Horse Racing ROI vs Stock Market

[badcompany]

Hall of Fame caliber stock market investors like Warren Buffet and Walter Schloss show a long term ROI of ~20%. With a 25% trifecta takeout, a bettor would need a ROI of 33% just to break even. So, would it not stand to reason that, unless the possible long term ROI for horseracing is greater than that of the stock market, showing a long term profit betting tris is impossible?

[Dave Schwartz]

Apples to oranges.

The stock market ROI is over the course of a year.

The horse player's over a single day.

A big, consistent player can turn his bankroll 50-125 times per year.

Example: Peter Wagner, who is repudited to wager $300m per year with a profit of around $30m, does so out of a $3m bankroll. Therefore, he is making $30m profit from $3m investment.

Let's see any wall street investor match growth like that!


Regards,
Dave Schwartz

[PaceAdvantage]

Let's see any wall street investor match growth like that!Me thinks you'd be shocked. There are plenty of silent types out there who you'll never hear about making gobs and gobs of money in the financial markets (there's more to life than just stocks you know).

[Dave Schwartz]

PA,

I recently read a Trend Following: How Great Traders Make Millions in Up or Down Markets, suggested by someone here.

There were plenty of traders mentioned who had averaged 25-30% for 30 years!

However, I do not think there is anyone doing 1,000% per year consistently.


Dave

[Valuist]

Ken Heebner has been the top fund manager over the past 10 years or so and he was getting 20% plus.......until this year. His fund is down almost 50% this year so far.

[Dave Schwartz]

The majority of the fund managers in that book have made huge money during bear markets.

I would suggest that book as a "good read" but understand it is about them more than their specific methods.


Dave

[badcompany]

Apples to oranges.


Example: Peter Wagner, who is repudited to wager $300m per year with a profit of around $30m, does so out of a $3m bankroll. Therefore, he is making $30m profit from $3m investment.



Regards,
Dave Schwartz

So he's betting six million a week?

Where could he make these bets that he wouldn't be a bridgejumper turning his overlays into 1/9 shots?

[Robert Fischer]

FG dime supers

[Dave Schwartz]

So he's betting six million a week?

More in the summer and less in the winter, but, on average, yes. Spreads across multiple horses and multiple pools.

If you find that hard to believe get this... there is another player equal to him and a third player who wagers twice as much.

The top 6 wagered around $1.6 billion last year.


Dave

[raybo]

Hall of Fame caliber stock market investors like Warren Buffet and Walter Schloss show a long term ROI of ~20%. With a 25% trifecta takeout, a bettor would need a ROI of 33% just to break even. So, would it not stand to reason that, unless the possible long term ROI for horseracing is greater than that of the stock market, showing a long term profit betting tris is impossible?

Your talking apples and oranges.

How long is "long term"? Let's just say a year in the stock market, which, by the way, isn't anywhere near "long term". But, just for grins, let's say a year. 20% per annum would be considered a pretty good investment vehicle in the market. So, if your original investment was $1000, at the end of a year you'd have $1200. There are handicappers averaging $200 profit, or more, daily!

Superfecta takeouts are very high also, but if I couldn't turn over an original bankroll of $1000, on the average, at least twice monthly (and that's playing only 2 or 3 days per week and only 1 or 2 tracks), I'd quit handicapping.

[Valuist]

The majority of the fund managers in that book have made huge money during bear markets.

I would suggest that book as a "good read" but understand it is about them more than their specific methods.


Dave

I really wonder about that. Like Jeff Macke on Fast Money says, "bear markets get everyone, even shorts". The strongest, most vicious rallies are bear market rallies, usually due to short squeezes. The hedge funds may have survived the tech meltdown, but they are getting murdered now. And I wonder if Bernie Madoff was one of those mentioned in that book.

[Dave Schwartz]

This book is quite interesting to me. It actually has germinated a seed for an entirely different statistical paradigm; different than anything I have ever heard anyone speak about.

If I can figure out how to get it implemented, it might just change the way we handicap. But that is a long time down the road and outside the scope of this conversation.

Here are the featured traders:

Bill Dun
John W. Henry
Ed Seykota
Keith Campbell
Jerry Parker
Salem Abraham
Richard Dennis
Rcihard Donchian
Jess LIvermore & Dickson Watts


Regards,
Dave Schwartz

[asH]

Apples to oranges.

The stock market ROI is over the course of a year.

The horse player's over a single day.

A big, consistent player can turn his bankroll 50-125 times per year.

Example: Peter Wagner, who is repudited to wager $300m per year with a profit of around $30m, does so out of a $3m bankroll. Therefore, he is making $30m profit from $3m investment.

Let's see any wall street investor match growth like that!


Regards,
Dave Schwartz

Hey Dave,
the difference is exposure, in your example the initial bankroll ($3M) is exposed 100 times..unless you compare this example to a day trader's profits it's apples to oranges

differences between the two markets : financials are for money about money, spare no expense. Horse racing, in general is seemingly counterproductive (less reliable).
asH

[LottaKash]

. It actually has germinated a seed for an entirely different statistical paradigm; different than anything I have ever heard anyone speak about.

If I can figure out how to get it implemented, it might just change the way we handicap. But that is a long time down the road and outside the scope of this conversation.

Regards,
Dave Schwartz

Dave, You have my full attention in this matter.......Now, please go to work....Stirs the imagination.....:jump:

best,

[asH]

I believe you would have to divide profits by initial investment multiplied by exposure factor to come to a fair value.


asH

[Dave Schwartz]

differences between the two markets : financials are for money about money, spare no expense. Horse racing, in general is seemingly counterproductive (less reliable).


One of the biggest players - who is reputed to take a $500k "automatic" withdrawal every Monday - had 1 losing week in 18 months.

Less reliable, huh?

The "sample size" of his wagers probably makes the horse racing game more reliable at that level.


Regards,
Dave Schwartz

[cj]

I find it hard to believe one guy is taking $26 million home a year betting horses.

[asH]

tales and shadowy figures..im sure there are a few, the math says so...follow the money

[George Sands]

I find it hard to believe one guy is taking $26 million home a year betting horses.

You'll believe it when you see my house.

[BetHorses!]

One of the biggest players - who is reputed to take a $500k "automatic" withdrawal every Monday - had 1 losing week in 18 months.

Less reliable, huh?

The "sample size" of his wagers probably makes the horse racing game more reliable at that level.


Regards,
Dave Schwartz


Agree with CJ, 26 mil is a big number.. not even Schwartz and he was the one of the best did that.

[raybo]

Agree with CJ, 26 mil is a big number.. not even Schwartz and he was the one of the best did that.

Assuming I could adapt my program for every track in North America, and the results were fairly consistent over the majority of those tracks, and assuming I could automate the wagering portion (as has been done by many), and assuming I could somehow do all this for every race run in the US, I could foresee those types of numbers being possible, maybe even higher numbers.

[cj]

Assuming I could adapt my program for every track in North America, and the results were fairly consistent over the majority of those tracks, and assuming I could automate the wagering portion (as has been done by many), and assuming I could somehow do all this for every race run in the US, I could foresee those types of numbers being possible, maybe even higher numbers.

That is a lot of assumptions that are very difficult in reality.

[raybo]

That is a lot of assumptions that are very difficult in reality.

What I meant was that if I can foresee those kinds of profits being possible with my own method and knowing that all those "assumptions" might be possible individually, as well as in combination, then the possibility exists.

Can I accomplish it or would I be willing to do the work that would be necessary for adapting my method to every track in the US?

I can't see myself doing it, in the near future, but, that doesn't mean the possibility of a few others accomplishing it doesn't exist, and I have strong beliefs that it has been accomplished.

[m001001]

I find it hard to believe one guy is taking $26 million home a year betting horses.

Substitute "one guy" with "one company" or "one group", then the figure is not so hard to believe. ;)

Also "take home" here means before office expenses, salary, data subscription, telecom charges, etc...

[Dave Schwartz]

Assuming I could adapt my program for every track in North America, and the results were fairly consistent over the majority of those tracks, and assuming I could automate the wagering portion (as has been done by many), and assuming I could somehow do all this for every race run in the US, I could foresee those types of numbers being possible, maybe even higher numbers.


Further assume that you began with an initial investment in your infrastructure of $500k to $1m (i.e. programmers, quants, analysts). This is before your bankroll!

Now assume that you have a payroll to cover 40-150 employees and you realize that it isn't an easy startup. They have earned every penny.


Dave

[mountainman]

Example: Peter Wagner, who is repudited to wager $300m per year with a profit of around $30m, does so out of a $3m bankroll. Therefore, he is making $30m profit from $3m investment.




Regards,
Dave Schwartz
Surely the bustout probability on a bankroll churned so aggressively is such that SUPREME handicapping(and wagering) skills would be required to avoid tapping out. Perhaps it can be done, but it certainly sounds incredible. While I realize, given that this player spreads into different pools, that the math may be impossible to pin down, I'd love to see a workup on his percentage and roi. You're a numbers whiz Dave. Care to take a crack at it?

[Dave Schwartz]

Since I have no specifics (and do not feel the need to find them) I have no clue where to start.

Dave

[mountainman]

Since I have no specifics (and do not feel the need to find them) I have no clue where to start.

Dave
30 mil per yr from a 3 mil bankroll sounds pretty specific to me. Thanks for the response.

[the little guy]

If someone actually found a way to put $1 million a day into the pools, or around $300 million annually, wouldn't $26 million roughly equal their rebate?

I'm not knocking the play....just pointing it out.

[Dave Schwartz]

TLG,

That would be the goal.

Dave

[asH]

IMHO, not until racing rises above its Neanderthal existence can a secure reliable system exist to encourage racing as a serious industry in the US. First by doing away with pari mutual betting in favor of betting exchanges (akin to stock market) to theoretically handle wagers of all sizes with better odds- pari mutual betting tends to take incentives out of technological growth and change.

[PaceAdvantage]

This book is quite interesting to me.Are we still talking about Trend Following: How Great Traders Make Millions in Up or Down Markets?

Just checking so that I know which one to order....

[bigmack]

Folk don't realize what money can do when it moves around. Commodities & futures work similarly. Flow, in any direction is good. Scratch that. In this case, it's bad.

How bout down sizing tlg's take and running $10K/day? 3M brings $260K in rebates of 8.5. Who here would pony up the cash and who could prove they could reverberate such flat returns with regularity (& then some)?

Just think. Play to break even and someone would pay you what, 30%?
That's $78K. Think you can do it?

Money meets talent is a wonderful world. Talent is hard to come by.

[Dave Schwartz]

Are we still talking about Trend Following: How Great Traders Make Millions in Up or Down Markets?

That would be the one.

http://www.amazon.com/Trend-Following-Traders-Millions-Expanded/dp/0131345508/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1230738728&sr=8-1

[Dave Schwartz]

By the way, PA, there are a few systems in the back.

The common thread between these investors is that they all say they do not try to predict anything. The simply try to determine what the direction is.

One guy said that once they pick an investment the are always either long or short in that investment. That is, if they think the trend is upward they buy it. When they decide the trend has turned downward, they don't just sell it, they short it as well. If it is not a "down enough" investment to sell, then they hold, sometimes for years.


Dave

[PaceAdvantage]

The common thread between these investors is that they all say they do not try to predict anything. The simply try to determine what the direction is.That's been my credo for some time now, although I am not an investor. I am a trader. I go home flat at the end of each and every day. I never, ever, carry a trade overnight.

[classhandicapper]

I guess long term investing is out of date. ;)

I occasionally trade a position fairly actively, but it's always a position that I would be very comfortable with if I had to hold it for another decade. That way short term unexpected market moves can never cause permament loss of capital. The only way I can lose capital permamantly is by being wrong about the value and long term fundamentals.

I've been investing sine 1986. So I have a good deal of experience at both.

These are my conclusions:

1. It's obviously much easier to make money in the market than at the track.

2. It's somewhat easier to "outperform the stock market" by a small amount than it is to make money at the track.

3. If you have a small bankroll, it's easier to make a lot of money at the track than in the stock market (assuming you have the skill to profit at the track).

4. If you already have a huge bankroll, it's massively easier to turn that into a humungous bankroll in the stock market than it is to find way to bet it at the track.

5. In almost all instances, beating the stock market requires less time and energy and gives you greater flexibility in other apsects of your life.

6. Doing both is the best of both worlds.

[badcompany]

Nice post, CH

I would add that horseracing is something that can be done recreationally. I don't think anyone would treat the stock market, as such.

But, back to the topic, even with the quick bankroll turnover, the trifecta player still has to overcome a 25% takeout in the long run. So, for every dollar he bets, he still has to collect $1.33 in order to break even.

[raybo]

Nice post, CH

I would add that horseracing is something that can be done recreationally. I don't think anyone would treat the stock market, as such.

But, back to the topic, even with the quick bankroll turnover, the trifecta player still has to overcome a 25% takeout in the long run. So, for every dollar he bets, he still has to collect $1.33 in order to break even.

How about $1.46 after takeout, over the last 5 years (I did take a break of almost a year in 2004-05). Superfectas for me!!

[formula_2002]

Hall of Fame caliber stock market investors like Warren Buffet and Walter Schloss show a long term ROI of ~20%. With a 25% trifecta takeout, a bettor would need a ROI of 33% just to break even. So, would it not stand to reason that, unless the possible long term ROI for horseracing is greater than that of the stock market, showing a long term profit betting tris is impossible?
it can get worse

take a look at yesterdays dd at AQU.
book % for each race was ~1.20.

1st race horse won at 3.2-1
2ns race horse won at 4.4-1

fair value for a $2 dd is $65.12
dd payoff was $43.6

thats an roi of .67
the dd take-out is only 17.5%!!!

in cases like this, required long term roi just to break even is 1.49

[Valuist]

I guess long term investing is out of date. ;)

I occasionally trade a position fairly actively, but it's always a position that I would be very comfortable with if I had to hold it for another decade. That way short term unexpected market moves can never cause permament loss of capital. The only way I can lose capital permamantly is by being wrong about the value and long term fundamentals.

I've been investing sine 1986. So I have a good deal of experience at both.

These are my conclusions:

1. It's obviously much easier to make money in the market than at the track.

2. It's somewhat easier to "outperform the stock market" by a small amount than it is to make money at the track.

3. If you have a small bankroll, it's easier to make a lot of money at the track than in the stock market (assuming you have the skill to profit at the track).

4. If you already have a huge bankroll, it's massively easier to turn that into a humungous bankroll in the stock market than it is to find way to bet it at the track.

5. In almost all instances, beating the stock market requires less time and energy and gives you greater flexibility in other apsects of your life.

6. Doing both is the best of both worlds.


I would pretty much agree with all points. I also think its more important to manage one's money actively during bear market periods. In a bull market, just about anybody can make money. And while we are constantly told by the media how the retail/individual investor is at such a huge disadvantage to the institutions, we have one big edge over them: we can move much quicker than they can. There are still hedge funds trying to liquidate positions.