Wednesday 26 November 2008

Bad Profit

Brian Coplin has commented on a previous post that there is "No such thing as a bad profit."

Really? Now whilst I agree with the idea that one could argue that profit is always good, I also think that one can differentiate between a good profit and a bad profit.

Let’s examine three scenarios:

1) I take a position in a market, the market moves steadily in my favour, and at no point do I consider the market to be out of line with my view of what the current price should be so I hold my position to the close. This is a good profit.

2) I take a position in a market, the market moves initially in my favour, but at some point my valuation and the market’s differ enough for me to exit my position and green-up. The outcome here can be that the initial position ultimately proves to be a winning one or a losing one. Either way, I think of this as a good profit.

3) I take a position in a market, the market moves initially in my favour, and I trade out after a couple of ticks to lock in a profit. The outcome here can be that the initial position ultimately proves to be a winning one or a losing one. Either way, I think of this as a bad profit, since the reason I exited my position was not based on any concept of value, but was made purely for the sake of locking in a profit. I don’t feel that in the long-term, this is the way to go.

Essentially what I am saying is that one should always have a good reason for entering a market, and similarly one should always have a good reason for exiting a market.

Q) And what is a good reason to enter or exit a position?

A) Because the market offers value.

We see this debate quite often on the gambling forums – whether or not to green-up. My answer is that you should only ever green-up if the market offers value. If you have backed at 2.0, and the current price is 1.5, some argue that you can’t go wrong with locking in a profit. I would argue that you lock in a profit ONLY if your valuation is that the correct price is above 1.5. If not, then this is a bad profit.

This is all great in theory however, but in reality and in the heat of the action, I must admit that I sometimes lay a big red total off simply because it’s scary seeing that red number on the screen. (I often have bets where I am red to the tune of close to £5,000, and winning or not, it sets the pulse racing which I am told is not good for me!) and while I might consider the value to be at 1.04, I am often happy to lay-off at say 1.06 just for that peace of mind and lower heart-rate).

And Brian, I appreciate the comment - this is in no way picking on you - just expressing a different viewpoint to hopefully stimulate some more debate.


Talkbet said...

I posted a comment yesterday about value but it never appeared. Put me firmly in the value camp, it's something I firmly believe in (although my resolve was tested the weekend before last!). I find it also a lot easier trading prices if you have a firm opinion on value in the first place, trading numbers for me is far to stressful and draining, I take my hat off to those that can do it but for me sticking a grand on a horse at 2.12 and 'hoping' it drops down to 2.1 to lay off is a risky business and not something I'm any good at :o)
I personally prefer sticking a smaller amount on a price that I believe (and now have applications to tell me) is value and letting it run, if it doesn't come in then so be it, I'm confident that in the long term if I'm getting value I'll be up. And my footballing account that runs pretty much purely on getting value prices proves my belief in it.
I'm with you Cassini with regards the laying off, I also sometimes lay off sooner than I should, say towards the end of a game and I'm getting jittery as Man Utd get their 10th corner in succession :o) But I also have a theory that these lays should sort of level themselves out over time, most of the time if I lay off towards the end of a game at say 1.1 then nothing else happens I've given away 10% but there will also be times where by laying off I have got something from my initial position as a late goal has been scored.
Just my tuppence anyway, some really interesting posts and comments.

Cassini said...

But if you're laying off at 1.1 and the late goal comes in less than 9.09% of the time, then you're not getting value... Thanks for the post and good luck with the Powerstats this weekend.

Talkbet said...

Yes, can't disagree with that (how poor is that English?!). Just sometimes for the sake of health and sanity it's nice to get out and enjoy the closing stages of a game. I use custom apps most of the time that calculate the value and only bet accordingly, therefore, to be honest, it's easiest if I'm out and not watching what bets are being placed, that way emotion doesnt come into it :o)

Cassini said...

It's human nature, and I look on it like an insurance premium. I may not be getting the best value, but if I can erase the big red on my screen at a small cost to my green, then as you say, for the sake of health and sanity, (and sometimes to allow me to free-up funds for another market) I play it safe.