Wednesday, 21 May 2008

Bankroll / Money Management

I have been asked to describe my money / bankroll management techniques. In my reply to the request, I suggested that the answer might be disappointing, because the simple answer is that for the type of investing that I do, it is not possible to manage a bankroll in the same way as it is for ‘system’ type gambling.

To try to explain this further, my style is to look for value. In an earlier post I mentioned a Celtics NBA game against the Sixers where the score was tied with 5:01 left in the game. I saw a chunk of money wanting to back the Celtics at 1.3 and this seemed to me to be a good value lay, so I layed every penny that was available. Had there been £2 trying to back Boston at that price, I would have taken it, and had there been £16,000 there I would have taken it. The key point is that I felt that the price was very good value and with an instantaneous decision to be made (the in-play market waits for no man) I do not have the luxury of time to work out the appropriate stake using the Kelly criterion even if this were possible, which I very much doubt given that whilst similar situations can repeat in basketball, identical situations do not. I do limit myself to losing no more than £5,000 on any single investment by not requesting Betfair to raise my limit, so this does guarantee that no single loss can exceed (currently) 21% of my bankroll. Also, it is rare indeed for me to find a value bet with anywhere close to this amount of money available.

When I offer odds, I tend to stay within the £1,000 to £2,000 risk range, (4.34% - 8.68%) but if the market is liquid and I feel there is a good chance of being matched for more at a value price, then I will offer, or attempt to back with, more than this amount.

So the bottom line is that there is no hard and fast rule for managing my money. If I see or can get value, then I am in for anything up to 21% or so. It all depends on the situation.

My mistake a couple of days ago was to risk £4,000 on a bet that was borderline value. That is too close to gambling for my liking and I will take the loss on the chin, learn the lesson, and put it behind me.

One thing I do seem to be able to do is learn from my mistakes. I started this venture with £100 in March 2004, and by September 10th 2005, had turned this into £21.40, with the balance at over £1,000 in-between. At that point I decided to get serious about it, treat it as a business rather than a hobby, and make it work. Despite the setbacks this week, I feel I am well on the way. I may post a lessons learned / rules to invest by some time.

As always, comments welcome, but please don’t post any links to casino gambling sites. They are not for me.

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