Award Or Two

I need to clear more space. The awards just keep on coming, although it has to be said that the accompanying fame and fortune that usually goes with such recognition is sadly lacking.

The latest award is for Patient Speculation's Quotation of the Week and is detailed here, and while it may not be the Fields Medal, Abel or Pulitzer prize, or even an Academy Award, it's a start.

I'm hopeful that my post on QPR and backing the fear earlier today might win me another award. After reading the 'news' in the Sun, I layed QPR at 1.13 first thing this morning in the Winner market, and then told you all about the opportunity in true tipster style! The price now is around 1.5. Not too shabby without a ball being kicked as they say. There's a lot of nervous money that backed QPR at 1.07 to 1.16.

Variable Staking

I saw that the Football Analyst is planning a post on 'Variable Staking' and it's been my intention for a few days to cover this topic, so hopefully we can get a debate on the subject going, unless we're all agreement, which is unlikely.

It is my opinion, and no one has ever provided me with any evidence to the contrary, that adjusting stakes can make a profitable system even more profitable, but it cannot turn a losing system into a profitable one.

There are some very complicated staking adjustment systems out there, but they just don't work, although the mathematician in me would love for this statement to be wrong.

I am probably not alone in having spent many hours of my younger years trying to work out a staking system that guaranteed me a profit at the Roulette wheel. It says something about the optimist in all of us, but that optimism is that of youth and inexperience, and clearly misplaced.

Find a system that is profitable, and you can certainly improve it by varying stakes, no more so than by utilising the Kelly Criterion, either full or fractional, and described excellently in this post here from 2008. This will mean that you have a higher stake on bets where your edge is highest, reduced stakes where your edge is lower, and no stake at all where you don't have an edge.

Any time spent trying to come up with a fancy staking system to turn a losing system into a profitable system would be better spent in trying to find a profitable system.

Quite simply if level stakes returns a loss, then you do not have an edge. Adjusting stakes will not give you an edge. You are merely gambling on when in the bet sequence your winners will fall.

This is not advantage gambling. Anyone have a different opinion?

Buy The Rumour, Sell The Fact

Is there value in laying QPR in the Championship Winner and Promotion markets? The always reliable Sun has, shock, horror, an EXCLUSIVE, revealing that

the runaway Championship leaders are likely to face a big points deduction - possibly up to 15 - if they are found guilty of breaking strict third-party ownership rules over the signing of Alejandro Faurlin.

The evidence against the West London club is said to be damning and they could now end up in the play-offs.

The only winners would be Cardiff and Norwich who could then go up automatically.

The hearing into the signing of the Argentine midfielder two years ago begins next Tuesday and a verdict will be delivered three days later.

A four-man panel will comprise an independent QC, two from the FA's disciplinary panel and a football expert who will be either a former player or boss.

In theory, they should begin with a blank sheet of paper but many at the FA are openly discussing the case and reckon QPR - five points clear at the top of the table - are in big trouble. Those who have seen the evidence say Rangers are defending the indefensible.

An FA source said: "There's no question QPR have broken the rules. They know it as well. The only debate is what to do about it."

"If they aren't found guilty you might as well scrap the rules about third-party owners."

Some within the corridors of power believe QPR should be hit hard because they were well aware they were acting outside the regulations.

When West Ham were punished over the Carlos Tevez affair they were actually found guilty of failure to disclose information - not of breaking third-party ownership rules because such legislation did not exist.

Since then the FA have made third-party ownership illegal so the argument is QPR were worse offenders because they were well aware they were committing an offence.

If Neil Warnock's side are found guilty they will have seven days to appeal.

However, if QPR take legal action or other clubs decide to seek legal avenues because of points they lost when Faurlin played against them, the whole issue could drag on throughout the summer.

The nightmare scenario could even be that the Championship promotion play-offs do not take place at all until the issue is resolved.

Well that's it then. It must be true. Seriously, there could be some value in playing on the fears. Having been backed as low as 1.03 for the Win, and 1.01 for Promotion, those prices are now up to 1.14 and 1.05 respectively. If these rumours spread, there could be more movement yet.

Somewhat ironic that when West Ham United were involved in a similar situation with Carlos Tevez, one of the biggest moaners was none other than the much loved Neil 'Colin' Warnock, although to be fair, I did feel a little sympathy for Sheffield United at the time.

Green Eyed Trader has found a brilliant, yet simple, system, and has run some numbers on it. Check it out here. Mark also has some more comment on the full-time / part-time debate that is well worth reading.

Human Capital

From the Yahoo! Finance pages:

You may be a lot wealthier than you think. Most people look at their retirement plan, add in the value of other assets — their home, other investments, savings, etc. — then subtract their debt to get their net worth. After the housing-market bust and the bear-market rout of recent years, that number may look painfully small.

But what's the value of you? That is, how much are your future paychecks worth? That number is your "human capital" — and some experts say it should be a key part of your overall financial planning.

Human capital "is anything that's going to generate a cash flow that isn't your investments", said Moshe Milevsky, a professor of finance at York University in Toronto.

"It's your ability to work, your ability to get a bonus, to get overtime. It's a gold mine and an oil well, but you're producing the gold and the oil," he said. "It's millions of dollars when you're in your 20s."

As you age, your financial assets increase and your human capital — the value of your future earnings — decreases, because you have fewer working years ahead. While your human capital is not cash in hand, it's an asset that should be protected and managed just like other assets in your portfolio, Milevsky and others said.

Something to bear in mind before you pack in your career to become a full-time advantage gambler.

What Have We Got? Toulouse

Talk from Toulouse suggests Lyon Unders are far too high…

Wednesday pick by Free Under Over Soccer Picks
We at Free Under Over Soccer Picks have selected one game for you today. It's an UNDER from French Division 1, a league where 58.07% of all league games played this season have finished with UNDER. Good luck!

Date: 27.04.2011. Time: 19:00 CET
League / Competition: French Division 1
Fixture: Lyon - Montpellier
Bet on: UNDER 2.5
Odds: 1.88 @ Betfair

I checked this match out on my spreadsheet, and also had the Under 2.5 as value, and in fact at the time of writing, 2.0 was available. Another Newcastle v Manchester United where we all agree, and are all wrong?

Update: Yes!

On The Mound

A rare early start time today for several MLB games starting with the Florida Marlins and the Los Angeles Dodgers at 5:10pm, but I suspect more attention will be paid to the Champions' League game starting a little later tonight. Personally, I suspect value will be easier to find in the baseball than in the football, where the trading volume will be exponentially higher.

April baseball can be a bit tricky with form not yet established, but that information can work in your favour if you apply it correctly. Peter Nordsted's MLB Daily Picks have had a good run of late, (see Gold All Over), although slightly down from when I started following them, but early days yet. I wish I still had my baseball records from 10 years ago, but from memory there was value opposing the favourite unless they were at ~1.5 or less, a similar observation to that off the football leagues where 1.3 or less, sees value in backing the favourite.

I also updated my Strong Draw picks which since the start of 2011, have a not-too-shabby ROI of 26.37%. The strike rate is 17 from 49, with the average draw price at 3.4. As with all these systems, the winners don't come along in a steady W, L, L, W, L, L sequence though, leading to spells of discomfort, exacerbated by the infrequency of selections. One winner between 27 February and 3 April sounds pretty awful, but when you can maintain perspective, it's not so bad. When the strike rate is about 1 in 3, it's expected that long losing runs will be experienced. My longest is 8, included in a run of one winner from 11, but then, like the proverbial London buses, two or three come along together. This past weekend I hit three of four, with only Bolton's 90' winner v Arsenal ruining a perfect weekend.

With April winding down, I find myself having to overcome a reluctance to trade too much. As I've mentioned before, April has been by Achilles Heel over the years, with a net loss since 2006, but learning from my lessons, this month is currently up so that if the month ended now, my Aprils total would be positive, albeit very slightly, but I hate the thought of looking at that spreadsheet for another year with a month of red. The rational thing to do is to to keep finding value and continue as normal, but there is this nagging voice in my head that says to take the rest of the month off! An example of how discipline works both ways.

All Mine

Trading Football Markets adds a point to the debate on full-time / part-time trading which is that:

You get to watch incredible amounts of your favourite sport – Yes you do and you learn so much from doing so too. However, being a trader means learning how to be critical, analytical and totally grounded. You cannot become emotionally involved. Ultimately, you may find your passion for a sport wanes.

There's certainly an element of truth to that. I still enjoy my sport, but it's hard to stop your mind from thinking about how the odds might be reacting. When I was at the Golden State Warriors v Sacramento Kings game with my son earlier this month, we started playing Fantasy Betfair where we would make up the prices and take ridiculously large fantasy bets off each other. I think the final tally was about £100,000 to me, although my son insists he layed-off at 1.01 and that I owe him. Betfair certainly makes you look at sports in a different way.

Hickb40 wrote a comment on my last post saying

Another interesting post. I agree that choosing to trade/bet full time would not lead to better results for most people and there's just no need really especially when you work an office job or where you can often work from home. The compulsory task of work helps me by making me take an enforced break, otherwise I'd probably spend even more time on blogs like this!

I think I read that you started off with a similar amount of cash to Odwyer? I'm curious as to how you made your bank grow initially. Did you ride your luck like he's trying to do. because seeing a lot of your recent picks on here that whilst may be value they are not going to turn a bank of £100 into that of tens of thousands. Apologies if this has been covered before.

I don't see what's so wrong with spending time on blogs like this - at least you're learning new things all the time! As for my early days on Betfair, I have written on this before but for those who don't want to read 1,029 older posts the short version is that I opened my account with £98.5 and had some early success turning that into four figures all too easily. Fortunately for me, my luck then ran out, and that four figures dwindled to a low one Saturday of £21.40. Had I busted, I would most likely have called it a day and moved onto to another venture, but I decide to scale back, play with small (£2 or so) bets, and try to find an edge. I actually got almost as big a kick from winning small amounts from a small bank as I do from winning larger amounts from a larger bank. It's the challenge rather than the money I guess. Anyway, that £21.40 was enough, and to this day I have never made a second deposit into my account. You do not need big money to make bigger money as O'Dwyer seems to think. You need patience (discipline) and an edge. I suspect that O'Dwyer has neither, and he would be better served by finding an edge playing with small stakes than imagining that a big bank is all he needs. To become a millionaire, do you need to start with £100,000? OK, so it helps, but the truth is that with time and discipline, that goal is not beyond the reach of many of us. So a million might not be what it once was, but it's a start!

Over at 500 to 5000, some poor decisions (over staking on gambles) have led to the author taking a break. There seems to be a tendency that, upon discovering Betfair, people want to run rather than walk. It all seems so easy, but the reality is that being successful is not simply a matter of learning how to back and lay and waiting for the money to roll in. It is a cut-throat game, where your opinion (and your money) are up against an opposite opinion and experience is a very useful asset in this game. Think of it as a cash minefield. If you run and hit a mine, pick yourself up, dust yourself down, take a look around and walk on with some caution. Don't keep running and crying because you keep hitting more mines.

Losted Optimism

As often happens, I thought of a couple more things on my last run that should have been added to earlier posts to make them even more excellent.

The first is on the subject of being a full-time ‘advantage’ gambler. With the long-term goal for many of us being that of accumulating enough wealth to finance retirement, it occurred to me that this might be a lot easier to achieve this while being employed rather than being a full-time trader, or indeed self-employed in any line of work.

Many employed people are able to have their savings deducted from their pay before they even see the money, which studies have shown leads to higher savings. It’s far less painful to save money you never see, than to get paid and then save it.

Most self-employed people do have the requirement to set up companies, and need to be disciplined enough to pay their VAT and other taxes and hopefully are nudged into salting away some of the profits into long-term investments. I can’t say that my personal experience of being self-employed followed this ideal path, but I wasn’t always as smart as I am today.

However, if you are a full-time advantage trader in the sports markets, where taxes are not an issue, at least for now, it would require discipline to withdraw funds and put them away long-term. Arguably if you are disciplined enough to be a successful full-time trader, then this won’t be a problem and I can see that the trader who far exceeds Mr. Median may not have a problem with this, since if he is that successful, his financial future is probably not a concern, but I still think the full-timer who barely makes the money of Mr. Median might well have a problem with pulling out funds for a long-term savings plan.

After writing the above, I found I had a comment from Talkbet on the full-time / part-time subject.

Some great posts and articles recently Cassini, as others have said, you certainly have the makings of a book hidden inside you :o)
As another angle to the full time/part time sports investor [sic] from my point of view I'm somewhere in the middle. I'm not employed by anyone and work as a contractor and have done for 14 years now so therefore have no defined career path to follow. I don't enjoy any full time perks and can fully understand that anyone jumping from a full time job to sports investing full time would need to be 100% seriously sure about what they were doing. My work though means 3 or 6 month stints at different locations and as such does present an ideal opportunity to try my hand at investing full time in between contracts, an ideal scenario for me would be a mixture of both.
Anyway, the sun's shining and it's time to get out and enjoy the weather...

As a former contractor for several years myself, I can identify somewhat with this situation, although my contracting days were pre-Betfair and any gaps between contracts were filled with less interesting activities like finding the next contract, riding my bike, playing golf and drinking beer. I do remember being fairly successful, using small stakes and using bookmakers, with a baseball system one Summer, based solely on a review of past results and my observation that backing underdogs, but not big underdogs, was a profitable proposition.

Which all leads me rather neatly, if I do say so myself, into my second thought, which was that I should publish Peter Nordsted's e-mail sent in reply to my rather sarcastic sneer at Peter's statement that "certain aspects like the pitcher do make a big difference". I'm sure Peter would agree that his thoughts could have been better phrased, but ever the gentleman, Peter rose above it, and gave a very good comment:

May I first congratulate you on your excellent blog it is both informative and entertaining and I always read with interest.

As regards MLB Daily Picks about a year and a half ago I looked at Baseball for my newsletter and found that basically anybody can beat anybody and I found that a simple ratings system showed that backing a home favourite was not profitable. Indeed if anybody would like to view the report they just need email me at nordstpet@aol.co.uk

Last year I found a baseball expert on the Internet ‘Mr Stretch’ (He wishes to remain anonymous) and asked him if he would look at picks everyday.

Last season he returned a profit of around 9 points, which although not bad I felt could be improved. I didn’t feel he was thinking outside the box enough so this season everyday I am sending a list of my ratings and he does the rest because, as previously stated, I know nothing about the game.

However I do know that the home favourites are sometimes ridiculously priced. Indeed if you go through the website and look through the ratings since April 11th when we started putting these out and take all of the teams that are minus in value. If you had layed every one to a 1 point liability you would now be 6.78 points up. And in truth I don’t really see this changing.

I freely admit to not knowing anything about the sport but I do know professional sport is difficult to win and the value is nearly always in opposing the short priced favourite.

We will carry on this experiment throughout this season and Mr Stretch will make the selections from the ratings presented but please keep an eye on the selections with the minus figures it would not surprise me to see them yield a healthy return by straight laying them on the exchanges

The key sentence here is "I do know professional sport is difficult to win and the value is nearly always in opposing the short priced favourite", something that is true in many sports, and not just baseball.

People like to back back winners, not value.

As Peter says though, this is especially useful in baseball where teams are a lot closer, and while backing 'dogs can lead to long losing streaks in many sports before that big winner comes in, when it comes to baseball losing runs tend to be shorter.

Incidentally, Pete had a good weekend with his Drawmaster picks, finding Wolves v Fulham (as did I), and Aston Villa v Stoke City (as did I not) from his three selections.

Next up, O'Dwyer still can't accept that he has no edge and move on.

It's been a disappointing weekend. In order to trade successfully, you need a clear head with no pressure. Unfortunately, the reason why I've been failing is I don't have the mindset I had last year. This time last year with Roland Garros approaching I had over £4k in my account which I managed to build from £500 in February 2010. Back then I did not owe anyone money and there was no added pressure of knowing that if I had a bad few days, it would not have that much of an impact.

So much for betting only with money that you can afford to lose. I do think he has a point concerning mindset though. "Scared money never wins". Knowing you can't afford to lose leads to poor decisions to say the least, but without an edge, a topic that John never mentions, and his money is as good as already lost. His inability to accept reality is further evidenced with this:

Overall, we're almost at May and I've still not had any real improvement this year. I'm worse off than where I was in January. There's no point lying about things, it's not a good position. However, I'm confident things will improve significantly, so let's see what happens in the coming months.

Nothing wrong with being an optimist, I used to be one myself, but it seems to me that his optimism is completely unfounded.

Losted optimism you could call it.

Advantage Gambling

Average Guy, (42, 2 kids, and a mortgage), asks

I'd love your opinion on the perceived difference between trading and gambling. I feel there is none, but many traders are offended by this stance.

As I was writing the previous post, I was aware that I was alternating between the terms "sports investing", "betting" and "gambling", the last two of which always make me feel a little uncomfortable when used to describe my own "activities". Actually all three terms do. "Sports investing" sounds ridiculously pompous, although I have been accused of pomposity before - I mean how often have you come across the word 'pomposity' in a blog!

Here are some definitions of terms we use.

Investing: To commit (money or capital) in order to gain a financial return

Gambling: To bet on an uncertain outcome, as of a contest

Bet: An agreement usually between two parties that the one who has made an incorrect prediction about an uncertain outcome will forfeit something stipulated to the other; a wager.

Wager: Something staked on an uncertain outcome

Punt: A gamble or bet, especially against the bank, as in roulette, or on horses

Arbitrage: The purchase of currencies, securities, or commodities in one market for immediate resale in others in order to profit from unequal prices

For most of us, every entry into a market, financial or sports, is a bet / gamble - i.e. the outcome is uncertain. To me, the first entry into a market is a bet, while any subsequent off-setting transactions could be described as trades or arbs. These individual activities are, by definition, gambling, but traders don't like the term because it has negative connotations. Tell someone you are a 'professional gambler' and compare the reaction to if you announced that you are a stockbroker.

The problem is that there is no single word that means "gambling when the odds offer value" although the term "advantage gambling" is sometimes used. Advantage gambling "refers to a practice of using legal ways to gain a mathematical advantage while gambling". The all important edge in other words. We are all engaged in betting. Each transaction is a gamble, and only time can determine whether you are a gambler or an advantage gambler. Do you have an edge? Dr J, whose thread I posted up a few days ago is clearly an advantage gambler, and an inspiration to anyone who doubts that serious and steady profits can be made from the exchanges. Even in as bent a 'sport' as horse-racing, if you can find value and be disciplined, you can make money. You don't make profits for seven consecutive years by chance, being profitable just about every month in that time.

I suspect that many people call themselves traders who clearly aren't. Laying 0-0 pre-game is not a trade, it is a gamble, and as O'Dwyer is finding out, betting with no edge may give you short-term success, but it will not last.

Proper Income

A couple more comments on the Betfair Forum post I wrote about a couple of days ago.

A poster called 'stewarts rise' commented that

I've always been a big advocate of having a proper income away from betting as it takes the pressure off having to win, like a salesman who has a basic salary and doesn't have to rely on commision alone.

and this is a view to which I subscribe if you are in a position in life where you need an income, as opposed to 'want' an income. But there was another opinion on this from our old friend Marky Sparky who wrote

I'm not disagreeing that having another source of income takes the pressure off, but I've also thought that great people don't become great without dedicating 100% to their chosen profession e.g. Musicians etc.

I suspect that Gambling is the same. We can all grind out small edges and be profitable over time, but to truly get to the top only those giving everything will succeed.

A couple of points. One is that I could dedicate every minute of my waking hours to becoming a musician, but while I might improve, it's a right-brained activity that I have no innate talent for. Gambling though is a left-brain activity requiring logic and mathematical abilities, and that is something that I do find comes easier. Are those skills something that can be learned by all? I would say not. Maths and logic comes easily to some, but not to others, and as was discussed on this blog a few months ago, women tend not to be left-brained.

So is the statement that "we can all grind out small edges and be profitable over time" true? I would suggest not, as not all of us have the tools to work with.

How about the statement that one needs to give 100% to truly get to the top? Taken literally, only one person can be at the top, so that's not going to happen, so 'the top' is a vague term, and one that means different things to different people. I take 'the top' to mean that you are making an income from betting which significantly exceeds an annual salary (gross) of £27,976. This number comes out to about £60 a day on the exchanges, so 'the top' to one person could be £90, or to someone else a lot more.

It is more than possible to reach the top, by this definition, as a part-timer, so the question becomes one of weighing up the benefits of being full-time, i.e. how much extra income this would generate, versus the downside, i.e. the loss of a regular income and the anxiety that would accompany this. There are other factors of course. Sports investing is an unsociable world, whereas most jobs offer some social interaction, not to mention free coffee and a career path (both important, though not necessarily in that order). The career path is something not to be underestimated. If you go full-time betting, you may more than cover your current salary, but is your additional income from investing going to keep pace with your expected earnings over the years? Possibly not, and the higher you move up in the corporate ladder, if that is where your place is, the more other benefits improve - holiday allowance, flexible working arrangements, bonuses and share options. That's a lot to give up.

Why do I say that betting income will 'possibly not' keep pace with expected earnings? The markets continually change. Any edge you have can disappear literally overnight. There's the ever present possibility of regulatory changes - a ban on in-play trading for example, and while the exchange concept is still relatively new, as it matures it will become that much harder to find an edge.

I know for me that going full-time would be an unwise decision to say the least. My income from betting would probably increase slightly, but would not come close to compensating for the loss of regular income and additional stress that would involve. The law of diminishing returns. I am writing this from the perspective of a non horse-racing player, because aside from that sport, there's not too much that goes on during the regular working day anyway, and if there is, you can always arrange your schedule to cover it, but horse-racing is a dying sport anyway. The future is in sports, and weekends and evenings are when they take place.

Big Secret

I'm often making comparisons between the worlds of sports investing and financial investing, for there are many, and in recent weeks the subject of sports betting portfolios has been to the fore. This idea is nothing new in financial investments, where the average person would never have all his eggs in one basket. Under the mattress perhaps, but anyone actually significantly vested in the markets will have money distributed across many investment types, sectors and countries.

After a failed attempt at managing my own portfolio by investing in individual shares, my ultimate conclusion was that there will always be people in the market who know more about the direction of the price than me, and therefore trying to beat the market is futile. I decided to adopt the approach of investing most of my money in index-linked funds, keeping costs to a minimum since the investments are automated and need no fund manager to make decisions, and be happy to match the markets each year. Beating the markets consistently just wasn't going to happen and I took the lazy, but more profitable long-term, approach. (Incidentally, the best investment advice I ever read was "Put 10% of your income into an index-fund and leave it alone).

There's a new book, 'The Big Secret for the Small Investor', by Joel Greenblatt, a renowned investor, in which he

"divulges is that market-cap weighed indexes beat most active managers —- and all successful managers go through periods of underperformance. Therefore, investors should avoid chasing managers based on prior performance stats -- as we know, past performance does not guarantee future success. Historically speaking, Greenblatt said 70 percent of active managers have underperformed the market over the past 10 years and "odds are investors are not going to find that superstar manager." Believe it or not, retail investors and money managers really do compete on an equal playing field, he adds. The market is "very emotional," and to separate the emotion from the reward, Greenblatt recommends buying ETFs —- specifically Value Index ETFs".

It was probably JP who first blogged about his experience with a portfolio of tipsters, and for a while all was sunny, before the rain set in and he walked off into the sunset. You know what I mean. Now we have the Portfolio Investor doing a very similar thing, although his efforts are accompanied by a much more interesting write-up each day.

Now some critics of portfolio investing call this approach 'lazy betting', and they have a point, but finding value, maintaining ratings, updating results etc. is certainly time-consuming, and if someone wants to effectively buy themselves time, then that's fair enough, but I get much more enjoyment out of identifying Levante as a value bet myself than opening an e-mail and being handed it, especially if it goes on to win.

So how are tipsters who make up portfolios to be selected? No doubt they are tipsters with a strong recent record. I use just one, Football Elite, chosen based on a strong record over 4 seasons or so, but poor runs can, and do, come along, unless they have access to inside information, which I suspect may well be the case for some horse tipsters. But even if you subscribe to a service who has inside information, there's the additional problem that by the time you get the tip, the value, or at least the best of the value, has been squeezed out of it by the service first, and then by your fellow subscribers who happen to get their money into the market before you. I suspect that running a betting portfolio and maintaining profitability long-term might not be that easy, just as finding a fund manager who can consistently beat the financial markets is proven not to be. Well, maybe Bernie Madoff beat them for a while...

Greenblatt also says the markets are emotional, and the best comparison with the sports markets is perhaps to use the numbers where you can, rather than allow yourself to be driven by those market drivers fear or greed. Baseball is wonderful for this - buy "The Book", and find the probability of a team winning from any game state. No emotion required. If you find value, long-term you will be profitable.

Which brings me neatly into mentioning that I have started tracking the MLB Daily Picks selections, with the results posted over at Gold All Over every so often. I must confess that it doesn't inspire much confidence when one of the key players writes in his introduction "Now I don’t know anything about the sport" followed by "I do know that certain aspects like the pitcher do make a big difference". Er, yes - just a little. While some individual based ratings can be used, team ratings as such in baseball are almost useless. Just look at the prices over a four game series between the same teams with a different pitcher starting each night. A team can be 1.7 one night, 2.4 the next. That is a big difference! Anyway, I shall be tracking the picks, if not actually putting any money on, and here's the write up:

My name is Pete Nordsted and I am the author of Mastering Betfair.

Baseball has become a sport that interests me because the top teams win 60% of the time and the bottom teams win around 40% of the time which means that on any given day any team can beat any other team.

Now I don’t know anything about the sport but I did a simple experiment a year ago where I devised a simple ratings system that highlights the value of a team. Now as I said I don’t know anything about baseball but I do know that certain aspects like the pitcher do make a big difference. That is where our baseball expert Mr Stretch comes in.

Bringing many seasons of profitable baseball betting to the table I found Mr Stretch on the Internet and asked if he would like to test out my ratings theory and see if he fancied any of the rated selections to win. Now for the purpose of this service we are only going to pick those selections we both agree on.

So the picks you see on the site are value from a betting point of view and have also been recommended by Mr Stretch.

Dr J Finds The Way

A post on the Betfair forum titled Reflections on making £200,000 profit in 7-and-a-bit-years written by Dr J caught my attention. In many ways, I could have written this myself. While Dr J got started a little earlier than I did, our stories and philosophies are similar, although not one penny of my winnings has come from horse-racing where Dr J seems to make most of his money. There's some good advice here though, the key being that the author finds value, and maintains discipline.

We both bet part-time having jobs that allows us this flexibility, and we both treat Betfair as something akin to a computer game where the goal is to improve your "high score", rather than be motivated by the money alone. His comments on experience also ring true, as do his musings on maintaining a healthy balance in life - something I am making a definite effort to improve on myself this year. I too started out on Betfair with the idea of experimenting and viewed it as a challenge competing against others with no idea that there was serious money to be made until almost two years had passed. Obviously I'm a little slower than Dr J, but then if he's a doctor, that's perhaps understandable. Here's his post in full:

I hesitate before starting a thread like this, but I posted something similar when my Betfair account hit £100k and it was interesting to hear the views of other long-term punters. It's also good practice to pause and reflect on your gambling from time to time, and this seems like an opportune moment.

I began betting seriously in January 2004. Prior to that, I'd used my Betfair account to experiment with and to have fun with. But I realised that I could make decent profit from what I was doing and wanted to pit my wits against other punters.

My profit figures since then have been:

2004 20,003.81
2005 31,407.24
2006 52,316.70
2007 45,490.42
2008 10,656.92
2009 14,042.02
2010 7,248.54
2011 19,000.00 (approximately, so far)

I bet part-time. I'm lucky to have a day job that allows me flexibility. I can work mornings/evenings/weekends and spend a fair chunk of the afternoon here. My day job has nothing to do with sport or gambling and that's a huge benefit. The contrast is perfect.

When I first started, my approach was to find as many edges as possible. I'd bet on several sports in several ways. However, close inspection of my records showed that only one kind of betting, based around certain horse racing markets, was consistently profitable. I therefore took the view that exploiting one edge in a systematic way was preferable to constantly searching for lots of betting opportunities. Sometimes I see clear value on non-racing markets, but I don't take it. I make enough from what I do.

I built my own bank before I started. Just a few thousand pounds in case I got off to a bad start. These days I keep about £15k to hand to cover a losing run.

Naturally, you need discipline to make this game work. But after a while discipline becomes habit. I used to take the view that having nine or ten profit-making months per year was fine, but then I realised that this kind of thinking was making me complacent. I now do all I can to finish every month in profit, and this month will (hopefully) be my 11th consecutive profit-making one.

Some days, you do everything right, and are happy with all of your bets, and still lose. They're the hardest days. You have no-one to blame and no guarantee that the same thing won't happen again tomorrow.

I'm a layer. I take views on how horses will perform and try to lay at the lowest possible price. I have no interest in inside information. Forming my own opinion is part of the pleasure.

Occasionally, I get hit by a well-organised, well-executed coup. It's a hazard of the game. But plenty of gambles go astray too.

It's not the money that motivates me. My profits have gone mostly into mortgage over-payments. I support several charities and am closely involved with local politics. I drive a cheap, second-hand car and take my holidays in Wales. I'd hate to be gambling to fund a lifestyle.

The best analogy I have is probably with a computer game. I want to beat my previous record and accumulate as many points as possible. The profit is a nice bonus - I don't need to fear redundancy; I may be able to retire early - but that's not what drives me.

Trying to stay focused, long-term, can be tricky. It helps that I love horse racing and would happily follow the sport without any vested interest at all. I make sure I take my annual holiday entitlement from Betfair and usually have a long break after a particularly good or bad run.

Experience is great tutor, if only you allow it to be. Instinct tells you to forget all about your bad days, but it's only by analysing your mistakes that you avoid repeating them.

I know other punters make more than me, and I know that I could make more by going full-time or by raising my stakes. But I also know that many more punters make much less, and that some are chronic loss-makers. I often worry where my profit has come from, and whether the person who's lost can afford it.

Gambling is a socially useless activity, and long-term, high-stakes betting can suck the soul from your eyes. You need other things going on, other loves. Success won't satisfy you, but if you're satisfied already the success comes more easily.

Sorry to pontificate like a bad Dalai Lama. There are lots of ways to make profit at gambling, and many approaches will be much better than the one I have. If I make it to £300k, I'll be back to annoy you again.

Dr J averages £75 a day, a decent enough primary income, let alone a second income, and ahead of Mr Median. Several comments on the post are worth a read, notably this one from the always sensible Lori on specialisation:

I won't go through the discipline debate again, we all know where each other stands on that, but the specialisation one is something that fascinates me as I change my mind on a regular basis.

I suspect I'm a bit of a strange case as I almost specialise in not specialising... that is to say that I've become quite adept at knowing where to go with a new idea in pretty much any market as long as it's not too mainstream where I'm up against the specialists. (Soccer match odds for instance)

The upside of doing things how I do is that there's always something to bet on, it's unlikely I'll lose all my edges overnight (Legistlation or other similar nightmares aside) and it keeps me relatively fresh.

The downside is that my edges are much slimmer than they would be otherwise, I have a tendency to work stupid numbers of hours even by gambler standards and obviously there are higher chances that I miss something important.

I also find that I get into position where I feel like I'm last minute cramming all the time. One event ends, another starts. I often forget who won last year's world championship/masters/whatever simply because I haven't had time to retain the most basic of facts.

I think that as a general rule to someone starting out I'd recommend specialising, but I'm quite happy to be jack of all trades, master of none... although as I get a base for many different things, I often try to build on those bases and so one day I might end up being particularly good at one (or more? Can I dream?) specific market.

I can certainly relate to the statement that

I often forget who won last year's world championship/masters/whatever simply because I haven't had time to retain the most basic of facts.

Same for me too. I am often so wrapped up in the minutiae of an event, that the winner or finalists is only of incidental interest, and forgotten soon after as the focus moves to another event. I might remember if Crystal Palace won the FA Cup, (they didn't, did they?) but the days of reeling off every winners of the Derby or the Grand National since 1967 are gone. Too many to remember now! It was a lot easier in 1968...

Pick Your Poisson

I was hoping the gentle dig in my last post might generate an indignant comment or two, and Blue Orange stepped up to the plate with:

To get my odds for the unders/overs markets of Premier League matches I look up the form of the last 5 home/away games of both teams, look at what they've scored and conceded and using the poisson distribution come up with each teams chances of scoring goals against their opponents. This takes a long time and I certainly am not a guesser. If I judge something to be value going by my ratings then I'll have a bet. Out of the 10 matches per week only on average 2 show any value.

I had suspected Poisson distribution may be a factor actually, based on the fact that often Blue Orange's calculated price and mine are in the same ballpark and my ratings spreadsheet has evolved to calculate prices on all major markets including the under / overs. Once you have the probabilities of Team A scoring and Team B scoring, it's easy enough to calculate the odds on any score or market.

The tricky part is, of course, accurately calculating those probabilities in the first place. I am confused with the statement that "out of the 10 matches per week only on average 2 show any value" since the only way there can be no value is if your calculations of the probabilities exactly match those of 'the market'. If not, then if value doesn't exist on one side, then it exists on the other - i.e. it's a value back or a value lay.

The screenshot above shows my prices for the Liverpool v Birmingham City match this weekend, although not with last week's results included as I am still not yet caught up from my vacation. This is still a work in progress, and the numbers are quite often wildly out of line with the market, but it illustrates the point that there are many opportunities to use the results of your calculations to find value in matches.

Mark left a comment too on my line "I mean seriously, how can someone in London possibly have any edge on a match in, say, Argentina, Bulgaria or Croatia? It's hard enough to find value on your local team - never mind a team from an obscure league playing on a weekday afternoon."

A little harsh perhaps when one of the most sucessful, proven non-league (English) betting experts is Skeeve. He is Croatian and still lives in Croatia as far as I know.

Firstly, Croatia was picked simply because the country begins with a 'C' and was not intended as a dig at any one individual. I have seen the name Skeeve on one of the blogs I link to, but have no idea who he is, where he lives, or what he specialises in. It's certainly an unfortunate name! There's nothing wrong with specialising (far from it), or betting on games in Argentina, Bulgaria or Cyprus (better?), but the point I meant to make is that many people happily dip into leagues they know nothing about simply because there's little action that day. How often do you see a tip for a game in Bulgaria on a Saturday?

I just did a little digging and found some more details about Skeeve, and evidence that specialisation pays perhaps:

FREQUENTLY ASKED QUESTIONS

Who the hell are you, Skeeve?

I'm a non-league betting advisor. I'm 30 years young, studied sociology, worked as a journalist, a copywriter and a screenwriter, but then became Skeeve full-time and haven't regret it so far. I could also tell you who are my favorite writers, directors and musicians, but that would be kinda off-topic, wouldn't it?

Are you any good?

Take a look at the stats - my long-term ROI is 14%. Both good and bad runs are perfectly normal, but I always have a last laugh. Hard work never gets unrewarded, especially in the long run. And other irritating catch-phrases.

What are your stakes? Are you using a 1-10 units scale?

I'm currently using a 1-5 units scale and my average stake is a bit more than 3.5 units (advised bank: 80 points).

When are you usually sending the picks? Do I have to be online 24 hours a day?

6:30 PM Friday and 11 AM Tuesday (or 7 PM Monday if there are no midweek picks, which is the case most of the time).

So, you're covering the Blue Square leagues, right?

Right. The service focuses on non-league markets that are strongest in terms of availability and liquidity - Blue Square Premier asian handicaps and all kinds of Blue Square Premier and Blue Square South doubles.

Why Blue Square leagues? Why not Premiership, Championship, Swedish hockey, Ukranian volleyball?

Because I've been following the English non-league world for quite a few years now and the fact is that bookmakers can't keep up with all the non-league news (transfers, injuries, suspensions, work commitments, financial problems... It's never boring in the non-league world) all the time - it's either that or some terrible odds compiling. I'm a hard worker and a long-term winner and that's something I wouldn't want to change, so I'll stick with the Blue Square leagues for now - those I know best.

Are you making these stats up? Who can guarantee these are actually the right stats?

I was posting my non-league picks & previews for free between December 2006 and October 2007 – on my old blog, on the Betting Advice forum, on the ex-Punters' Paradise forum (I was a resident tipster there), on the Laka Lovica forum (I was a moderator there)... All the picks since the service became paid (October 2007) have been independently monitored and verified, by the highly rated Betting Advice surveillance team from October 2007 to May 2010 and by the superb Secret Betting Club since March 2008.

What about your picks? Do they come with a match preview or are they just plain picks?

All of my picks come with a detailed match preview. I'll even find out where you can find the best odds, second best odds and in fact any odds that in my opinion have value at that moment.

And there's more. I like his answers - and his English is a lot better than my Croatian. skeevepicks@gmail.com if you're interested.

Contrary To Popular Opinion

Continued from my previous post, and a couple of comments. The first from Nick said ...

shows how many guessers there are about!

and then Ben commented that the Newcastle v Manchester United games was...

One of those situations where it really did pay to go 'against the crowd'. Sometimes the case when there are so many people/tipsters/punters pointing towards an 'obvious' bet you should just stand up and swim against the tide.....

While the four gentlemen who all fancied Overs may well deny they were guessers, and could have reached their verdicts after calculating the probabilities of each team scoring 0, 1, 2 or more goals, I didn't see any evidence of that. Looking at previous head-to-head results back to 1904 may or may not be significant, (I suspect not, but even if it is, such a commonly looked at statistic would hardly offer an edge), but many stats I see considered seem to merely be a justification for the guess. Incidentally, when I see some blogs and their fancies for the day, I wonder what the posters have been drinking. I mean seriously, how can someone in London possibly have any edge on a match in, say, Argentina, Bulgaria or Croatia? It's hard enough to find value on your local team - never mind a team from an obscure league playing on a weekday afternoon. Tip - you don't have to bet every day.

The second comment about swimming against the tide is interesting. In traditional investment circles, contrarians will study balance-sheets, but they place more emphasis on behavioural factors in making investment decisions so for example if a stock is heavily recommended, the contrarian assumes that it is fully-valued. If a business is known to be in trouble, the contrarian hopes that it has already been beaten down. Why would sports investing be any different? The Bundeslayga system essentially works on the theory that the odds-on favourite is too short, and that does well enough, and several sports in-running see the price go too low too early on the leader, a case of the crowd stampeding perhaps rather than lining up in an orderly fashion for the bargain of the day.

Why do people follow the crowd?

Comfort - It is comforting to see other people doing the same thing we’re doing. When you’re lost and trying to find your way, it is comforting to see other people in the same location even though they are lost too. At least you’re all lost together.

Fear - It is scary to be alone. It’s hard to believe that everyone else, except us, could be wrong. Maybe we’re the one that is wrong. We caution pioneers – “they are the one’s with arrows in their backs.”

Risk Aversion - When you go against the crowd, you accept full responsibility for the results. It used to be said that nobody was ever fired for selecting IBM. When you invest with the crowd or invest in an index fund it is a safe way to avoid criticism.

Uniteds Go Under

The Newcastle United v Manchester United 2.5 goals market attracted a lot of interest yesterday, in part no doubt due to a lack of top level fixtures. Not only Free Under Over Soccer Picks, but also Trading Football Markets , Blue Orange and Sports Trading Life http://sportstradinglife.com/2011/04/goals-united/ all tipped Over 2.5 goals in the Newcastle United v Manchester United game at around 1.94 or so.

Free Under Over Soccer Picks justified it thus:

Newcastle all games UNDER/OVER 15/17
Manchester United all games UNDER/OVER 10/22

Newcastle home games UNDER/OVER 5/11
Manchester United away games UNDER/OVER 4/12

On average Newcastle scores 1.50 goals per game in all league matches this season, while conceding 1.47.
On average Manchester United scores 2.19 goals per game in all league matches this season, while conceding 1.00.

On average Newcastle scores 2.25 goals per game in all home matches this season, while conceding 1.44.
On average Manchester United scores 1.75 goals per game in all away matches this season, while conceding 1.44.

Last 17 league h2h matches UNDER/OVER 5/12

Trading Football Markets went for it based on

"Toon v Man Utd – Avg 4.3 goals pg at St. James’. Toon have failed to score just once from the last 10 of this fixture".

Blue Orange commented that

"My ratings suggest for over 1.5 goals the odds should be 1.12 and are available at 1.31. For the over 2.5 goals they should be 1.36 whereas on Betfair they're 1.96 which is a 22% difference."

Sports Trading Life looks back at previous matches to conclude that

"The goals favour Manchester United who have scored two goals minimum on every visit to St.James Park since 2005 and this has been a fixture the Red Devils have enjoyed down the years. The highlight being a 5-1 victory in February 2008. With Newcastle being Newcastle I can’t see many reasons why we shouldn't see more goals tonight. The price of over 2.5 is hovering around the 1.90 mark but that should easily be evens (2) if you wait just 5 minutes into the game before entering the market. I am looking forward to this game as it should be very entertaining, I will be looking to play the goals markets and enter as soon as the match starts to warm up."

My numbers also indicated that the Over 2.5 goals was good value, but as most readers know, the result was a 0-0 draw.

A few comments on the reasons put forward for why Overs was value. As I have suggested before, is the result of this game back in 2005, or ten rounds ago, really of any significance? I think not. It seems to me far more relevant how a team has performed recently, but even then care needs to be taken as results are not the same, i.e. a 3-0 home win over Blackpool is not the same as the same result v Chelsea. In other words a statistic such as Manchester United score 1.75 goals away this season is easily calculated, but does it mean anything? What is surely of more significance is Manchester United's recent performances away to teams of Newcastle's approximate strength.

Others though take a different approach to form, taking the view that if a team hasn't scored for a while, then they are 'due' a goal. This one really baffles me. Here's an entry from a recent post on the 500 to 5000 blog:

Today should have been a profitable day, but due to a few amateurish mistakes I suffered a loss. Basically, I laid 0-0 at Le Mans v Le Havre hoping for an early goal. Le Mans hadn't scored for 4 games so I presumed they had at least 1 goal in the bag. A goal was scored late in the game after I had laid off my trade. Whilst this was going on I laid 0-0 at Aarau v Lausanne. I quickly decided that this would be a 0-0 so I traded out for a loss, and a goal was scored. I should have left doing anymore until the Le Mans game was over. Something I need to learn for the future.

"Le Mans hadn't scored for 4 games so I presumed they had at least 1 goal in the bag".

It's a crazy enough statement to make in a true probability game such as craps or roulette, but in a sport like football, not scoring for four goals would suggest to me that form is poor and unless a star striker was returning to the line up and the previous four games were away to the top four teams in the league with a home game against the bottom of the table team coming up, I certainly would not "presume they had at least 1 goal in the bag". Sadly for 500 to 5000, he made a far worse decision on the Newcastle - Manchester United game by laying the 0-0 to the tune of four figures. I'm not sure that any supposed edge on a market like this would justify such a relatively large bet pre-game, but each to their own. I've made plenty of stupid mistakes, but none pre-game where value is that much harder to find in the first place, and three figures is more than enough.

Value, Kelly and ROI - Blog Post Of The Year Award

Patient Speculation has a blog post of the week 'award' (still awaiting the cheque for my winning entry incidentally), and today on Scott Ferguson's always interesting Sport Is Made For Betting is one of the finest posts I have read for a very long time.

Regular readers of this blog know that I am always on about the necessity of value, and the merits of the Kelly Criterion, and try to give examples to illustrate the points, usually limited to the somewhat tired coin-toss, but this post titled Value Doesn't Pay The Bills - included in full below - offers by far one the clearest and easy to understand explanations of why you need value that I have seen. If this doesn't win Blog Post Of The Week next week, I shall be amazed.

An extremely rare guest post on my blog, from a former bookmaking colleague who has been a pro punter now for several years, Vasu Shan. You can follow him on Twitter @vasman60: “Value doesn’t pay the bills”. I’ve always hated that expression. What does it mean? Surely, it’s simply the ramblings of an unsuccessful punter. Is that old chestnut about finding winners being preferable to finding value rearing its ugly head? Of course, none of us can predict the outcome of an event with any certainty, nothing is “nailed on”, it’s not possible to “buy money”. We’re not in the business of prediction, we’re in the business of probability. A successful punter backs both winners and losers, ensuring that the rewards from the winners outweigh the cost of the losers. Value is what it’s all about, isn’t it?? If you need a winner so badly in order to ensure your electricity doesn’t get cut off, you probably shouldn’t be betting at all. If you need a bit of luck on the punt to pay for dinner tonight, you clearly don’t understand the long-term nature of betting. And if the value simply doesn’t seem to be paying, even in the long-term, well, likely you’re not actually getting value at all!

“Value doesn’t pay the bills”? Nonsense!

So, we’re agreed, we want value from our bets. We want 6/4 about the toss of a coin. We want Even-money about Man Utd at home to some average Premier League side next weekend. We want 33/1 that Tiger Woods wins the Open Championship. Yep, value. Maybe the above are too good to be true, but some kind of value.

And we want as much value as possible. 2/1 about the toss of a coin, even better.

Let’s crunch a few numbers. 6/4 about an Even-money chance represents 25% of value (if I spent my whole career betting Even-money chances at 6/4, my Return on Investment, or ROI, would be 25%). 2/1 about an Even-money chance is better, with Expected ROI on such a bet 50%. Betting 50/1 about a 25/1 chance is a stonking 96% of value. And it gets better, a career betting 1,000,000,000/1 about a 1,000,000/1 chance would yield an Expected ROI of 99,900%. But hold on, back in the real world, are we really saying that betting million-to-1 chances at a billion-to-1 is the gold-paved path to betting glory? After all, even after a consistent outlay, there’s every possibility that you’ll never see a return in your lifetime. Such bets may be astonishing “value”, but in terms of tangible reward are arguably not great bets at all.

Let’s get back to basics. If I offered you the following sets of annual gross profit figures, which would you prefer, as a punter? £200,000 (@ 16%ROI), or £400,000 (@ 4%ROI). Those who would prefer the latter are what economists refer to as “rational”. Winning as much as possible, as quickly as possible, is of course the ultimate betting objective. We want to maximise our Expected Wealth. Which doesn’t mean maximising Expected ROI (aka Value).

Incidentally, when we talk about maximising Expected Wealth, be sure not to confuse that with maximising Expected Profit. If you want to maximise Expected Profit, you should bet your entire bankroll on the next value selection that you come across. A strategy of betting your life savings on an Even-money chance at 11/10 (or any price for that matter) will inevitably end in disaster. Of course, a no-betting strategy will show zero profit. There is, however, an optimal stake between all and nothing...

The Kelly Criterion dictates that you should try to maximise the Expected Rate of Bank Growth rather than trying to maximise the Expected Bankroll itself. Google it for historical details. Dust off those A-Level maths books... in order to ensure Expected Rate of Bank Growth is maximised, our logarithmic utility function is differentiated and set to zero. Google again for details of the boring calculus, but the result is a formula that is able to recommend an optimal stake for each betting opportunity that is a function of the size of your bankroll and the value that you’re getting, with respect to the price that you’re taking.

The uses for Kelly don’t end there. Ever wondered what you should do if you’ve backed a 500/1 Superbowl finalist, with the 50/50 big match now priced at 10/11 pick’em. Though I suspected some economic hedging argument, the absence of a mathematical justification led me to believe that with no remaining value, simply holding the position was the right thing to do. I was wrong. There is an optimal hedge that will see the expected rate of your bank growth maximised, even though you may be accepting negative value on that hedge. Or you’re on Benfica @ 20/1 for the Europa League, and now you make them short favs in the final, and 2/1 is available. How much should you optimally press, if at all? Kelly can help you calculate how best to trade most effectively, based on how much you’ve already risked, the size of your bank and your level of risk aversity. Overstaking, re-assessment, market moves, arbitrage? Ask Kelly. Accept no substitutes.

As the number of bets you make increases, the chance that Kelly betting will beat other systems approaches 100%. The Kelly Criterion is endorsed by no-less-an-investor as Warren Buffett, but it should be noted that while it is economically and mathematically sound, it is not to everyone’s tastes. A common complaint is that it is far too aggressive. Given that we each have a natural level of risk aversity, and knowing that we generally deal with odds estimations with a margin for error (rather than “true” odds), this seems to be a fair grievance. A fraction of Kelly is therefore recommended (30% to 50% seems to be a “happy medium” within the professional punting community), the important thing is that a suitable ratio between your bigger bets and smaller bets remains. Full-Kelly staking should be optimal, but it is certainly volatile. As you reduce your Kelly%, your bank will tend to grow less rapidly, though less volatility will be attached.

The fact is even the best odds compilers in the world would unknowingly be on the road of bankruptcy if they were to mismanage their money, by consistently overstaking. On the other hand, understaking would see a failure to fulfil punting potential (a preferable failure, admittedly).

In an earlier example, we pointed out that a career betting Even-money chances at 6/4 would yield 25% ROI, and a career betting 25/1 chances at 50/1, 96% ROI. However, more significantly, at optimal stakes, the former would on average grow your bank by 2.06% per bet, while the latter would only have an expectation of 0.73% bank growth per bet. And if you’re making a large number of bets, cumulatively, that differential can turn out to be enormous. It should be clear which is the truly productive cash cow and which is merely the efficient red herring.

Those who’ve spent a lifetime maximising ROI, I guess you’ve now realised that in a punting context, those who are able to grow their bank balance more significantly are, by most people’s definition, the more successful.

So, in summary...Return on Investment for show, Rate of Bank Growth for dough. £, not %. As I’ve always said, “Value doesn’t pay the bills”.