Money management

I always view money management schemes with a lot of skepticism. Rigid rules about bet sizing seem artificial and without much reasoning behind then while they are always based on assumptions that cannot be verified. An example of this is the ROI estimate based in averages of historical data. Many horse bettors believe that if they managed to win some amount, let’s say $200 after making 500 two dollar bets resulting to a total action of $1,000 they are experiencing an ‘edge’ of 20% or a ROI of 1.20. Of course a closer look into this concept will convince us that this is not the case as this edge is not equally distributed among all bets and it can very well be just a small subset of them where the edge was developed while all the other can represent a losing proposition.

One obvious disadvantage of money management schemes is that any bet we can place in a mutual game is always restricted by the size the pool. This means that your money management system can very well be suggesting a bet sizing that simply cannot be made without decreasing its overlay potential. Of course someone make a case that in this is a situation where we just select what we believe it could be the maximum bet amount without affecting the magnitude of our overlay.. The point I am trying to make though, is that there exist factors that can invalidate the accuracy of money management and this is just one of them.

I believe that the risk we can accept when betting horses is inversely proportional to the size of the bankroll. If our bankroll is just $500, going broke will not have a big impact since the amount is so small that we will be able to easily replace it and start betting again, so making a couple of $250 bets on our best opinions of the day presents a very good risk / reward ratio as we give ourselves the option to multiply the bankroll by a factor or let’s say ten times while, again the risk in not that bad. The same logic does not apply when we are betting out of a $50K bankroll. In this case we have to be very careful about how to manipulate our bet sizing since if we get broke it will take us much longer time and effort to replace our loses.

I think that the best approach to the game is to try to always give to ourselves the best possibility to get lucky by been aggressive both in our picks and in our bet sizing always shooting for the big life changing score rather than frequent small grinds.. If the later is what you try to accomplish, you might be better of if you find a 9 – 5 job…

The path we have chosen…

I attended a handicapping seminar many years ago, where a distinguished author — and presumed professional-level player — had promised to educate us on the finer points of mastering the art/science of horse race handicapping and betting. He stood up to address the crowd…and had us in the palm of his hand from the first sentence he uttered:

“I am not a gambler”…he exclaimed; “never have been.”

He proceeded to tell us that “gambling” was something that only the financially foolish participated in…and that he was sure  this reckless, misguided group did not include any of us — who sat before him — because we had the good sense to try and transform ourselves from “gamblers” to “inverstors”.

He told us that there was such a thing as a consistent winner at the racetrack…and that this player got to this point because he demanded VALUE for his money. He made sure that he had an EDGE before he placed every bet…and refrained from betting when this edge did not materialize. As long as we confined our bets to “overlays”, then the long-term result was guaranteed to be favorable…even if our short term results fluctuated due to the chaotic nature of the game. “The winning player was not there to gamble, he was there to take advantage of the reckless gambling of others”…the “expert” stated with emphasis.

This made great sense to me at the time, and I believed it for many years…but I don’t believe it any longer. In fact…I later discovered that my belief in this seemingly harmless opinion had played a key role in my endless frustration with this game that I love so much.

And as I sit here now — a 30-year veteran of the gambling wars myself — I try to put myself in the place of that distinguished expert that I encountered so long ago…and I wonder what message I would care to deliver to a group of impressionable players…who eagerly looked to me for advice on how to approach this fascinating, but also maddening game.

What would I tell them…so they wouldn’t end up as frustrated and confused as I was — for many more years than I needed to be?

And it occurs to me that my message would be markedly different:

I would tell them that this is the toughest gambling game in the world to beat…and yes…I do mean GAMBLING game. It is the toughest game to beat because the economics that govern it practically insure that only the very best will emerge victorious…while the many will be left with only excuses and colorful stories.

There would always be “overlays” which promise the existence of an edge — of course — but this edge would be more apparent than real…and it would hardly be as consistent as they had been told it was. It would always be in a state of flux…and very difficult to determine.

I would tell them that this is a “gambling game”, because the past can only PREDICT the future…it cannot guarantee it.

Just because they might have been winners for the last three years did not mean that they would make money during the fourth.

The much-treasured handicapping techniques that they had relied on in the past may very well fail them in the future…and they had better realize this when it happens — before it’s too late…

I would point out to them that this game is DYNAMIC rather than static…and that this fact virtually guarantees that they will remain life-long students. There are no “masters” in our game…

Yes…there will be times when they will think that they have it all “figured out”…and they’ll have the winnings to prove it. But as they stand there, with an “I’m King of the World” attitude…they had better lower their sights — because the ground may be shifting underneath their feet. This game has a way of keeping you humble.

And as I tell them all this…I picture a member of the audience raising his hand to ask a question.

“Why are you painting such a bleak picture”, he asks me…”when other experts are much more optimistic about the horseplayer’s journey than you are? Where are the promises of the 1.20+ long-term ROI, which others say often accompanies the player’s studious effort and single-minded dedication — and which fosters dreams of profits which remain consistent year after year?”

And I tell him that I don’t encourage dreaming at the racetrack; in fact, I am trying to do exactly the opposite. I AM TRYING TO WAKE THEM UP!

I have seen what exaggerated claims and irresponsible promises have done to other gullible players…who have seen their dreams turn into nightmares.

There is no such thing as consistency year after year…I tell him.

In fact…uncertainty is the serious player’s constant companion.

Betting horses does not pay by hour

Here they do not pay you by the hour..

My friend Thaskalos, who is a pro bettor and one of the top posters in PaceAdvantage made a pretty good score parlaying a small win to a large triumph an approach I find to be the best when you are betting for profit.

Discussing his thought process and the aftermath of his handicapping and betting he stated a very interesting quote that I think encapsulates one of the more fundamental and important truths of horse betting… He told me that after collecting his winnings he was quick to his way home, saying to his OTB buddies that here you are not getting paid by the hour…

This simple sentence encapsulates the essence of gambling. A tight and aggressive strategy resulting to a not self weighted bets is the way to treat this (and almost all) type of gambling. Giving yourself the opportunity to get lucky, capitalizing on your confidence to contradict the public is the only way to achieve a big score.

Even more important than handicapping expertize and betting skills is the proper physiological attitude needed in order to successfully apply this concept under real world conditions. The gambler needs to be convinced that he is doing the right thing and never allow negativity to shadow his plan. He must be prepared to accept both winning and losses trying to minimize their impact to his behavior and thinking. A great gambler must view money as a mere score keeping mechanism similar to video games and nothing more than that.

The moment that the gambler will allow himself to think that with the money he is betting in the next race he can buy a new laptop or go for a vacation to a Caribbean island, he is already too soft to be called a pro gambler.

The truth is that the majority of gamblers do not have this attitude, instead they become very protective and soft in their decisions, something that mathematically leads them to ruin. I find this behavior analogues to the boiling frog story which describes how a frog will allow himself to be boiled alive if he is placed in a slowly heated pot of water while he will immediately jump out if he is thrown directly to boiling water.

As Thaskalos says, in horse racing you are not getting payed by hour, instead your strategy needs to have explosions that will give the chance to take em down and long periods of calmness where you will just be thinking about the game…

Always evolve

As a programmer you should always follow the evolution and try not to be conservative in your decisions about what technology to follow.

A very common pitfall among programmers is that after they reach a certain level of an expertise in a specific technology they become bound to it refusing to extend their skillset to parallel domains. For example after a developer becomes fluent to BASIC he is reluctant to learn PYTHON.

This happens for several reasons. He might be afraid that he will get confused by the additional information or he might believe that it is a better investment of his time to delve deeper into his current language assuming that this is the best way to become a better programmer. He also might feel a sense a completeness, in other words that he has reached his goals and he pretty much covers all his needs using his current knowledge.

I think this is one of the worst mistakes that a programmer can commit during his career.

Technology moves extremely fast and failure to evolve will rapidly convert a competent developer of the present to an outdated dinosaur of the next year. The developer should resist to the temptation to consider his skillset complete and stop to learning new things if he wants to remain active for the coming years.

More than this, a horizontal expansion of the skills of a developer will improve his performance in his core technology and make his judgement calls more accurate and justified.

For example understanding functional programing can help a developer who specializes in an object orient language to apply a recursive style in his coding improving its readability and expressibility.

As a rule of thump I think that a programmer should learn at least one new technology every year; of course he does not need to become a master in all of them but he should get a good understanding of the design philosophy of each of them and whenever possible to try to apply some of them to a real world project.

A good developer should view the technologies he is using to build a solution as a mere detail to the whole picture and should design in such a way that his implementations are as technology agnostic as possible. Platforms that appear to be tightly coupled with specific technologies although attractive for tactical solutions will eventually become problematic in a more strategic prospective.

Based in this it becomes clear that a developer should be liberal about the tools he is using to reach his goals, never be reluctant to adopt new approaches and stay focused to the big picture as opposed to concentrate to the details.

The most common fallacy

The most common fallacy among horse players is the belief that winning in races is all about skill and there is always an correct way to select your bets. Horse bettors tend to overestimate their understanding of the game, usually leaving in denial of the evidence and facts proving that they simply cannot beat the game.

The horse player is constantly in the search for the winning approach that will give him the edge in his battle against the crowd. All kinds of different methodologies have been developed during the years measuring track variants, speed and pace figures, race profile, pace handicapping even the biorhythms of the horse, most of them only making a profit for their creators and promoters. What almost all the users and even the producers of this kind of products seem to be missing, is that betting horses is not a productive process, it does not create wealth but instead it redistributes the amount bet while each time this is happening a large percentage of it disappears from the pools becoming real profit for the race track owner and all the professionals related to any extend to the industry.

So, horse betting has by default a negative expectation which can only be turned to a positive if an individual player has the ability to outsmart the odds as they are offered by the crowed. Everything starts from there. If there is no edge, obviously is impossible to avoid loss in the long run due to the take out.

Can it be proven the game can be beaten? Does horse betting consists an activity involving enough skill to the extend to allow an ‘expert’ to create wealth just by placing bets? Do real expert horse racing handicappers that can consistently beat the public exist in reality?

These are not easy questions to address and most likely there does not exist a clear answer especially one that can be reached using an analytical way of thinking. It seems that the best we can do trying to find an objective answer is to refer to reality and analyze several winning players applying some statistical methodologies and derive our opinion based on that. Of course this sound easier that it really is considering how difficult it is to gather the necessary data to perform this type of a research. I have never seen such a research or anything similar more than aphorisms of the type ‘only the 1% of the horse players are winners all the rest end up loosing their bankroll’ without any real evidence to justify such an argument.

Personally I do not think that anyone can systematically outperform the crowd converting the pools to a form of an ATM machine that he can grind in a regular basis. Again, I cannot prove my point but until I have enough evidence of the opposite I will consider it valid. Despite this fact though, I think that horse racing might present some opportunity for a player to score pretty big, if he is willing to accept the fact that this is not something that can be done regularly and more than sound handicapping and skill it has as additional requirement to be selected by luck. In other words this type of horse player who can make a big score should be well aware of the impact of luck in this process and should try to put himself in the situation to attract it. Surely this approach does not constitute by no means a recipe to guaranteed profits (such a thing does not exist) but converts an average horse bettor who struggles to extend his betting time to a speculator that knowing that the odds are against him he still tries the best to put him in the right spot to get lucky when the circumstances will be favorable….