Races Bet:
10
Winning
Bets: 6
Success
Rate: 60.0%
Total Bet:
$429
Total
Return: $468.45
ROI:
+9.20%
Avg. Odds:
0.82
Kelly
Advantage: 0.6 – 0.4 ÷ 0.82 = 11.22%
These
numbers were a bit skewed by a (negative pool) show bet, which returned just 15
cents on the dollar, and — as I was constantly reminded of — chalky results in
general. But the figure that undoubtedly prompted my friend’s post was the $39.45
in winnings — in four days.
On the
surface, such a miserly return is hardly worth the effort. However, when one
has a betting optimization plan, small profits like this are perfectly
acceptable — and, in fact, a nine percent ROI is fantastic.
 |
| (Click on image to enlarge) |
What this
means, in less esoteric terms, is that if I were to maintain an ROI in the 9-10
percent range and average the 2 ½ plays a day I did in the Challenge for an
entire year (365 days), my $1,000 bankroll would grow to over $25,000 by the
time the first strains “Auld Lang
Syne” could be heard.
I say “theoretically”
because the actual figure would be a quite bit less than this due to the escalating
bet size over the course of the year — which could affect the payoffs and,
hence, my Kelly edge at smaller tracks.
Of course,
the answer to this is simple: a maximum bet size (which could be altered based
on the mutual pools one is wagering into).
Using the
example above, if I capped my bets at, say, $300, the initial $1,000
bankroll would still exceed $17,000 by year’s end.
Hardly insubstantial.
So, if you’re
serious about making money at the track, consider using some of the tools discussed
herein to help you meet your goals. And don’t be swayed by those who can’t see
the forest for the trees… or the potential in paltry profits.
18 comments:
Dang, I wish I could write with your level of cleverness! I am lucky to come up with one witty comment per post.
Going past my obvious envy of your writing skills, I think your content was dead-on.
Everything from the part about how tough it is to make $17,000 in a year... the key is clearly MORE plays rather than MORE profitability - not that profitability is a bad thing.
...oops. Hit enter too soon.
... to the part about how most people have no plan at all.
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