Multiple Indexes

The always charming and eloquent Matthew had a comment on the Passive Index v Active Managed stocks debate:

Dear Padrino,

I have been enjoying the dialogue between yourself and your avid blog readers regarding the prudence of index tracker investing. You will find one particularly vociferous group who will disagree with you regarding the peerless nature of this type of investing. The group being comprised of course by the acolytes of Neil Woodford. These bastions of middle England will take great pleasure in telling you how Mr Woodford's Invesco Perpetual Income fund under his tenure outperformed the FTSE All Share handsomely for 20 years.

This leads me to the question of how do you feel about the practice of dividend hunting portfolios with say a once a year reallocation and automatic dividend reinvestment? Is a diverse, high yield portfolio of large caps strictly managed able to squeeze more juice from the index tracking approach? Both methods will of course be often investing in similar companies effectively but with an added filter. This is something the amateur, thanks to discount brokers, can indulge in himself and costs are very manageable if you balance infrequently. These portfolios often contain the same faces year after year so balancing is not too arduous.

I look forward to hearing your thoughts on the matter.

Based on his impressive education and a career background in financial trading, I suspect that Matthew knows far more than I do about these things, so my thoughts and opinions are very much from the man-in-the-street who accepts that others on the inside of the financial world will always know far more than he does about these things, and whose philosophy is thus to keep it simple - invest frequently and consistently in a number of diverse index funds, keeping costs to a minimum.

For those who have not read every single Green All Over post, and shame on you if you haven’t for it is an illuminating read, one of my best financial decisions was to start trading futures and options. It opened up a whole new world of investment possibilities, and I learned a great deal about trading and entry points and lot sizes and the like, but sadly it turned out that others in the world knew more about the price of pork bellies and orange juice than did I, which led to another excellent financial decision, which was to stop trading futures and options.

I dabbled a little in day-trading stocks part-time in the early 2000s but was always aware that however timely my information was, it wasn’t timely enough, and that professionals whose waking hours were spent studying, analysing and dissecting markets, sectors and individual companies would always know far more than me, and rather like trying to trade in court-sider infested markets today, if I can buy or sell at a certain price, it is because the insiders / experts are offering that price to me, and they are not offering me that price out of generosity to me.

In simple terms, stock mutual funds are typically for growth, for income, or a blend of the two. Growth mutual funds tend to focus on capital appreciation, i.e they buy stock in a company with the expectancy that the stock price will increase, while value or income based funds tend to invest in companies that pay dividends. Comparing an Income fund with an all-share index is not comparing like with like. The relevant comparison would be to compare Inveso Perpetual Income Fund with a benchmark for Income Funds.

The major indexes are based on the top companies listed in the relevant country’s stock exchange, for example the FTSE 100 is comprised of the 100 companies listed on the London Stock Exchange with the highest market capitalisation.

Similarly, the DJIA (Dow Jones Industrial Average) is made up of 30 companies, and the industrial is a relic from a bygone age, but the S&P 500 (made up of 500 leading companies trading on the US exchanges) is a better representation of the U.S. stock market, and for the US economy.

The question Matthew asks confuses me slightly, since there isn’t just one ("the") index to beat. Each mutual fund is of a certain type, and each have their own indexes against which they are compared.

Growth funds are measured against an index for growth funds, and an income fund against an income index, and again I would say that the man in the street is unlikely in the long-term, to consistently beat the appropriate index. The "dividend hunting portfolio" should be measured against a similar benchmark.

How one should allocate investment funds is dependent upon factors such as ones age and risk tolerance of course, but it’s not meaningful to compare an income portfolio approach with anything but an income index.

And for the record, I am a big fan of DRIPs (Dividend Re-Investment Plans). They are generally a low cost (commission free) way of buying more stock.

As for annual rebalancing / reallocating, this seems perfectly sensible, although I question the wisdom of rebalancing at the end of the calendar year when everyone else is doing the same. It seems to me that if you are tracking an index, and are light in one company for example, then others will be too, and if everyone goes chasing at the same time, the price you pay will be more than had you re-allocated earlier in the year. There’s a similar issue when a major Index drops a company and replaces it with another. Most Indexes make changes frequently; in June this year the FTSE 100 added 3i Group and dropped Melrose Industries and Intu Properties replaced (coincidentally, given the nature of this blog) our dear old friend William Hill.

Prabhat doesn't know when he's beaten, and returned to comment:

I'm slightly puzzled, my comment explicitly stated that the average person (or fund) won't 'beat the market'. My point was that a) if someone wished to be excellent it's possible.

Yes Prabhat, I have conceded that it is possible (to beat the market long-term), but it's highly unlikely and you have not offered any reason why my assertion, backed by mounting evidence, is not true. Not wishing to believe it isn't evidence. There's also the question of, not only transaction costs, but the cost of the time your cunning plan to beat the odds is going to take. One imagines that would be quite significant.

Emp continues:

You keep saying the average person has no self control etc., and here we are on common ground. I agree entirely that the average person lacks discipline, self-control and other attributes necessary to succeed. My point was if someone has those attributes or wishes to cultivate them, they have options better than an index fund. For that matter, judging by track records you yourself (not to imply you are average) would have done better investing in your football selections than the market.

What options are better than an index fund? That is the crux of the debate, which is not about comparing one investment type with another, (another day perhaps) but about having decided to invest in stocks, what is the best way to invest in them.

Marty chipped in:

When asked I always advise people to invest in low cost index funds and to drip feed investment, so I generally agree with Cassini's practice.

I disagree with this though:

"The S&P 500 last year (2013) was up 32.42% ... ask your friends from outside the financial world... not many would be close to that."

If they're holding US blue chips (a very common investment approach) then lots of them will likely have beaten the S&P, because they're holding the stocks the S&P is made up of and a fair proportion of stocks in that index will have outperformed the index.

The S&P 500 is actually considered a blue chip index, as is the DJIA, so it all depends on how blue you want your chips. The broader index actually beat the narrower one anyway, although neither matched the technology heavy Nasdaq Composite which gained more than 38% in 2013. The Nasdaq is made up of 3,000 components, which suggests that sticking to blue chips rather than a broader basket was a better bet. The Russell 3000 was up 31%.

"The Dow industrials DJIA, -0.15% rose 72.37 points, or 0.4%, to end at 16,576.66, its 52nd record close of the year. The blue chips ended 2013 with an annual rise of 26.5%, the largest since 1995."

With 2014 2/3rds done, the S&P 500 is up a "mere" 8.4%, and I'm glad I looked at the Yahoo Finance page for that tidbit, because what do I find but yet another excellent and well-researched article that is most timely (you may feel that you have heard some of the common objections before):

I'm not going to make you wait for the punch line. Your single biggest investment mistake is owning any actively managed funds. That's where the fund manager, through stock picking and market timing, attempts to beat the returns of a designated benchmark, like the Standard & Poor's 500 index.

I started writing books and blogs about investing in 2006. At that time, only a very small minority of people invested in index funds. Jim Cramer was at the height of his popularity.

I struggled with different ways to communicate to investors that the only intelligent and responsible way to invest was to capture the returns of the global market. This meant investors should avoid stock picking, reject market timing and not engage in the fruitless attempt to pick the next "hot" mutual fund manager. The general reception to this message was about the same as you would expect watching a vegetarian lecture to a cattlemen's convention. The common objections were:

-- "I don't want to settle for 'average' returns."
-- "My broker and I can 'beat the market.'"
-- "I only invest in companies I know."
-- "I can beat the market using dividend-paying stocks."
-- "If you are right, that means everyone making predictions in the financial media is wrong."

Though these assertions may have surface appeal, none of them withstand scrutiny, despite the messages pushed by the mutual fund industry and much of the financial media. The passage of time has been accompanied by a seismic shift in investor attitudes. The dismal track record of actively managed funds has caused even leading proponents of active management to throw in the towel.

Morningstar describes itself as a leading provider of independent investment research. One of its best-known products is its star rating system, which rates mutual funds from one to five stars, based on how well they performed (after adjusting for risk and accounting for all sales charges in comparison with similar funds).

Although Morningstar has cautioned investors to make expense ratios (the management fees charged by mutual funds) a "primary test in fund selection," many investors ignore this advice and use star ratings instead. The mutual fund industry encourages this practice by touting the star ratings of its best-performing funds.

Given Morningstar's pre-eminent position as a provider of information about actively managed funds, it was startling to read the views of John Rekenthaler, the company's vice president of research. In his blog post, Rekenthaler reviewed net sales over the past 12 months for all exchange-traded funds, passive mutual funds and active mutual funds. He found 68 percent of those sales went to passive investment products. Rekenthaler concluded that passive investing is now the mainstream approach and that "active managers have become the periphery."

The message that actively managed funds typically do not add value to investors is resonating globally. A report issued by the Pensions Institute in June 2014, "New Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods," based at the Cass Business School of City University in London, reached some startling conclusions.

Researchers examined the returns of 516 stock funds based in the United Kingdom for the period from 1998 through 2008. They found only 1 percent of fund managers produced returns sufficient to cover trading and operating expenses.

In my prior experience, even this data may not dissuade many investors. They would tell me that, with the assistance of their broker, they had the ability to select and purchase that tiny percentage of outperforming actively managed funds. The report by the Pensions Institute dealt a death blow to this claim.

First, it found that prospectively identifying the minuscule number of outperforming fund managers is "incredibly hard."

Second, the report noted it takes 22 years of performance data to have a high degree of confidence that a fund manager's out-performance is a product of skill rather than luck.

Third, it found the tiny group of "star" fund managers able to generate superior performance in excess of operating and trading costs were the sole beneficiaries of their skill. They extracted "the whole of this superior performance for themselves via their fees, leaving nothing for investors."

Perhaps the cruelest cut was that researchers concluded the vast majority of under-performing fund managers were "genuinely unskilled," not simply unlucky. Here's the good news. It's disarmingly simple to avoid making this critical investment mistake. The first step is replacing your actively managed funds with low management fee, comparable stock and bond index funds, passively managed funds or ETFs.

Note that the article references the Cass Business School of City University, London, and not the Prab Business School, which may be a stock-picker sponsored private organisation who are no doubt busy working on a rebuttal article to the growing body of evidence that, while it's nice to think you're above average, the chances are you're not, unless you're the Sultan. I suspect the finished, peer-reviewed, article will be a long time coming. Another comment may not be quite so long in the making, but I hope it has a little more substance that just saying "in theory, I can beat the casino" and then offering no evidence for how this dream might realistically be realised.

FTL Update 8.Sep.2014

With fewer entries than usual due to the top leagues being on an International break, no Monday matches selected, and only four downloads from Football Data required to bring you the numbers, here they are a little earlier than usual:

TFA_Raz and Mountain Mouse made their debuts winning ones with triple digit ROIs, and it was a good weekend for Fairfranco and Drawmaster who both added to their profits. 

Although Graeme (TFA) was idle from an FTL perspective, this was the first live weekend for his service. His Bounty entry for the FTL is a Draws system, which this week had no selections, and perhaps for good reason. Draws were few and far between this weekend. League 1 had one draw from seven matches, League 2 had four from eleven (one match to come) including a rare 4:4 and the Conference Premier had none from the full twelve matches. Peter Nordsted's Drawmaster found two from three, which was impressive, Online Trader found one from five, and Paul Watson found one from one, also impressive. 

We are still awaiting the first entries from eight people, and a reminder that the 'draw' / allocation of places for the Erskine Cup competition will be made after the weekend of September 20th. While doing a quick 'what if the allocation was today' practice run, I did see that TFA would currently have two entries in the same group, so if necessary I shall adjust the allocation to ensure that no group contains more than one entry from the same person. But there are still a couple of weeks to go, and it may not be necessary. 

Empirical Evidence Required

As I had a feeling he might, Prabhat / Emp had a comment on my post about index funds and the improbability of the man in the street beating them over the long-term, and I do agree with him on one thing, although I didn't mean what he infers:

Before I say anything else, I am offended by being classed with 'Sultan'. I am not seeking anyone to 'invest' in me or to fund my activities or buy advice or any such thing, I'm not selling anything and am not self-promoting with an agenda.

What I actually wrote was meant to distinguish two types who could ignore the advice - wealthier clients (e.g The Sultan) and experts (e.g Emp):

Wealthier clients such as the Sultan, and those like Emp for whom beating the market is so easy, it's amazing that not everyone is above average, can obviously ignore academic research and this advice, but for mere mortals like most of us, it’s pretty solid.

It was certainly not my intention to lump Emp, or anyone else for that matter, in with the Sultan. That would have been very rude. And I don't mean to suggest that Emp / Prabhat is not wealthy by the way. He may well be, but obviously not in the same league as the Sultan.

Emp's comment has been published, but as usual, he fails to give any reasons or evidence why he feels that Mr. Average should ignore the advice of academic research and try to beat the market. Yes, it is always possible, and being optimistic is a good thing, but optimism has to be tempered by reality, especially when it comes to investing for your future. How can Mr Man-in-the-Street realistically expect to beat the insiders of the financial institutions?

Finally, I am not making any advice as to what anyone should do with their money; just pointing out the fact that you won't become truly rich doing what everyone else is, so if that is one's goal than they had better try and be smarter than everyone else.

I'm not sure what he definition of 'truly rich' is here (the Sultan can probably help), but the point is that 'everyone else' isn't investing in index funds. More people are investing in index funds now than have done in the past, but as anyone trading sports knows, discipline is key, and the man in the street tends not to be too disciplined and reacts poorly. I know plenty of people personally who are not making optimal decisions for various reasons.

"Average returns" sounds a little wishy-washy, but the term means market average returns, not that returns are average amongst individuals. I'm sure that anyone who has invested as suggested in my post for a few years is unlikely to run into anyone who has made more than them, save the individual who is over-invested in his own company which has been on a tear, or someone who got lucky.

The S&P 500 index is a broad (500 stocks as its name implies) index, and last year (2013) was up 32.42%. It's probably not recommended to ask your friends from outside the financial world what returns they achieved last year, but were you to do this, and were you to get an honest answer, not many would be close to that.

Prabs concludes with:

Also, while we are on the point, I have to note that all these guys who are saying 'you can't beat the market' of course have their own 'low cost index funds' that they want you to invest in...what do you think they are going to say, when their business depends on fund collection from the masses in a major bull market?

Not true, and a strange thing to say. "All these guys"? Academic research comes from academic institutions, not from Vanguard. These studies are reported on by writers, not by financial institutions. Vanguard and other Index Fund offering institutions might like what is being written, but that in no way invalidates the findings.

As I said earlier, if Prabhat can offer any reason why he thinks the average returns can consistently be beaten by the man in the street, I'd love to read it.  Saying that "in theory" long-term averages  can be beaten is just repeating what we all know.

In theory, climate change may not be the result of human activity.

In theory, Deepak Chopra makes perfect sense.

What we are missing here is some supporting evidence for this "theory" of Emp's, and on that, I expect to hear nothing.

Scrape Times

Joseph Buchdahl of the Football Data web site kindly clarified the question of when the prices for matches are taken, and the answer is that there is no set time.

There is no exact same time.

I try to have Friday odds available by 17:00 and Tuesday odds available by 15:00 but it won't always be exactly at those times.

The odds represent a snapshot in time of the market.

Not perfect of course, but if there is a limit on resources and just the one scrape can be made per round of fixtures, then with some matches being played on most Friday evenings, this is the best we can hope for, and it is certainly a lot better than nothing.

Joseph is also known for writing "Fixed Odds Sports Betting" and "How to Find a Black Cat in a Coal Cellar: The Truth About Sports Tipsters" and his article Most Bookmakers Do Not Like Winners should be mandatory reading for anyone serious about making money from betting long-term.

Joseph's closing comments on account closures and restrictions are also worth reading:

Patrick Veitch, writing in his book Enemy Number One: The Secrets of the UK's Most Feared Professional Punter made the observation that under currently legislation, in the UK at least, bookmakers are permitted to advertise prices only to refuse to take a single penny if they are too wary of placing the bet. Meridianbet, with a dysfunctional approach to risk management had, with me, clearly taken the meaning of "wary" to the next level. Whilst I agree with Patrick that it is high time the regulatory framework governing online sports betting considers the introduction of minimum trading standards for bookmaking such that any firm is obliged to accept a minimum level of bet based on its liability, I fear that this will be a long time, if ever, in coming. Bookmakers, naturally, will always be able to fall back on the argument that whilst betting requires the consent of two parties, it remains their right not to accept a bet if they choose. In the meantime, therefore, it is essential that customers continue to vote with their feet. Bookmakers like Meridianbet and Corbettsports have no place in the world of online sports betting, and the sooner such brands can be consigned to the scrap heap of history where they belong, the better. If punters refuse to bet at all with such bookmakers it will only be a matter of time before they fold and disappear. Low turnover brands and those who despise winners are of little use to the sophisticated sports bettor, other than to make a quick buck before the predictable restrictions are imposed. If you're not being restricted then it probably means that you losing money, and if you're not losing it yet, "Egobet" believes you soon will be.

Way Of The Dodo

Once again, the US Yahoo Finance pages have a post on the topic of indexes and the futility of outsiders trying to beat them long-term with individual stock picks. It’s tucked away as section 4 of an article called “The four most useless things financial advisers tell you”:

Why accept “mediocre” returns when you can beat the market? Fortunately, this canard is going the way of the dodo, but there are still some holdouts among newsletter writers, bottom feeders at brokerage firms, and in corners of the financial media. Their claim: By buying index funds, you’re settling for mediocrity when you can beat the market with well-chosen stocks or exchange traded funds (selected by them, of course).

Academic research has demolished the whole notion of market-beating stock picking, of course, and now the trend toward index funds is unstoppable. But those with a vested interest are clinging to the old ways by appealing to Americans’ desire to be “better than average.”

Oh, if only they were truly mediocre! My MarketWatch colleague Chuck Jaffe wrote recently about how badly investors perform, mostly because they move in and out of stocks at exactly the wrong time, missing much of the up side that’s part of every bull market. If they really bought and held, their equity holdings could keep up with the market while their wealth grew over time.

Some financial advisers will tell you exactly that. But too many are busy trying to proffer complex strategies suitable for only their wealthiest, most sophisticated clients. Instead of the useless ideas outlined above, I’d suggest buying and holding far less than 60% to 70% of your money in equity index funds; waiting until you turn 66 or 67 (not 70) to take Social Security, and saving as much as you can in a tax-deductible IRA [Individual Retirement Account] or 401(k) [a Personal Pension / Retirement Savings Account] while you’re employed. Do all that and you’ll be way ahead of the game — and almost everyone else.

Wealthier clients such as the Sultan, and those like Emp for whom beating the market is so easy, it's amazing that not everyone is above average, can obviously ignore academic research and this advice, but for mere mortals like most of us, it’s pretty solid.

Start as early as you can, invest 10% or more of everything you earn in stock index funds, and forget about it. You won’t go far wrong.

The Chuck Jaffe article referenced above on how investors perform badly is here:

Fund shareholders should know what bad investment behaviors look like. To find them, most people simply need to look in their own portfolio.

Whether it’s buying funds with above-average expense ratios or chasing performance by rotating toward hot funds — instead of trying to “buy low” by purchasing whatever the market has put on sale — hyper-actively managing a portfolio, or going for money managers who haven’t proven capable of living up to their fund’s promises, there’s hardly anyone out there who without one or two classic blunders thrown into their investment history somewhere.

The question is whether that’s actually so bad.

That question was raised for me most recently by some new research by the Vanguard Group — the world’s largest fund company — on the effects of performance-chasing.

The report analyzes “more than 40 million return paths” to cover every possible trade that could have been made among diversified domestic stock funds from 2004 through 2013. Vanguard used a three-year holding period, because that is roughly how long the typical investor hangs onto the average equity fund.

Effectively, the research assumes that anyone whose fund delivers below-average performance over three years would dump the lagging fund in favor of something that has done better in the same asset class.

It’s not a real surprise that the trading investor — the one who gives up on a fund after three years to buy something “better” — does worse than the one who overcame their disappointment to let the money ride.

The differences are big, too, with buy-and-hold delivering a 7.1% average annualized return in large-cap growth, for example, compared to 4.3% for a performance-chasing strategy.

There’s some fault in the methodology. I have seldom heard from an average investor who was interested in swapping a lagging large-growth fund for another one in the same asset class; normally, they’re so disappointed with results that they are dumping the fund and either rebalancing or just going for what’s been hot lately. That’s why so many investors left stocks as the financial crisis of 2008 was unfolding, moving into bonds and, in many cases, missing out on the subsequent bull market as a result.

There’s not much fault, however, with the conclusion that investors typically hurt themselves by trading, rather than helping themselves.

Now we could argue the reasons that investors make mistakes; because they’re irrational, not particularly knowledgeable and more. We can show that the numbers suggest that they would “do better” if they invested in lower-cost funds and held them for a long time.

But just because it’s right doesn’t mean the average investor can do it.

Intuitively, by now, investors know that buying index funds makes sense, because so few money managers consistently beat their benchmark.

But buying an index fund is a bit like riding a rollercoaster in the amusement park; you may know that the coaster is the biggest, best ride, but plenty of people simply can’t buckle themselves in and take the ups and downs.

Right or wrong, using an active manager instead of an index fund gives many of those people a sense of controlling their downside risk. If they are able to buy-and-hold the active fund — when a downturn might convince them to bail out of the index — then their results are likely to be better in an active fund, regardless of what any study says about which is the “best investment.”

Simply put, some people would rather ride the Ferris wheel and the carousel, others want only the coasters, and still others want to ride everything. All can have a good time in their own way doing the same thing in the investment theme park.

What most of these studies miss is that no one actually sets out to make investment blunders; most of the time, you are looking at honest mistakes.

If those errors blow up the portfolio, it’s a disaster; if they result in “sub-optimal returns,” it’s more like an unfortunate circumstance.

“People are given the tools to hurt themselves on a daily basis these days,” said Karl Mills, president of Jurika, Mills & Kiefer in San Francisco. “Your portfolio can tweet at you now. … You get messages about every market move and you can have stock advice sent to your phone. … The temptation is to do something which almost always will backfire on your long-term thinking.

“For a lot of people, they keep hearing ‘This will help you’ and ‘This will make your portfolio better,’ and they look at this like ‘I’m making my portfolio better,’ even if they’re not,” he added.

In short, investing is like the proverb in which perfect is the enemy of good.

If you are always in search of something better, there’s a good chance you’ll hurt your portfolio precisely by doing things you expect to help it.

So long as you reach your financial goals — whether it’s because of those maneuvers or in spite of them — and you can sleep at night along the way, that’s okay.

Having “the best results” is less important than having a strategy that is “good enough” for you.

Grey Swans And Puddings

The member who sought clarification on my Official, Unofficial, Conditional selections earlier this week replied to my response, and while I did put his mind at rest directly, I also mentioned that I felt another post coming on. Well here it is: 

This was the member's reply, broken down into parts so that I can address one topic at a time.

Thanks for your reply addressing my concerns. On reflection I may have come across a little harsh and this wasn't my intention. I value your service very highly, so highly in fact it is the only one I am subscribed to as a 'paid service'. I think you're very fair, overly so in your recording of prices and can totally except you cannot record prices of draws below 3.15 because of their lack of profitability long term.

I didn’t take the comments as being harsh. The issue of price is an important one, and after reading some posts from the likes of Daily 25 and TFA or those who follow horse racing tips, I feel fortunate to be playing in highly liquid markets where the prices are generally stable.

Prices, both recorded and attainable, are clearly a source of frustration. Recent examples from this week are Steve M’s experience of College Football, with the tipster’s frankly idiotic statement that the “line doesn’t really matter” and then Graeme (TFA) saw the price collapse on some of his season opening Conference selections, “some bugger took 0.85pts off one at Pinny at 7pm on the dot” in markets where liquidity is much lower than in the top leagues – Graeme again “We all go for same bets at once in poorest liquidity league”.

Member continued: 

Of the three selections which dropped in price on the opening weekend of Ligue 1 that became unofficial observations, I secured prices of 3.25, 3.20 and 3.20 all with no commission. I understand these odds may have the potential to yield me a profit long term, but they also may not. Going on last season's data, I don't think the prices I secured would be high enough to bring me into profit on the selections that drop in price and become unofficial. Therefore, it's very possible for a subscriber to your service to end of with a lower P&L than your recorded results. I understand this isn't your fault, and I know full well you go above and beyond to provide a very fair service to your clients, it's just something that each subscriber is going to have to make a decision on for whatever suits them the best. I think I may well leave all Ligue 1 selections that you send out and re-assess the prices on a Friday afternoon before placing my investments. However, what time on a Friday afternoon, I do not know. Should I check them at 12:01 or 16:59? I'm sure prices fluctuate in that 4 hour 58 minute spell. I guess I'll have to figure that one out.

This is an independent confirmation of my claim that Pinnacle’s prices can usually be beaten. Although with the news yesterday that SBOBET are closing UK accounts, beating them has become a little harder.

It is with regret that we wish to advise you that we are no longer able to continue to offer you the betting services with SBOBET.

This unfortunate circumstance has been brought about by the changes to the legislation in your country of residence with regard to online gambling. Unfortunately, it will now be necessary to close your SBOBET Account with effect from 15 September 2014.

Anyway, 3.25 and a pair of 3.2s are a lot better than 3.12, 3.08 and 3.09. Looking at last season’s data is probably not the best place to start, given that it was something of a ‘grey swan’ event with draws in all five top European leagues falling below their 5 and 10 year averages, but even in this difficult environment, an average price achieved of around 4% greater than that recorded would have made an 18.93 point difference to the good. (There were 487 selections last season, 134 winners).

As for the time on a Friday afternoon when the prices are scraped by Football Data, I’m not sure. My guess is that it is probably later in the day rather than around noon, but that’s just a guess. I’ll try to find out. I’m not convinced that prices would actually move too much between noon and 5pm on a Friday given that most matches are still at least 24 hours away. There may be some volatility with the typical two or three Friday night matches though.

The member than asks a question about the Cassini Value Selections:

I'm just going to reverse the subject a little here. You mentioned in your newsletter a couple of potential value selections that didn't make your 10% edge requirement, at the time of writing. What happens if these elections drift into position where your 10% edge requirement is met on a Friday afternoon (Like Aston Villa nearly did)? Will they get recorded as official selections when you update your results?

As for the Cassini Value Selections, these are set in stone at the time the email is sent out. Potential selections are ones that subscribers might like to include, but they are not, and will not ever be, official Value Selections. 10% is my personal threshold, but others might have lower numbers, which is why I mention teams that are close to the 10%.

Similarly, if a Value Selection shows a 10%+ edge when I send out the email, it is a Value Selection regardless of what happens to the price later. This does leave me at the mercy of the market, but for this season at least, I’ll take my chances. Ironically, this means that if a selection drops to less than the 10% edge I am comfortable with, the bet was a good one, but my official results get screwed on the price!

As Graeme said in an email yesterday regarding his TFA selections “Before you know it, it starts to get very complicated and your results will look nothing like the results I’m posting”.

That’s ok though. I think everyone understands that the official results should always be the low water-mark. This is one issue I have with proofing. The very fact that a service is proofing, means that they have a vested interest in recording the best price that they can, since the only reason to proof is to attract new members. Proofing is meaningless to existing subscribers, because the 'proof of the pudding is in the eating', as some of us say – but not all*.  

Subscribers are already getting the selections and know exactly how good (or not) that they are. A service loses credibility fast if it records prices that are simply unattainable for all but the first few people to receive the selections, and in my opinion, a service should also tell subscribers what the true or minimum price for a selection is, definitely in volatile markets, and allow their subscribers the option of making an informed decision on whether the best price available to them is good enough.

* Note that this is the correct expression. Anyone who says the “proof is in the pudding” is simply demonstrating their illiteracy and, (while I usually hesitate to advocate physical violence, in this case I make an exception) should be soundly slapped.

Silver Lining

NBA commissioner Adam Silver believes expanded legalized sports betting in the United States is "inevitable," and the league is open to participating in it.

Speaking at the Bloomberg Sports Business Summit on Thursday in New York, Silver said that he understood that cash-strapped states will pursue legalized sports betting and that the NBA can benefit from it.

"It's inevitable that, if all these states are broke, that there will be legalized sports betting in more states than Nevada," Silver said, per Bloomberg.com. "We will ultimately participate in that."

It's a change in tune for the NBA, which in 2012 joined the NCAA, NFL, MLB and NHL in suing New Jersey over its efforts to bring legalized sports betting to its casinos and race tracks. During deposition testimony in the New Jersey case, former NBA commissioner David Stern scolded Gov. Chris Christie for his efforts.

"The one thing I'm certain of is New Jersey has no idea what it's doing and doesn't care because all it's interested in is making a buck or two," Stern said in November 2012, according to court documents. "They don't care that it's at our potential loss."

The sports leagues, which were joined by the Department of Justice, ultimately prevailed over New Jersey with a majority decision by the Third Circuit Court of Appeals. New Jersey, however, is continuing its pursuit of sports betting.

Stern retired in February, giving way to Silver and his openness to sports betting.

"If you have a gentleman's bet or a small wager on any kind of sports contest, it makes you that much more engaged in it," Silver said. "That's where we're going to see it pay dividends. If people are watching a game and clicking to bet on their smartphones, which is what people are doing in the United Kingdom right now, then it's much more likely you're going to stay tuned for a long time."

More than $3.6 billion was wagered on sports at Nevada sports books in 2013. The American Gaming Association, citing the National Gambling Impact Study, estimates that as much as $380 billion is wagered illegally in the U.S. annually.

Les Paris Conditionnels Et Les Prix Carte Blanche

A French title for a French themed post. I had an email from a subscriber which touches on the 'bet at any price' topic mentioned yesterday, as well as the challenge of what price should be used when recording bets. The email is below:

Thanks Cassini. It seems I backed 4 selections that were sent out in your initial email which then shortened at Pinnacle which meant they were no longer official picks. I have a bit of an issue with this. You send out your emails Wednesday or Thursday, I therefore act as quickly as possible to secure decent odds. Am I supposed to check Pinnacle again on Friday afternoon to see if any of the draws have gone below 3.15, and trade out of any that have dropped? I don't feel it's a fair reflection to remove initial picks from your results even if they have dropped in price because the majority of your subscribers would have already backed these selections.

First clarification is that whether or not a selection is official is, in the case of Ligue 1, only known when Football Data extract the prices from Pinnacle Sports on a Friday afternoon. I replied as follows, but it is such an important topic that I thought it was too good not to share more widely. Looking at my notes from Week One, there were four selections - all from Ligue 1 because no one else was playing - priced at 3.35, 3.19, 3.17 and 3.16. All four shortened to 3.34, 3.12, 3.08 and 3.09 respectively so the idea of backing early and laying off may have some merit. The one winner was the 3.34 match Bastia v Olympique Marseille. 

Anyway, here is the basis of my reply:

I think what is being missed here is that the selections sent out are, in the case of Ligue 1, “conditional” – the price backed at needs to be at least 3.15. Most selections are Official Selections, but there are also a number of Unofficial Selections involving newly promoted teams for who the ratings are yet to settle down. When 2015 arrives, these will all be Official Selections, but until then they are included for interest only. If someone wants to back or track them, they can.

And then there is the third category which is comprised of lower priced draws in Ligue 1. These could be classified as "Conditional Selections" – they will be recorded as Official if the price on Friday afternoon is 3.15 or higher, and will be Unofficial if the price is below 3.15 at this time. (With hindsight, I should probably have emphasised the 'conditional' nature of the selection rather than simply mention the 3.15 limit).

You say “I don’t feel it’s a fair reflection to remove initial picks from your results even if they have dropped in price because the majority of your subscribers would have already backed these selections” – but at what price have they backed them at?

The word ‘remove’ is misleading here. Nothing has been removed since the selection was conditional in the first place. Depending on the recorded price on Friday, it either becomes official or unofficial, but either way, anyone on at sub 3.15 is on at their own risk.

I will continue to track Official Results along with the Unofficial for Promoted Teams and Short Priced French Teams and I shall also make it more obvious when a selection is ‘Conditional’ in the newsletters (although that probably means any selection from Ligue 1 since it is always theoretically possible that any draw price could shorten to sub 3.15!)

If the Pinnacle Sports draw price at the time of the email is say 3.25, most subscribers will be looking for at least 3.3 and possibly up to 3.45 / 3.5 on the exchanges (with the commission to be accounted for). I don’t expect anyone to be backing Ligue 1 selections at less than 3.15 because I have made it clear that these are probably not profitable long-term.

As I mentioned in my blog post yesterday, and contrary to what some appear to think, the price of a selection is actually rather crucial, and while the price on draws is usually fairly robust, it hardly seems reasonable for a service to be saddled with being accountable for a bet recorded at a price below the minimum specified, when no one would actually be on at that low a price.

If the majority of subscribers have already backed at a higher price, then that is all well and good. Long-term, their results will show a positive return.

The problem with the way I am recording my bets and prices is that they err, quite significantly, on the low side, and I doubt that any subscriber, or indeed myself, has actual results that are worse than the official results. Most should be significantly better.

Using Pinnacle Sports prices as extracted at a certain time by an independent third-party has the one big advantage of opaqueness. If I send out an email on Wednesday and take the price at that time, or use the price from 30 minutes later, there’s always going to be a concern about the fact that the prices are being recorded by myself – an interested party.

I guess what I am saying is that while I want the recorded prices to be indubitable, there’s a pre-defined limit to my openness, which to me seems reasonable. Unlike Steve M’s friend for whom the “line doesn’t really matter that much”, my response is that the price does matter, and I’ve pre-defined where that tipping point is.

I don’t know of any services that send out selections and then are happy to record carte blanche the price as recorded two days later. The only reason this is not usually a problem is because the draw price has a certain robustness to it. For now at least, the low-price issue is only a problem in France. The EPL had no matches last season where the draw was recorded at < 3.15, but Ligue 1 had 40 such matches last season.

Looking at those 40 matches, it's worth mentioning that the best draw price available according to Football Data's numbers was an average of 4.8% higher than Pinnacle Sports - 16 of the 40 by more than 5%. 

NFL 2014

For those of you excited about the NFL season which starts tonight, there's an excellent article here which looks at how the pre-season has revealed more than usual about the regular season. It could be a profitable edge, if only a few of you read it. 

Tennis 

Finally, on a US Open Tennis thread on the Betfair Forum, George Bailey wrote that there is:

no market like tennis for having so many ops in running

I'm not sure about that, but a Jim Duncan replied correctly that:

can be very hard to judge it right and get matched though George with all the courtsiders

If we assume that courtsiders know what they are doing, then if you are matched on in-running tennis, it's because you are not getting value. Yes, you can still win short-term, but long-term you have some long odds to beat. George Bailey, perhaps realising that when it comes to trading tennis, it's not a wonderful life, returns to claim:

Lost £100k on Williams...thought she would come back but she buckled under the pressure 

Corrections And Objections

A change at the top of the table as Jamie A reported an error in his numbers. 

A Lay of Monaco was recorded as a loss, but the bet was winner after a 1:1 draw and the numbers are now updated.

I also had a sensible email from JG who pointed out that:

When ROI is calcuated by betting syndicates it is normal practice to exclude void bets so online trader for example would be -4.38/16 -27.38%

Indeed it is, and while I'm not sure how much importance anyone is putting on the ROI, if I am publishing it, it needs to be correct, so I have revised those numbers too. Thanks JG for pointing that out.

While that change doesn't affect the positions, the extra 2.00 points for Jamie do. He moves up from 7th to 4th, and here is the top of the table after the correction:

JG had couple of other comments on the FTL:

It is great to see that Draw Picks is doing so well this season ( had a great season last season as well ) and pleasing to see that Pete is having a good season.

I am delighted you have onlinetrader on your team and it is a great pleasure to see that they are -24.33%.

I understand they are part of the OLBG team . ( Value Bank Foot) = OLBG = -34% .

You have something in common with Online Trader as he spent most of last season "attacking me".

Perhaps if you get a chance you can send an email to Online Trader and send my regards?

Keep up the good work.

Kind Regards

JG

footnote : I think I may sign up for FTL next season .

Draw Picks is certainly off to a solid start, as is Pete's Drawmaster. Online Trader isn't on my 'team' though, and nor do I know much about OLBG. 

Betting doesn't lend itself too well to being a 'team' activity. As for Online Trader and myself "attacking" Jonny for most of last season, JG would be better served by looking at the common denominator rather than playing the 'persecution' card.

I read Steve M's latest post over at Daily 25, and as his his wont, Steve went on something on a rant about tipsters and the problem of getting decent bets on at the recommended prices or lines. Read the post in full here, but here's an excerpt:

I’ll first start with the usual moan. One big issue I had this week was with the PCG (Pro computer gambler) service. Tom advised some bets on college football. These were big bets too, 2 units on three separate games. Now only 1 bookmaker had the lines up for this game and the max bet they take is to win $250. 2 units for me means $1,000 on these picks. By the time I woke up these lines has moved from -8,-9 and -4 to -13, -19 and -9.5. These are massive moves and not unexpected if there is only 1 bookmaker offering the lines with a $250 limit. The same issue happened when I tried to follow college bets with Sportpunter, the lines move quickly and unless you could get on first, then it was a pointless exercise. I emailed Tom asking if he still thought I should bet as the lines had blown out. He replied with “In my opinion, the books shouldn’t even offer betting on these games. I don’t think the line matters that much.”. So I decided to bet them. You can already guess what happened. One game won, one game lost and one game won for the service while losing for me. So while the official return will state close to 2 units profit, the reality for most people is a 2 unit loss. A 4 unit turnaround. These games should not be sent out as official plays, when only 1 person can get a tiny amount on it, it just isn’t fair. It leaves me seriously questioning whether to continue with the service.

What jumped out at me from that section, and would make me ditch the service immediately, was the comment:

In my opinion, the books shouldn’t even offer betting on these games. I don’t think the line matters that much.”

The second sentence there should have a full stop after the word 'think'. The line matters very much, it's crucial, and for a tipster to suggest otherwise shows a distinct lack of understanding of what profitable betting is all about. So the bet was value with the line at -8. That's good, and the bet may still have been value at -13, but at some point it is no longer value.

If you understand that -100 is not value, then you understand that the line matters. I've written before that rather than tell tipsters to bet on a selection at a price, they should include the price that they have for the selection and in the all too common scenario that the price suggested is no longer available, the subscriber can make their own decision on whether or not to bet at the price available to them at the time.

This is less of an issue with some bets than others of course. College football is something of a niche sport with relatively soft opening lines, and as Steve ranted, the line indeed moved significantly. To simply email subscribers and say "bet on this selection at as best a price as you can get" is not acceptable.

And yes, I do exactly this myself with my XX Draws but the selections are from the top five leagues in Europe, and the price has historically been robust enough that there was plenty of wiggle room. The EPL strike rate implies a price of 3.11, and there are not many matches that you can't beat that price for the draw.

Having said that, as I touched on yesterday, the declining draw price in Ligue 1 has meant that anything priced under 3.15 with Pinnacle Sports is no longer an official selection. The downside of recording results against one sportsbook, is that the results are lower than should be achievable with a small amount of effort, but they are the same for everyone in the FTL which is the main purpose.  

For the Value Selections, I email the price that I have the selection priced at, along with Pinnacle Sports' price at the time of writing, and it is up to the subscriber to decide whether or not to bet. Based on results so far, they may well be deciding not to bet!

Stoking The Fire

First item on the agenda is an apology to Peter Nordsted, and his Drawmaster followers, for my publication of this weekend's selections on Saturday morning. I was under the wrong impression that these were published on goal.com and were freely available, but Peter has advised that they are in fact paid for by subscription, so I apologise for this error. As it happened, it wasn't the best of weekends for last week's FTL leaders, with one winner from seven selections.

As Peter, and no doubt others, noticed from my Portfolio Strategy post, a couple of entrants were on Stoke City to win at Manchester City which has seen them soar up the FTL table. The lucky (or shrewd) entries were Fulltimebettingblog and BettingTools.co.uk - basically if your entry was a website name, you had a winner! As Geoff said in his email with the selection:

Stoke to beat Man City (and if that one comes in I’m sure the odds will be long enough to put me top of the table!)

That would certainly have been the case if Geoff hadn't selected Newcastle United to beat Crystal Palace in what many pundits were describing as the battle to join the Super Seven and form an Elite Eight. Zaha's late (first of many in the EPL) goal bought joy to most of us, but despair to not only Geoff, but also a few others as well and none more so than Marc Owen Banks who saw his four team Home win accumulator come unstuck because of this result (although Villa didn't win until Sunday). He had NEWCASTLE, ASTON VILLA, MILLWALL, MK DONS, an acca that "would" have paid 12.54 had it come in.

Marc had a comment on the accumulator versus singles debate:

I will jump in on the accumulator debate here - As the representative of @ValueBankFooty

It is not easy, nor fair on you Cassini, for me to throw over the full Valuebank ratings, which do actually rate every single game in the four English divisions - The time for you to go through them would be ridiculous - This may even work against me as the full ratings are proving profitable - For instance, this weekend, with four games to go, there is a 5pt profit to single point level stakes in backing every prediction!

Valuebank is about every game, but my entry is my interference of those ratings in trying to pick out the wheat from the chaff; so far not so good.

But also, the quench the thirst of a big win for my followers on Twitter I try to pull, Home and away accas, a weekly Jackpot and some other bits and pieces.

Back to the acca, I am indeed one entrant who is making acca predictions, albeit not ridiculous ones - and can guarantee that should one land, I will not shut up acca shop and concentrate on defending a lead (should it gain one) as that is not what I am about,(as anonymous would attest to I am sure!) albeit not against the rules. Really my aim is to prove that you CAN play accas and make use of the value in the prices within to BEAT the increased over-round by actually taking advantage of the value in a price, not once but twice,three or more times by having that value in an acca. Indeed, in my first week, prior to joining FTL, I landed a 30/1 away win treble, which is almost sufficient to keep that particular angle going for most of the season. I was unaware of FTL at that time which might be just as well,as to land one that early could have caused some ruptions!

In fact, anonymous introduced me to the FTL and may even have been thinking that my tactic was good enough to ensure another £50 dropped in the pot to his advantage at the end of the competition (Cheeky anonymous!)

So that's my take on the accas, never ridiculously speculative 3 figure to one odds or anything and something I will employ season long, whilst trying to slowly build from selected valuebank ratings predictions.

It's been fun thus far,and whilst I may have missed the away treble that I will get for the season, watch out, I've still to hit the home win acca yet!

All the best

I must say I am happy that I'm not being asked to sum up profits and losses from 46 games each week, and as mentioned earlier, Marc came within a whisker of hitting the home win acca this weekend. At 12.54, it would still have been a little short of the 17.95 that Stoke City were to win as a single. As one might expect, that result shook things up at the top of the table, and the current FTL looks like this:

Ten entrants have still to make a selection, although I imagine most will be in action after this upcoming international weekend. As always, if you see anything wrong with your numbers, let me know. I found a couple of errors including with my own XX Draws / Unders but I believe everything is now correct.

Although Drawmaster had a disappointing weekend, they are still in profit , as are Draw Picks who opened with two losing weeks, but have found 9 draws from the last 19 for a 13.02 point profit over the last two weeks. Draws are certainly back in the top leagues so far this season - 38 in 118 matches (32.2%) while Home wins are down - a trend I mentioned that I expected to continue in my Betting Expert article here.

Also in that article, and if you haven't read it, there's some interesting things in there, is this table on the rise of away wins in the English top division over the years:

Home wins across the top five leagues are currently below 40% this season. It won't last, and neither will the 50% draw strike rate in Germany! A number of matches that would have previously been official XX Draw Selections have been dropped this season - matches involving newly promoted teams are unofficial mentions until 2015 while selections in France at sub 3.15 are also no longer official selections. Backing the draw at such short prices is not profitable as I may have mentioned before. 

Backing selections at 3.15 and over would have made +8.80 points using Pinnacle Sports' prices, while backing draws priced under 3.15 lost us 13.78 points.

I will also not be including newly promoted teams as official draw selections until the second half of the season, i.e. January 2015. Last season these selections were profitable from January (a whopping 0.82 points) but they lost 26.16 points prior to that. I will still track them and include them each week, but they will not be Official.

Early days still, but omitting newly promoted teams has actually cost 2.71 points this season. 0.91 points on the Draws and 1.80 on the Unders, while omitting Ligue 1 draws priced by Pinnacle at sub 3.15 has saved 5.26 points (5 on the Draws, 0.26 on the Unders).

FTL Porfolio Strategy

Skeeve asked via a comment on this post: 

What do you think about Steve’s strategy for the Friendly Tipster League?If his strategy isn’t against the rules, can the rest of us use other tipsters/systems’ selections as well? 

Steve's proposed strategy was outlined in his post here, but the key section was this:

So what’s my strategy? Well as I have mentioned copious times before on this blog, I couldn’t pick a winner if it smashed me across the face. But I am more then happy to pay other people to do the hard work for me. I pay a few tipsters that have bets in the same league, we know how well multiple bets did for me last season, but what I will be doing is selecting bets if TFA, Winabob, FB investor, or FB Elite agree. I think if 3 of them have chosen the same bet then that’s a pretty good indicator. A friend (Edwin) did some analysis using WIN,TFA and FBI last season and these bets produced a 13% ROI.

I wish the other entrants luck as they vie for second place.

Love the confidence. Steve’s strategy isn’t against the rules. It would be impossible to enforce a rule that disallowed selections from other tipsters or systems, simply because I have no idea where selections are coming from. Well, I might have an idea – UK_TFA makes no secret of the fact that his selections will be based on Graeme’s TFA selections, but Graeme has no problem with this, actively encouraging the entry name to be UK_TFA.

I noticed last season that while the EPL was the primary source of selections, it wouldn’t be unusual for some seeming random match from elsewhere to feature in more than one entry. Whether this was because two people independently identified value or because one was using a selection from someone else is hard to tell.

It sounds like Steve is planning to put together a portfolio based on the best of the best, and it will be interesting to see how this works out. It sounds good in theory, but in practice nothing is guaranteed.

One only needs to revisit last season to see how following the big names is no guarantee of success. Skeeve did very nicely (if you stayed away from his accumulators), Cassini overall was basically a wash, but a modified Football Elite struggled, and Peter Nordsted’s Premier Betting dropped 42.66 points.

Assuming that each individual service has a long-term positive EV, and that selections are diverse, one of the advantages of combining them into one portfolio is that short-term lows (and highs) are smoothed out. Unfortunately the initial assumption isn’t always correct. Success in the past is no guarantee of future success, and one rotten egg in your portfolio can soon spoil your omelette.

The best performing entry last season showed an ROI of 20.47% but Steve's 13% would have comfortable secured third place last season.

Stewboss added:

I was thinking the same thing as Skeeve. We could get mugged by our own subscribers!

Another week or so, and we'll find out if this is likely to be a problem for the bounty boys!

On the topic of accumulators, Marty commented on my post on the subject:

Doesn't this over-round argument miss the point that if you have an edge, then this increases by more than the over-round, so betting multiples can be a very effective way to generate EV.

This is true, but the 'if' is a big one. Accumulators are a fun way for a casual punter to shoot for a 'lottery' type win, but there's a reason most serious bettors generally avoid them, or at least much past four or five-folds. Admittedly it was a small sample, but Skeeve last season showed how big a difference betting in just doubles and trebles rather than singles, can make.  Steve M also mentioned the poor outcome of multiple bets in the excerpt at the start of this post. (I hope he meant 'multiple' as in accumulator rather than as 'many'). 

The problem unfortunately, is that probability is very simple – the more links you have in a chain, the more places it can break. 

S Club 7 And Clive Dunn

The Wisdom of the Crowd last week gave us just three winners from the 10 EPL matches, and a 1.54 point loss at Pinnacle Sports' prices. Two draws, Everton v Arsenal and Hull City v Stoke City, and Manchester City's Monday night win were the only winners if backing the most popular crowd choice in each game. The Hull v Stoke draw price with Pinnacle was a rather low 3.18, exactly the same as for this fixture one year ago which finished 0:0. Not much has changed since December apparently.

Here's the table for this week's games:

Only two Home teams are reckoned to represent value, Newcastle United v Neil Warnock's Crystal Palace in a mid-table clash and the Everton v Chelsea.

There has been some discussion this week on what to name the top seven clubs in England, a group that seem to be rather boringly cemented unfortunately, and the other 13. Super Seven or Superior Seven were suggested, although I liked the proposed shortened version of S Club 7. A little catchier than any of the latter's songs. Threatened Thirteen had a nice ring about it too.

FTL leader Drawmaster (Peter Nordsted +5.47) is going for the following draws this weekend in his bid to extend his lead:

And finally, congratulations to FTL sponsor Graeme (TFA), who now has another mouth to feed after giving birth to a 9lb girl this week.

Steve (Daily 25) M is also expecting, which all makes me feel rather old as the next baby in the Cassini line (due early November) will make me either a granddad or a grandma - not sure yet, as the gender is going to be a surprise.