Sinking Below

I mentioned in yesterday's post that I would be ignoring BigAl's provocations, but at least one person has requested me to sink below him, at least for now. Pat Cusack commented:

I was looking forward to your response to Big Al. He raised, what appear at first glance at least, to be valid points.

Your spats have been very interesting in the past, so go on don't rise above him just yet.

Keep up the great blog

I'd hate to disappoint anyone, so for those who may have not have seen it, BigAl's comment was this:

I hope you don't mind me asking about your bankroll growth.

Your bankroll growth in 2005 was around 1400%, in 2006 approx 2500%.

Simple extrapolation since then suggests average annual growth of little more than 100%. [A subsequent comment noted that "Just realised, the extrapolated average bankroll growth figure over the last few years that I mentioned is misleading. The average will be much much lower than the 100% I suggested but I suspect a man of Cassini's intellect will understand what I meant".]

Obvious factors are the increased charges from Betfair, and possible relative lack of liquidity in some markets compared to desired bet size.

Many professionals will regularly dip into their funds to provide an income stream but your comments in your post clearly guard against this in your own circumstances.

It's a massive slowdown in % terms and as far as I can tell you have increasingly more bets on football as per the FTL, and these are in highly liquid markets.

Furthermore, rightly or wrongly, you have often advocated staking approx 2% of bankroll per bet so your stakes should be increasing.

It's probably fair to say that bankroll growth from a small bank several years ago is always likely to be far higher than in the present day with a much bigger bank but nonetheless your figures seem slightly curious unless you largely deviate from many of the strategies you preach.

Perhaps you have had a lot of bills and weddings to pay for along the way.

I think most readers will agree that when you are dealing with small numbers, percentage figures are meaningless and often very misleading. I actually don't know what my bankroll growth was in 2005, so I'm surprised that BigAl does. All I know is that in 20 months from April 2004 it grew from £98.50 to four figures, shrunk back down to £20 and ended 2005 at £1,329. Regardless, the rate of growth was strong, but from such a low starting point, not really that meaningful.

The first year I kept full records was 2006, and the year started with a bankroll again in four figures, but second time around, a few important lessons had been learned. Growing this to £32k+ in 12 months was impressive, although £18k of that came in the final three months of the year, and in hindsight was perhaps a little fortuitous. The start of 2007 was calamitous, with more than £5k being lost on day one, a lesson for thinking that I could do no wrong, and a decision from which my bankroll didn't recover until August of that year. I tell this story to make it clear that bankroll growth is far from steady. 

Another thing I should point out is that Betfair's default maximum exposure limit is £5,000 and I have never requested that this be raised. One lesson of my 1.1.07 disaster was that even with a decent sized bank, I am not comfortable losing that much money. (Other lessons learned that day were that when trading football in-play, I do not have an edge, and certainly not one that can justify a risk of £5,000, and that when I have a bad loss, I get very tired and have to take a nap). 

BigAl mentions a couple of things that I have addressed previously, but will clarify again. Al says - "many professionals will regularly dip into their funds to provide an income stream but your comments in your post clearly guard against this in your own circumstances". I am not, never have been, and never will be, professional in the sense that I need any of the profits to cover living expenses. I like to think that I have taken a 'professional' approach to sports investing, i.e. keeping decent records, trying new ideas, maintaining discipline etc., but I have never 'needed' to withdraw money. However, with a self-imposed limit of £5,000, there's no point in leaving significantly more than that in a non-interest earning account, as it is money that will never be used. I typically maintain between £15k and £25k in my account, enough to absorb a few large hits, but not too much. Most of the withdrawn money has ended up in more traditional investments, but it has on occasion been used for a decent vacation. None of it has been used to pay for groceries or utilities. It is withdrawing money from a betting account for these reasons that I caution against. I have no problem with withdrawing money once your bank has essentially outgrown itself, but a betting bankroll should not be needed for food and lodging expenses. The need to make money means you make less than optimal decisions as I have commented on in the past. 

The second clarification is on the 2% staking level that BigAl states I suggest. As regular readers of the blog will know, this is my suggestion for punts. In-play trading is where significant edges can be found, and I have never suggested, or meant to imply, that a self-imposed limit be applied when a big value in-play opportunity presents itself. As some screenshots have shown in the past, my exposure often gets close to the £5k limit, which with my average bank size is clearly a lot more than 2%, and I have often spoken of the low-risk / high-reward nature of laying large amounts at short prices when the market has overreacted. In summary, the chances of you finding an edge pre-game are a lot less than they are in-play - at least in the less popular or understood sports, so a limit of 2% makes sense for the former, with a more flexible limit for the latter. It works for me. Any FTL bets do not exceed 2% of the bankroll, and several of those markets are anything but highly liquid, where getting even 0.2% matched is often a challenge. The disappointing, and out of line with expected, returns on those markets mean that's a good thing!  

Now one might say that with a verifiable edge, why don't I remove the £5k limit and risk ever higher amounts? One reason is the already stated observation that I am not comfortable risking more than this, but there is another factor - the Betfair markets I am most interested in are not huge. On the Los Angeles Lakers v Utah Jazz game last night, an hour before tip-off and a total of ~£24k had been matched, and the amounts available were:

Although this screenshot is taken pre-game, it's not dissimilar to what you might find during a break in the game. While the clock is running, the amounts are usually less, and the gaps wider, and so it is clear that £5k is almost always more than enough relative to what the market will offer. To his credit, BigAl does recognise this possibility in his comment. One other note here is that my strategy is often to lay at sub 1.1 prices, and at these prices, £5k is usually more than enough. 

BigAl also mentions the increase in charges, and since September 2008, I have been paying the 20% which will clearly make a difference, although nothing compared with the impact of the 50% charges introduced in October. In fact, the mere looming of this charge has meant that profits on Betfair are lower than ever, as I have moved some activity elsewhere. I was facing my own fiscal cliff for much of this year, before proceeding over it. 

One final thought is that all months or years are not the same. I have written before that my best time of year is typically October through March when I make 68% of my profits, and also that edges can disappear overnight. Back in 2006, my top earning sport was golf, and it's no surprise that I don't mention it much these days, because I have found profits harder and harder to come by, and other sports have became more attractive. Trading a golf tournament for four days and handing over 50% is not an appealing idea. 

And markets do not remain inefficient for ever. The NHL used to be a strength, but the markets on Betfair are now all but dead, and there's no NHL anyway these days! 2006 was the last time I made four figures on that sport. Baseball was top in 2007, and peaked in 2009 with five figures in profits, but again the markets have weakened. The NBA had a strike last season, all these are factors that discredit the idea that bankroll growth is steady. It is anything but, and the need to constantly find new edges in different markets, if not sports, is clear. I may have to turn to horse racing soon, at which point I shall know it is time to move on and get a life.    

BigAl calls it a massive slowdown in % terms, and of course it is - 1000% growth is unsustainable, but having reached my limit relative to the size of the markets, and after adjusting for increased charges and other outside influences, returns have been relatively steady over the years in real terms.