MONEY MANAGEMENT

[HIGH ROLLER]

i have always wondered why it seems over 90% of horse players lose money. agfter reading james quinn, barry meadow and steve fierro it all becomes crystal clear.

very few players (even on pace advan) can discuss this intelligently.

the bottom line is that if you as a bettor do not figure out what you advantage is in percentage terms and bet that amount of your bankroll you are mathematically doomed to go broke.

you can also use the kelly bet chart.

[Buckeye]

I'd say that's because 90% (or more) of the bettors -- no matter who they've read - do NOT have an advantage in the first place. I don't beleive most are losing because of poor money management. Some may lose at a faster rate than would otherwise be the case, but mostly they are losing because their mathematical expectation is negative.

On the other hand, if you do have an advantage, i.e., if e(X) is positive, and if you bet the proper percentage of bank, it is true, you cannot and will not for all practical purposes go broke.

[thoroughbred]

A number of years ago, I set up a mathematical simulation of what it takes to make a profit. A number of people, who had data from their large data bases of horse races, were kind enough to provide me with the statistical data needed to run the simulation.
I don't have the simulaton anymore, it's lost as my computers were upgraded and I stopped paying attention to it.

But here is what I remember about what I learned. ( I have to EMPHASIZE) that the simulation addressed a very special case. You only did win bets, and you bet every race.

Also, I had to pick a money management strategy to put into the simulation. Since, under these conditions, the particular strategy chosen can be shown to make no difference IN THE LONG RUN, I chose to use the "Bet 10% of your bankroll each time" technique. Total starting bankroll was reasonable, at about $1000.

The results, of course, depended on your degree of handicapping skill, and they went something like this:

If you only achieve a win rate of 10% you went broke very fast.

At 20% to about 25% win rate you still went broke, just a bit more slowly.

At about 30% to about 33% win rate, you began to break even.

When your handicapping skill led to a win rate above 34%, you started to make money.

At higher win rates, you began to make a profit quickly.

Remember, this is what it showed to expect, IN THE LONG RUN, and again, the simulation was for WIN bets only,.

In spite of these limitations, the results were pretty interesting.
The simulation also seemed to put an upper bound on what could be achieved, somewhere around a 40% win rate.

[HIGH ROLLER]

your simulation is correct, unfortunately only the very, very best reach 30% win rate, i know of no one who is at 35%, btw what was the ave win mutual?

30% at 5/2 = 2% advantage

33% at 5/2 = 6%!!!

[Buckeye]

edge/average odds=optimal percentage (from Mitchell): reading his books does not necessarily mean that your "edge" is a positive number. Even if you have an edge today and had one yesterday, it does not necessarily follow that you will have one tomorrow. In fact, if you keep doing the same thing forever, then at some point, in all likelyhood, your edge will erode and disappear. There are many reasons for this.

Notice that the higher your average odds are, the smaller the optimal percentage becomes.

[GameTheory]

Originally posted by thoroughbred
Also, I had to pick a money management strategy to put into the simulation. Since, under these conditions, the particular strategy chosen can be shown to make no difference IN THE LONG RUN, I chose to use the "Bet 10% of your bankroll each time" technique. Total starting bankroll was reasonable, at about $1000. Can you elaborate on "makes no difference in the long run" part? If you overextend yourself (which betting 10% a race would be for nearly everyone), you're going to go broke. May be fast, may be slow, but you're going broke, even if you have a positive expectation from a flat-bet perspective. For instance, if you had chosen to bet 100% of the bank every race, everyone in the simulation would go broke very quickly, even if they picked over 50% winners.

[kenwoodallpromos]

I think profitable bettors have to do a number of things well or suffer: money managenemt and keeping records; handicapping calmly and with common sense; knowing a good angle or system when you see one; and figuring a good % return payoff ROI value.

[sq764]

I think people lose moreso from poor wagering than poor money management.

I know tons of excellent cappers who do not wager correctly and it puts them in the loss column because of it..

[Blackgold]

Although I've never read Beyer's book, "My $50,000 Year At The Races". . . I did read some commentary about the book once where it was pointed out that had it not been for a couple $20K+ trifectas, the book could have been titled, My $5,000 Year At The Races.

Couple of things to keep in mind. . .

1. The game is random. If you simply throw darts, over the long run your losses will equal the track take.

2. You must back runners whose odds are higher than their chances. And on those occasions where you have a runner that has a chance and is paying more than random (a 20-1 shot in a 12 horse field), you have a big advantage.

3. You must be patient. After looking at many, many cards yesterday I bet only three races. I have found a way to compensate my thirst for action by playing video poker or blackjack on the computer while I wait for a race, or simply looking over the next days cards.

4. Learn how to use high priced runners in the exotics, as long shots hit the board more than they win. Even with the FAV on top, a long shot making the super can sometimes give you a ticket that is a fourth of the pool.

5. Try to know when you have a bet. After spending over an hour on today's $400K pick 4 at HOL, I decided to pass because the last two legs will probably come in chalky, so I have no advantage. Although my human instincts say, what the hell go ahead and put in a small ticket, my bankroll will suffer over the long run by playing when I don't have a significant edge.

6. Most of the people on this board are very good handicappers and probably most are better handicappers than me. But spend as much time deciding if you have a bet and then stepping up to the plate and swinging for the fences- that's where the profits are.

To paraphrase a line from Shakespeare- "The fault is not in our stars, but in ourselves."

[thoroughbred]

Originally posted by GameTheory
Can you elaborate on "makes no difference in the long run" part? If you overextend yourself (which betting 10% a race would be for nearly everyone), you're going to go broke. May be fast, may be slow, but you're going broke, even if you have a positive expectation from a flat-bet perspective. For instance, if you had chosen to bet 100% of the bank every race, everyone in the simulation would go broke very quickly, even if they picked over 50% winners.

To answer your specific question: The key point of the sentence is "in the long run." If you engage in some activity, that has a certain probability of success, then no money management scheme will change the LONG TERM outcome. The classic simple example to illustrate this is tossing a coin. If it's an honest coin, and the probability of winning is 50%, then, regardless of any money management scheme, the end result is break even, IN THE LONG RUN.

Other examples are less easy to visualize, but the result is the same. You end up, over time, achieving what the probability of the activity determines.

[thoroughbred]

Originally posted by HIGH ROLLER
your simulation is correct, unfortunately only the very, very best reach 30% win rate, i know of no one who is at 35%, btw what was the ave win mutual?

30% at 5/2 = 2% advantage

33% at 5/2 = 6%!!!

The simulation was more detailed than just using an average win mutual. It contained a sequence of win payoffs, (mutuals), and the probability of each one in the sequence.

[ranchwest]

Blackgold,

If we're giving awards for best post in this thread, my vote goes to you. I don't agree 100%, but close enough.

[Buckeye]

We're not flipping coins.

Dynamic game vs dynamic opponents.

If I'm wrong, then why don't the money managers have all the money?

Excellent post Black Gold.

[GameTheory]

Originally posted by thoroughbred
To answer your specific question: The key point of the sentence is "in the long run." If you engage in some activity, that has a certain probability of success, then no money management scheme will change the LONG TERM outcome. The classic simple example to illustrate this is tossing a coin. If it's an honest coin, and the probability of winning is 50%, then, regardless of any money management scheme, the end result is break even, IN THE LONG RUN.

Other examples are less easy to visualize, but the result is the same. You end up, over time, achieving what the probability of the activity determines. You win the percentage of the time determined by the underlying probability in the long run, but that doesn't mean you get to keep your money in the long run if you bet too much. Your simulation had players "going broke" and therefore ceasing betting if they ran out of money, right? For your coin flip example, the expectation will always be break even, but given a finite bankroll and I can choose a money management strategy that will guarantee ruin every time by betting more than 50% of my bank on each bet. I can never increase the expectation determined by the underlying probabilities, but I can guarantee long-term ruin by betting too much.

You can't get to the long run if you have no dollars left to bet with (once you're percentage bet is lower than the minimum bet, $1 or $2, you're finished). Like I said earlier, bet 100% of your bankroll on every race and you will go broke really fast, period. (Same as if I was betting on a series of coin flips.) There will be no long run. When measuring the rate at which you are liable to go broke, the % bet makes a very big difference indeed. Assuming a flat-bet positive expectation, any % greater than edge/odds (Kelly) will cause your bankroll to degrade in the long run rather than grow (i.e. you'll go broke), and any positive % less than that will have it grow, but not as fast as possible (presuming an infinite horizon -- the long run).

I just don't want people to think you could bet as large a percentage as you felt like (10% is certainly too large) and it would all be ok in the "long run". It won't. You'll go broke. If your edge prescribes that you can safely bet no more than 5%, then in the long run at 5% you'll get rich, but in the long run at 10% you'll go broke. Believe it.

So in your simulation, the larger the % of bank you choose, the faster the hypothetical players will go broke once the percentage exceeds that which is allowed by their skill level. If you reduced the percentage from 10% to 5%, you'd see some of your broke players getting rich instead.

[Buckeye]

Game Theory,

If I may add something further to your excellent post-- which goes back to what I said earlier, if there is no edge in the first place, there is nothing to manage, the player will go broke if e(X) is negative and continues to be so.

[Tadek]

Gentlemen

In my opinion there are two main factors defining the money management strategy: one is the longest losing streak and the other is the minimal cash position. Estimating the longest losing streak is relatively easy; take the average number of losing races between winners and multiply it by four. If one plays a profile with 10% of winners; he is winning one out of ten races; the average distance between winners is 9 and it is reasonable to expect the longest losing streak of 36 to 40 consecutive losers. Obviously one must have sufficient bankroll to cover that cost.

Minimal cash position is much more difficult to estimate. It is more the matter of experience of the player and longer-term statistics then any mathematical method. MCP indicates how low one must dip into his bank account to play the profile. In reality ratio of the final profit to the MCP indicates affective return on investment for a given profile.

Without those estimates and without a POSITIVE EXPECTATION – here I totally agree with Buckeye – playing races is a pure entertainment and as any other form of entertainment it carries a price.

Regards

Tadek

[sjk]

Tadek,

Practical experience tells me that losing streaks are longer than your post would suggest. My long term (30,000 races) win percent is 13.3%, but I have losing streaks of greater than 40 races. I had one or two in the last week longer than that.

[JustMissed]

I wonder sometime if the term "bankroll" is just a carryover of an old and obsolete term and has no merit for the modern day player.

I can see Kingfish and Andy during the early part of the 20th century getting a ride to Belmont in Amos's taxi cab after they just found $20 on the street. That twenty bucks is their bankroll because if they lose it they go home empty handed. No debit card, not credit card, no car equity cause they don't own a car, no home equity because they rent and Saphire or Momma ain't giving them a frigging dime.

Now you take the modern day player. He's got a couple of debit cards, 5-7 credit cards, $100K equity in his home and he don't even cut the grass. His wife has a AAA teaching certificate and grosses $50K for 9months. Old Aunt Mary is due to die any day now and her Ohio farm is worth a fortune. So what hell is a modern day player worried about a bankroll.


Now there are exceptions. Some of you read Glenny's thread the other day(very fine thread). Well, it is obvious that Glenny ain't betting just $2 on a long shot, he's taking the rubber band off and betting well over $400 a pop on v-e-r-y long odds horses. Well, bankroll management means something to him.

I know there are some exotic players that also have tap out considerations and that is well and good also.

The point being that for most average players, which is the majority of the players that post here, a bankroll don't mean squat.

I know a lot of guys that spend $2-4K plus playing golf every year and I never hear them mention bankroll. If they want to play, they go play, period. To be honest if a horseplayer loses more than $4K a year playing the horses, he is a piss poor player and should take up golf.

The only thing that matters is P.O.T.. Profit on turnover which is your R.O.I. multipled by the amount you bet during a measurement period.

Bottom line is, if you're not betting the kind of money Glenny is betting, or more, then any discussion of bankroll or Kelly or half Kelly is purely academic.

JM

[HIGH ROLLER]

you have just made a great case why those idiots you speak of are simply cannon fodder for the 10% winners

[thoroughbred]

Originally posted by GameTheory
You win the percentage of the time determined by the underlying probability in the long run, but that doesn't mean you get to keep your money in the long run if you bet too much. Your simulation had players "going broke" and therefore ceasing betting if they ran out of money, right? For your coin flip example, the expectation will always be break even, but given a finite bankroll and I can choose a money management strategy that will guarantee ruin every time by betting more than 50% of my bank on each bet. I can never increase the expectation determined by the underlying probabilities, but I can guarantee long-term ruin by betting too much.

You can't get to the long run if you have no dollars left to bet with (once you're percentage bet is lower than the minimum bet, $1 or $2, you're finished). Like I said earlier, bet 100% of your bankroll on every race and you will go broke really fast, period. (Same as if I was betting on a series of coin flips.) There will be no long run. When measuring the rate at which you are liable to go broke, the % bet makes a very big difference indeed. Assuming a flat-bet positive expectation, any % greater than edge/odds (Kelly) will cause your bankroll to degrade in the long run rather than grow (i.e. you'll go broke), and any positive % less than that will have it grow, but not as fast as possible (presuming an infinite horizon -- the long run).

I just don't want people to think you could bet as large a percentage as you felt like (10% is certainly too large) and it would all be ok in the "long run". It won't. You'll go broke. If your edge prescribes that you can safely bet no more than 5%, then in the long run at 5% you'll get rich, but in the long run at 10% you'll go broke. Believe it.

So in your simulation, the larger the % of bank you choose, the faster the hypothetical players will go broke once the percentage exceeds that which is allowed by their skill level. If you reduced the percentage from 10% to 5%, you'd see some of your broke players getting rich instead.


You are correct. I agree with all you say.
I can add this though. The "Long Term" can be made up of many individual short terms. So if you bet too much, and go broke, but then keep coming back for more "short terms", and keep betting the same way, eventually, you still will end up with the underlying probability of success or failure.

I guess, no matter how we think about it, the "long run" assumes an infinite bankroll.

[Tadek]

sjk
The number of four is the result of many computations on my results. Formula for calculating standard deviation of a probabilistic process once you have your average and you can estimate the distribution will also lead towards similar number. However, it is a statistical parameter therefore it is not absolutely guaranteed.

If your empirical results are different therefore you are correct. It might be dependent on the distribution of your winners – impact of your handicapping method.

Mathematicians will perform calculations and produce numbers under assumption that the distribution is ‘Normal’. In real life only extensive analysis of real data can provide an answer.

This very definitive statement of the ‘rule of 4’ was made to illustrate an approach to the money management strategy. Since it is not always true (statistics tend to be that way) I apologize for being too self-confident, however I still maintain that estimating losing streaks is absolutely essential for a profile player.

It would be very interesting to find out what is the largest value for this parameter among players out there.

Regards

Tadek

[sjk]

I am 0 for 21 today and lost my last 14 yesterday.

Let me know if I am going for the record as that might be some consolation.

[Tuffmug]

This game is NOT RANDOM and your probability of success is not a function of your past mistakes but of your ability to learn and correct those mistakes in future situations that are similar.

Keep all the records you like and crunch the numbers to your hearts content. But don't use those numbers just to predict that in the future you will be a loser of X dollars per 100 plays. If your statistics tell you that you lose money, that MEANS YOU ARE DOING SOMETHING WRONG! CORRECT IT!

90 % of people lose because 90% are morons with no clue about this game. They have a desire to WIN but no desire to learn how to do so.

[charleslanger]

Dave Schwartz's manuscripts have been a Godsend for me:

Horse Market Investing & The Opponent Method http://www.horsestreet.com/products/index.html (scroll down to bottom of page)
in combination, both cover everything talked about here.

Whatever you're earning now, you will earn more with them-- if you have just a small positive ROI right now, you can, if not become rich, earn a very respectable income... even if you have a small negative expectation, you can maybe even turn it positive-- and if you then add rebates on top, you could have a nice side income generated.

I would never consider betting without them.
.