Skeeve Achieves

I'm fairly sure no one did, but if you had taken my advice from Saturday morning and backed League Two away teams, you'd have added another 2.42 points to your bank from the 12 matches played taking the total to 26.15 on the season after 392 matches.

Exeter City's 90th minute equaliser v Blackpool cost us 2.48 points, but this was more than compensated for by Crawley Town's late winner at Wycombe Wanderers.

Returns are calculated against Pinnacle's Closing prices. 

A few days ago I mentioned how the daily hit count varies wildly, for no apparent reason, but then I stumble across a thread on the Betfair Forum which helps to explain the source of these sudden surges in interest. 

This post from nathanrh on February 1st was good to see, for a couple of reasons:

As for tipsters, well the only 2 I've seen that I 'suspect' might be long term profitable are Skeeve & Sportspunter (although that's had an absolute shocking 2016). Those guys post up honest selections and prices and you can beat most of the prices by a few extra ticks, ROI's run at a very low long term percentage; in short no-one is going to give you a nice winning consistent system because anyone who has one is sitting very tight ;-).

Anyone else with outrageous ROI's just isn't realistic, or isn't going to be around very long, there will be a few big priced winners and then they will mean-revert to losers after sucking you in.

Over at the Green All Over Blog Cassini occasionally posts up useful nuggets of systems that you might be able to derive positive expectation from. His posts are also worth a read as he generally debunks those who claim to be long term profitable with just their 'feelings' or 'PDF systems' or 'what time of the month they bet'.

The message on tipsters might be getting through. A prescient mention of Skeeve, given that he just won the Secret Betting Club's "outstanding contribution to tipping" award, which is a "lifetime achievement honour chosen by the SBC team" (along with being voted the third best sports tipster in 2016 by the SBC members).

The SBC ‘Lifetime Achievement’ honour is designed to recognize those who have provided outstanding services to punters through tipping and is chosen by the Secret Betting Club team.

This year’s very worthy award recipient is the football tipster, Skeeve, who since 2006 has been posting his lower-league football tips to great acclaim. Making a profit over the course of 1 football season is difficult enough but to do it over 10 consecutive seasons as Skeeve has done is a phenomenal achievement.

Over the lifetime of his service, Skeeve has posted just under 1500 tips and made 674 points profit at 12.2% Return on Investment. It is not just his profit but the quality of customer service and his odds-settlement policy that also deserves merit as Skeeve has always played extremely fair by his members, ensuring that you can often match, if not beat the advised profits he records on his website – a huge deal when you consider today’s betting markets and how they react to sharp money.

Skeeve is well on course to enjoy his 11th consecutive profitable season and we can’t think of a worthier recipient for this honour. Here is to another decade of profit!

Well deserved. I've mentioned Skeeve many times on this blog, and I am please to see that he has won this prestigious award. To mark the occasion, Skeeve has a special offer:

you can now join the Skeeve Picks service for the remainder of the season (March, April and May) for only 200 EUR instead of the usual 250 EUR. If you're reading this, you're eligible for the special discount. If you're interested, please send an e-mail to skeevepicks at gmail dot com.

Nathanrh seems pretty clued in on other things too, notably on that same thread with some thoughts that should be of interest to anyone silly enough to be thinking of moving into the horse racing markets:

Oh dear!, to trade pre-race horse racing markets you really need to have some realistic idea of what the real price should be, guys that study specific tracks / runners / stables etc. are literally MILES ahead of you, add in the crooked nature of horse racing and you are onto a losing proposition for sure. As for traders that simply push prices pre-race, well that's another losing trading ecosystem if ever I've heard of one ;-).

For horse racing, you need something most of the others do not have, inside info., local track knowledge, stable info., and even if you do have that 'edge' it will be hard to snap up significant pre-market value without letting everyone know.

Horse racing was the least profitable enterprise I ever found just doing the raw data analysis, any significant edges short term were eroded in the long term and lost to commission. I came to the conclusion you would need either 20 years of knowledge or someone on the inside feeding you info ;-).

Good advice.  

Warren Moonlighting

A huge cock up at the Academy Awards where Faye Dunaway read out the wrong winner for Best Picture.

Here's my take on what happened. 

Faye Dunaway and Warren Beatty were given the wrong envelope. 

Above, you can see Warren Beatty holding an "Actress In A Leading Role" envelope, which had already been won by Emma Stone in La La Land. 

You can see the confusion on Warren Beatty's face when he pulls out the card - he actually looks in the envelope again, and appears to look off-stage for help.

Then, after hesitating, he shows the card to Faye Dunaway, who fails to see Emma Stone's name, or perhaps it fails to register, but just sees the words La La Land (1.2 favourite) and reads it out. 

The actual winner was second favourite Moonlight.

I happened to read an article last week on the counting process, and one of the facts is that two people have the results, and take separate routes to the ceremony.

Thus there are two copies / envelopes for each category, one is stage left, the other stage right. 

It appears to me that the mix-up was that somehow the Best Actress envelope was given to presenters twice. 

Not sure why Warren Beatty is being blamed for the error.   

The Emerald Isle and Frugality

A couple of recent comments to highlight as the counter clicks inexorably towards the one and a half million hits mark.

Combo apparently liked by review of Warren Buffett's 2017 letter to shareholder, writing simply:

Gold!!!

Gold is usually a good thing. 

Trader 247 had a comment on my Basic Models, Priorities piece, commenting:

It would be a waste to ignore what works for those with more experience. So I have also adopted the 'best practice' of responding to comments in posts. Thank you.

No problem at all. Imitation is the sincerest form of flattery. Blogging can be a lonely activity, so why not use comments to keep a conversation going as well as give them a forum where they might be seen?

While I don't track my commenters by name, Betfair Pro Trader James must be leading the way, certainly if we weight recent comments more heavily than those of previous years. It was with a heavy heart, and a little envy, that I read James' recent post revealing that he plans to head home to Ireland. 

The impression I got was that it was something of a farewell post, ending as it did with the words "Bye for now". However, since then James has posted two new blog articles, so perhaps I'm mistaken. 

In the first post from the Emerald Isle, he talks of Stockholm Syndrome. I read a book on this subject once - at first I thought it was terrible, but after a while, I really started to like it...

James wrote:

This had me wondering if there is also a financial version of the syndrome, whereby those who have paid monthly subscriptions, over many years, for something they believe is going to make them wealthy. This would count as a form of captivity and even though they never get any wealthier, they keep on subscribing. If told that they are wasting their money they will attack those trying to help them see sense.

What shall we call it, Oslo Obsequiousness? Maybe that is too big a word for some victims to understand.

It was Friedrich Nietzsche who said:

Sometimes people don't want to hear the truth because they don't want their illusions destroyed. 

Taking umbrage with the messenger doesn't change the message in any way. If you believe the message is logically flawed, perhaps suggest why you think this is so. 

James' latest post was triggered by today's earlier post by myself, written after watching "Becoming Warren Buffett" last night. James wrote:

Too many people who aspire to being rich think only of the things they want to buy when they run into good fortune. Think of all the lottery winners who lose their millions in a short space of time. People don't become multi-millionaires by spending money. The exact opposite is true. The rich go out of their way not to spend anything at all.

My thoughts on this are that lottery winners are, with rare exception, not very well educated. As Business Insider puts it:

They are (1) regressive taxes on poor people, in that a ticket costs relatively more for a poor person than a rich person, and (2) punitive taxes on the poor and uneducated people who are the most avid buyers.

The people who can least afford it are throwing away on average 47 cents on the dollar every time they buy a ticket. And the government, which relies increasingly on the lottery for funding, goes out of its way to tell them it is a good idea.

When they suddenly find themselves awash with money, most winners have no idea how to handle it. 

James continues: 

You are not going to get rich by constantly spending your capital on items that lose value the moment you hand over your cash. Only through the purchase of assets that appreciate in value are you going to increase your wealth.

One of the best books I have read on this topic is "The Millionaire Next Door" from 1996, written by Professors Thomas J Stanley and William D Danko. A summary of the book can be found here but:

In essence, it doesn’t matter how much you earn; it matters more how much you spend and invest relative to how much you earn. The average people next door became millionaires because they chose the right occupation, faced their fears courageously and handled their money well with great financial discipline and frugality. These were what made them the millionaire next door.

Wealth is what you accumulate, not what you spend. A little over a month ago I pointed out the folly written by one trader:

Ideally I want to get a new Porsche Cayman GTS although with a near on £60,000 price tag its going to have to wait as the money will be better spent on getting a house and living rent free initially. In the mean time though I wouldn’t mind a change. Currently im driving a BMW 325 which I actually rate quite well, excluding the fuel consumption that is. I have to drive a considerable distance each time I have my son so long-term it’s not a great idea, plus I’d like something a little more sporty. I think its important to treat yourself every now and then too as it boosts that motivation to kick on…

There may well be a formula somewhere about what percentage of your net worth it is reasonable to spend on your car, but even though I am not aware of it, even considering spending £60,000 on a car before you have even bought a house seems preposterous. 

Invest that £60,000 in a FTSE 100 tracking index fund and have ~£400,000 at age 65.  Ask yourself, WWWD? (What Would Warren Do?).

The excitement of a new (brand new, or new to you) car soon wears off, and for boats it is said that: 

I'm sure James is far too sensible to be buying a yacht any time soon. 

Although neither James or myself can claim to be a millennial, these days there is a definite trend away from material possessions and towards experiences:

Millennials view ownership differently than previous generations did. While young adults have traditionally placed high value in a car and home, many are now seeing them as major commitments. The trend predates millennials but is accelerating: Since 1987, Harris group found hat the share of consumer spending on live experiences and events relative to total U.S. consumer spending increased 70 percent.

And in the hour or so it's taken me to put this post together, the counter is poised to crack the 1.5 million mark any minute now. This post should do it, so again, thank you to everyone who reads this and spreads the word about it.  

Becoming Warren Buffett

On the recommendation of my son yesterday, I spent some time last night watching HBO's recent documentary "Becoming Warren Buffett". 

It's available on YouTube and at the risk of sounding like I'm in love with Mr Buffett, it is an interesting 89 minutes, delving into his personal life, and not just looking into his success accumulating money.

From an investment perspective, the big takeaways are nothing new - compound interest, patience, value, but much of the documentary focuses on his personal relationships and Warren Buffett the 'man' rather than the 'investor'.

I found the opening scene very amusing. It featured Warren Buffett on his way to the office, stopping for a McDonald's breakfast. He starts his day by telling his wife to give him either $2.61, $2.95 or $3.17. 

On the day of filming he went with the middle option - sausage McMuffin with egg and cheese - saying "When I'm not feeling quite so prosperous, I might go with the $2.61" and adding that "the market was down this morning, so I'll pass up the $3.17". For a multi-billionaire to be saying, or even thinking that way, is actually quite hilarious.

A couple of times, it's mentioned that making money for Warren Buffett, now 86 years old, is just a way of keeping score, rather than for the money itself which he admits has no utility for him at this point, and at the end he says: 

"In a sense, the game that I'm in gets more interesting all the time. It's a competitive game, it's a big game, and I enjoy the game a lot"

I feel the same way about the, not quite so big world of betting and exchanges. More than eight years ago, I wrote:

I was thinking in the shower this morning, (yes, once a week, whether I need one or not), Betfair really is the ultimate video game. I've never been one for games, (friends at work spend hours playing Call of Duty - why? What's the point?), but in many ways the exchanges are one big on-line game. It's me versus an unknown opponent. My opinion versus yours, except in this game the points are real money.

In 2010, in a post about an article called the “Real Reasons You Gamble” by Dr Maurice Farber from the Department of Psychology at the University of Connecticut, I commented that:

I do find trading and investing a challenge, but an intellectual challenge rather than anything resembling a “war”. Trading is exciting, but without it I certainly don’t feel “desperately bored and empty”.

The New Yorker Magazine has an excellent review of the documentary which again, I wholeheartedly recommend: 

Over the end credits of the new HBO documentary “Becoming Warren Buffett,” we hear the incongruous sound of Buffett singing “Somewhere Over the Rainbow,” in a cracking voice. It’s a nod to a moment, earlier in the film, when Buffett’s daughter, Susie, says that she has a sweet spot for the song because her father used to sing it to her when she was a little girl. And, while it might seem like an odd way to end a film about the world’s most famous investor, it’s actually surprisingly fitting. The documentary, which was made with the coöperation of Buffett and his family, deals with Buffett the businessman and investor, but it’s Buffett the man and his complicated, and often difficult, relationships with the people he loved most that are the film’s real subject.

We are still treated to the greatest hits of Buffett’s business career. We hear about his early entrepreneurial endeavors—selling soda and gum door to door, delivering five hundred papers a day—as well as about his love of numbers and his interest, from a very young age, in the stock market. Buffett describes his discovery of Ben Graham, one of the fathers of value investing, from whom he learned the idea of buying “cigar butts”—companies that are on their last legs but are nonetheless so undervalued by the stock market that you can still make money off them (as you can get one last puff from a discarded cigar butt). And we get a picture of his partnership with Charlie Munger, who was instrumental in moving Buffett from buying bad businesses at cheap prices to buying great businesses—most famously, Coca-Cola—for reasonable prices, a move that was the foundation of his immense fortune.

But what makes “Becoming Warren Buffett” far more interesting than a simple hagiography is the exploration of Buffett’s personal life, and, in particular, his relationship with his first wife, Susan, who died in 2004. Personal relationships were not something that Buffett navigated naturally. At one point in the movie, he says, “I don’t have a mind that relates to the physical universe very well,” and the same seems to have been true of the emotional universe. Buffett, by his own description, was socially awkward as a kid (he attributes much of his later success to taking a Dale Carnegie public-speaking course as a young man), and the film is a portrait of a person for whom financial questions “are easy,” as Buffett says. “It’s the human problems that are the tough ones.”

In some ways, Buffett was the archetypal absent-minded professor, so locked inside his own head that he wasn’t always aware of what was going on around him. (He says he doesn’t recall the color of the walls of his bedroom or his living room.) This could be hard on the people around him. “Physical proximity with Warren doesn’t always mean he’s there with you,” Susan says, in an old “Charlie Rose” interview. His children reiterate this sentiment. His son, Howard, says that it’s difficult to connect with Buffett on an emotional level, “because that’s not his basic mode of operation.” Susie, his daughter, says that you had to speak to him in sound bites, because if you went on for too long you would “lose him to whatever giant thought he has in his head at the time.”

To some degree, Buffett’s cerebral, inward nature seems to have been there from the start. But the film also suggests, gently, that it may have been amplified by his family life when he was a boy. Buffett’s father—whose portrait still hangs on the wall of his son’s office at Berkshire Hathaway—was, by his account, a great dad, affectionate and inspirational. “The best gift I was ever given was to have the father I had when I was born,” Buffett says. But his mother, who was brilliant and ambitious, was another story. She was plagued with chronic headaches, and, Buffett says, “You didn’t want to be around her when she was having the headaches. She would lash out.” Buffett’s sister Doris is more blunt, saying that she remembers “being terrified” of her mother. “When I’d wake up in the morning, I’d listen to hear her voice. I could tell by her voice if it was going to be a terrible day or not.” It hardly seems like a stretch to speculate that Buffett’s emotional reserve might have been, in part, a reaction to the turmoil at home.

But Buffett has, over the years, pushed back against that reserve, and the movie examines him as a man trying, haltingly but successfully, to open himself up to the world and let more of it in. Buffett attributes this effort almost entirely to his first wife: “I was a lopsided person. She put me together.” Susan moved away from Omaha (where Buffett has lived for more than sixty years) in 1977, but the two of them remained close (and never divorced), and she helped to orchestrate his relationship with Astrid Menks, whom he married after she died. Susan—who is in some senses the real star of the documentary—seems to have been the driving force behind Buffett’s evolution as a person. She’s the one who got him interested in civil rights and feminism, who pushed him to become more of a public figure and to give more of his money away before during his lifetime. (Buffett, with his love of compound interest, wanted to pile it up and then donate it after he died.) The paradox of the movie’s title is that, in order to become “Warren Buffett,” the avuncular, modest figure who’s the anti-Trump, Buffett needed in many ways to stop being himself, or at least to stop being the self that came most naturally.

There’s another paradox the film hints at, too: the qualities that made it challenging for Buffett to deal with people are the very qualities that made him such a brilliant investor. This is more subtle than just the fact that Buffett loved numbers so much. In fact, his true genius isn’t just his ability to identify undervalued companies; it’s his ability to buy and hold onto those companies through the inevitable fluctuations that all markets experience. That’s not just about insight. It’s also about an ability to divorce yourself from emotion, to be rational at a time when other people are acting irrationally, and to be calm when others are fearful.

On the walls of the Berskhire offices, framed front pages from days of market panic, like the 1929 financial crash, serve as a reminder not to succumb to the passions of the moment. That’s something that all investors know they’re supposed to do. But actually being able to do it, being able to buy when everyone else is screaming, “Sell,” and not to buy when everyone is telling you to do so, is a very hard thing for most of us. For Buffett, it seems to have been as natural as breathing. But it’s not difficult to see how that hyperrationality, that ability to divorce yourself from what’s going on around you, might also make it difficult truly to connect with the events of everyday life, which happen, after all, in the moment. Buffett was born to be great at investing.

He had to work really hard to be good at living.

Lucky Monkeys

The legendary Warren Buffett's annual letter to Berkshire Hathaway's shareholders is out, always very readable and well worth reading. 

Along with his common sense wisdom, he also has a great sense of humour, throwing out lines such as:

As is the case in marriage, business acquisitions often deliver surprises after the “I do’s.”

Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. 

Today, I would rather prep for a colonoscopy than issue Berkshire shares.

Charlie and I, however, will sleep in; the fudge and peanut brittle we eat throughout the Saturday meeting takes its toll.

Remember, the more you buy, the more you save (or so my daughter tells me when we visit the store).

He also doesn't shy away from admitting mistakes, which is rare in today's world. Everyone makes them, well I don't personally, but everyone else does...

My error caused Berkshire shareholders to give far more than they received (a practice that – despite the Biblical endorsement – is far from blessed when you are buying businesses). 

A few, however – these are serious blunders I made in my job of capital allocation – produce very poor returns. In most cases, I was wrong when I originally sized up the economic characteristics of these companies or the industries in which they operate, and we are now paying the price for my misjudgments. In a couple of instances, I stumbled in assessing either the fidelity or ability of incumbent managers or ones I later put in place. I will commit more errors; you can count on that. Fortunately, Charlie – never bashful – is around to say “no” to my worst ideas.

He's also not afraid of taking a subtle dig at the current administration:

Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.

As for the future, he's full of optimism:

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle. 

That same year, Craig Mundie of Microsoft asserted that pilotless planes would routinely fly passengers by 2030, while Eric Schmidt of Google argued otherwise. The stakes were $1,000 each. To ease any heartburn Eric might be experiencing from his outsized exposure, I recently offered to take a piece of his action. He promptly laid off $500 with me. (I like his assumption that I’ll be around in 2030 to contribute my payment, should we lose.)

On the topic of economic downturns and market panics, he says:

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

There are always paragraphs which you can apply to trading, for example this section on stock repurchase which has parallels in when / if you should close out of a trading position:

For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value. Consider a simple analogy: If there are three equal partners in a business worth $3,000 and one is bought out by the partnership for $900, each of the remaining partners realizes an immediate gain of $50. If the exiting partner is paid $1,100, however, the continuing partners each suffer a loss of $50. The same math applies with corporations and their shareholders. Ergo, the question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent.

Written about hedge fund managers, but applicable to tipsters perhaps:

Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods. If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.

Here's another line which leads neatly into another topic close to my heart:

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.

Paradox of skill, anyone? Perhaps the most interesting section for me is the one in which those words were found, on the subject of his well known wager that over a ten year period, passively investing in the S&P 500 would beat any portfolio of at least five actively managed funds. 

One brave soul stepped up to the $500,000 challenge, and the bet has been running for nine years. While the probable outcome is no surprise to me, and shouldn't be to any readers, the likely margin of victory might be. Here was Warren Buffett's assertion:

Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore, the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor’s equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.

What transpired since then is below:

Subsequently, I publicly offered to wager $500,000 that no investment pro could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees. I suggested a ten-year bet and named a low-cost Vanguard S&P fund as my contender. I then sat back and waited expectantly for a parade of fund managers – who could include their own fund as one of the five – to come forth and defend their occupation. After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?

What followed was the sound of silence. Though there are thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge. Ted was a co-manager of Protégé Partners, an asset manager that had raised money from limited partners to form a fund-of-funds – in other words, a fund that invests in multiple hedge funds.

I hadn’t known Ted before our wager, but I like him and admire his willingness to put his money where his mouth was. He has been both straight-forward with me and meticulous in supplying all the data that both he and I have needed to monitor the bet.

For Protégé Partners’ side of our ten-year bet, Ted picked five funds-of-funds whose results were to be averaged and compared against my Vanguard S&P index fund. The five he selected had invested their money in more than 100 hedge funds, which meant that the overall performance of the funds-of-funds would not be distorted by the good or poor results of a single manager.

Each fund-of-funds, of course, operated with a layer of fees that sat above the fees charged by the hedge funds in which it had invested. In this doubling-up arrangement, the larger fees were levied by the underlying hedge funds; each of the fund-of-funds imposed an additional fee for its presumed skills in selecting hedge-fund managers.

Here are the results for the first nine years of the bet – figures leaving no doubt that Girls Inc. of Omaha, the charitable beneficiary I designated to get any bet winnings I earned, will be the organization eagerly opening the mail next January.

Footnote: Under my agreement with Protégé Partners, the names of these funds-of-funds have never been publicly disclosed. I, however, see their annual audits.

The compounded annual increase to date for the index fund is 7.1%, which is a return that could easily prove typical for the stock market over time. That’s an important fact: A particularly weak nine years for the market over the lifetime of this bet would have probably helped the relative performance of the hedge funds, because many hold large “short” positions. Conversely, nine years of exceptionally high returns from stocks would have provided a tailwind for index funds.

Instead we operated in what I would call a “neutral” environment. In it, the five funds-of-funds delivered, through 2016, an average of only 2.2%, compounded annually. That means $1 million invested in those funds would have gained $220,000. The index fund would meanwhile have gained $854,000. 22

Bear in mind that every one of the 100-plus managers of the underlying hedge funds had a huge financial incentive to do his or her best. Moreover, the five funds-of-funds managers that Ted selected were similarly incentivized to select the best hedge-fund managers possible because the five were entitled to performance fees based on the results of the underlying funds.

I’m certain that in almost all cases the managers at both levels were honest and intelligent people. But the results for their investors were dismal – really dismal. And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved – fees that were totally unwarranted by performance – were such that their managers were showered with compensation over the nine years that have passed. As Gordon Gekko might have put it: “Fees never sleep.”

The underlying hedge-fund managers in our bet received payments from their limited partners that likely averaged a bit under the prevailing hedge-fund standard of “2 and 20,” meaning a 2% annual fixed fee, payable even when losses are huge, and 20% of profits with no clawback (if good years were followed by bad ones). Under this lopsided arrangement, a hedge fund operator’s ability to simply pile up assets under management has made many of these managers extraordinarily rich, even as their investments have performed poorly.

Still, we’re not through with fees. Remember, there were the fund-of-funds managers to be fed as well. These managers received an additional fixed amount that was usually set at 1% of assets. Then, despite the terrible overall record of the five funds-of-funds, some experienced a few good years and collected “performance” fees. Consequently, I estimate that over the nine-year period roughly 60% – gulp! – of all gains achieved by the five funds-of-funds were diverted to the two levels of managers. That was their misbegotten reward for accomplishing something far short of what their many hundreds of limited partners could have effortlessly – and with virtually no cost – achieved on their own.

In my opinion, the disappointing results for hedge-fund investors that this bet exposed are almost certain to recur in the future.

His conclusion:

The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds. 

Well worth a few minutes of your time to read the entire report, and looking back on previous ones is always time well spent. This one brought to mind the excellent book “Where Are The Customers’ Yachts?” which includes this great quote:

“There have always been a considerable number of pathetic people who busy themselves examining the last thousand numbers which have appeared on a roulette wheel, in search of some repeating pattern. Sadly enough, they have usually found it.”

Trends, Blips and League Two

I've written before how detecting trends before they are widely discussed, can be profitable, for example the increase in goals in the English Premier League discussed in recent posts.

Heading into this weekend, here are a few trends that might be worth monitoring. 

The comments below relate to the past ten seasons of 2007-17, which is obviously not quite ten full seasons, and the top levels of leagues in England, Belgium, France, Germany, Italy, Netherlands, Portugal and Spain, i.e 80 seasons.

Top Home Winning % 2007-17

Homes: Only seven times have Home wins comprised 50%+ of the results. 

This season, three leagues are currently on pace to do just that. France, Italy and Belgium, all at highs for their leagues, as are Germany although shy of the 50% total. 

Conversely, the Netherlands at 40.6% look certain to set a record low Home total. 

Draws: The Draw percentage has never finished below 20% - currently Serie A is at 19.8%.

Goals Per Game: As previously mentioned, the EPL's current 2.82 is a record high for that league, and Serie A's 2.81 this seasons is also a league record. 

At 2.29 goals per game, Portugal is setting a new low. 

Ratio of Home Goals : Away Goals: The Netherlands and Spain are selling league lows here, although at 1.5, France is bucking the trend towards Away teams with a new league low.

Outside of top leagues, the Championship is setting a new league high for Home wins at 46.4%, and an all-time low for the English lower leagues for draws, at just 22.8%.

League Two is again where the Aways are leading the way, and for the sixth straight season, it looks like they will end above the 30% level. 


Using Pinnacle's Closing prices, this continues to be a money-spinner, but don't tell everybody:




The best value on the Away is found in the 20% - 39.9% range where the ROI is double the above at 14.6% this season, from 259 bets.

My spreadsheet tells me the optimal range is actually where the implied probability ranges from 20% to 44.99%, where the ROI drops to 12.9%, but the number of bets increases to 701 and a 90.67 point profit. 

Good luck this weekend. Incidentally, if you have any leagues that you want me to plug into my analysis spreadsheet, don't hesitate to ask. So long as it's covered on Football-data.co.uk it will highlight areas where the market may be less than efficient. 

Forgetfulness, Immortality and Quality

Trader 24/7 pointed out, without saying as much, that my senior moments do occur:

You're British?! Now it all makes sense.

Mark Iverson was blogging before me too, starting in December 2006, and still active on Twitter today, even though his blog has been retired and he seems to have lost the plot as a trader by heading into...

Yes, yes - I forgot to complete the sentence due to a distraction of some kind. Trader 24/7 makes a few suggestions: 

...gee gee edgeless fantasy profits
...just gambling
...local Ladbrokes
...outer space
...Communism?

Indeed, the gee-gees is where I was going with that sentence, and I've got there now, but "just gambling" would have worked too. While Cassini isn't a traditionally British name, the Italian roots are so far back that I'll be supporting England on Sunday.   

Skeeve, one of, if not THE, best tipsters around, specialising in the under-researched National League, aka Level 5 of the English Football League system, appears to think I am immortal:

Congrats mate,
Here's to the next 2259! :)

It's highly unlikely that I have another 2,259 posts in me, because as James pointed out in his comment, it's about quality rather than quantity:

It does get harder to write good material year after year. I have slowed down myself as I would rather write quality rather than quantity. Not that I disparage the quality of this website. Always readable.

I was never that prolific a writer to start with, 178 articles in 7 years. Although some manual traders (the usual Twitterati) castigate me for writing anything at all. However, it is they who can't stop tweeting for 5 minutes whereas being an algo-trader gives me plenty of spare time that square-eyed manual traders can never have.

I have 15 drafts that I have been working on for many weeks but nothing that I wish to publish yet. Reading quality websites or receiving a message on Twitter gives me ideas that eventually become articles but are only published when I feel I have something to add to the world of trading.

Once a website achieves critical mass it will always receive a lot of hits via the Google search engine. The majority of my visitors come via Google and even though I don't write as much as I did I have not noticed much of a drop-off.

Quality will out... is for others to say.

One can't say that James doesn't produce quality articles. That he describes his postings as 'articles' rather than 'posts' rather sums it up. 'Articles' implies a certain amount of research, and since research takes time, you're never going to see several articles a week, but they are always worth waiting for. Of course James has, in between articles, had two well received books published, which is something most of us haven't accomplished.

In contrast to James and his seventeen articles in draft status, I have one. It's a good one though, looking at trends in some of the top and popular leagues this season, which may well turn out to be blips, but are worth keeping an eye on. Whether I've reached 1.5 million hits by the time it's published remains to be seen - 1,910 hits shy as of now.    

1.5 Million, and Counting

At the current 2017 hit rate of 770 a day, this blog will reach one and a half million hits in less than five days time, and next month it will celebrate its ninth anniversary. There may be other sports investment themed blogs out there with greater longevity, in which case please enlighten me and I shall add them to the blog roll, but I'm not aware of any.

I certainly wasn't the first. John The Gambler, aka John Tuohy, was one of the first, starting in January 2006, and I was surprised to see he is still active, although he appears to be confusing his blog for Twitter with posts these days that are usually 140 characters or less:

He's now looking for work as an actor or model, which is a little different from trading.

Mark Iverson was blogging before me too, starting in December 2006, and still active on Twitter today, even though his blog has been retired and he seems to have lost the plot as a trader by heading into... horse racing! 

Scott Ferguson just beat me to it, starting his blog Sport is made for betting in January of 2008 and still going strong although with a horse racing bent which isn't to everyone's taste. But great that he has blogged steadily for so long.

One more blog has fallen by the wayside this week, that of Winners Win on Sports, with Flash explaining that:

I don’t enjoy writing any more and I’m not making any money out of it, not that I’ve tried to make money from it. So if the enjoyment’s gone then it’s time to call it a day.

Indeed. The almost two years that Flash managed to keep blogging was longer than most. 

The Full Time Betting Blog started in September 2010, but has lain dormant for five months now, although still registering around 1,500 hits a day. I used to be quite envious of this enormous hit rate, but a look at the numbers shows an interesting pattern:

The hits per day is consistently almost exactly 1,500. Now I'm not an expert in Forensic Data Analysis, but that hit consistency could look a little suspicious to me were I that way inclined. 

If a dormant blog is getting 1,500 hits a day, then well done, but the pattern of hits for a blog isn't usually so flat. Here's this blog's chart over the past twelve weeks, with a daily average of 658 hits, as an example of how choppy the daily totals can be:

All very harmless, and I'll just have to content myself with falling farther and farther behind despite continuing to produce top quality posts. It's not a race or a destination though, it's a journey. No doubt the day will arrive when like Flash, I don't enjoy writing any more, or at least don't enjoy writing about sports and betting any more. I've always enjoyed writing, so that is unlikely to ever change. 

I suspect that most readers stumble on this blog whilst looking for the usual "it can be done, all you need is desire, all you need is my book, all you need is my software, all you need are my tips, all you need is to attend my training course" etc., but while it can still be done ("it" being making a long-term profit from betting or trading) it is not easy, it's not as easy as it once was, and it can't be done by any one. 

"You need a very particular set of skills; skills you have acquired over a very long career. Skills that make you a nightmare for other traders..."

I'm quite Taken with that quote. The journey this blog has detailed should be in part inspirational, in part cautionary, but never dull. For sure, some humourless people, and readers with Asperger Syndrome, miss the jokes, the subtlety, and take everything literally, but I think most people understand my dry British sense of humour and don't take me too seriously.  

This post is number 2,259 and, as I have joked before, while not all of them have been hugely interesting admittedly, the other 2,258 have been...

Away Days, Data, and Detachment

Slightly concerned that I may have been in the midst of a senior moment, I was relieved to see Brian confirm my numbers on the goals per game in the EPL. 

Hi Cassini, Thanks for the update. I've just queried my database too which is populated using football-data.co.uk files and got exactly the same numbers as you, with an overall average of 2.65 since 1993/94.

The key takeaway from this is the importance of having quality data, as mentioned on page 16 of James Butler's seminal work "Betfair Trading Techniques". And don't rely on someone else's research. 2.4 goals per game! 

Brian has another post on this topic, going back (almost) to the start of the Premier League, with details on the numbers of matches going Over and Under 2.5 goals, along with the average goals per game.

Brian discusses possible reasons for the recent increase in goals per game, but in my opinion, it's all part of the decline in home field advantage that I have touched on before. Home teams are still scoring pretty much in line with long-term averages, but...

...in the first 19 seasons of the EPL (1992-2011), Away teams averaged 1.1 goals per game. 

In the almost six seasons since (2011-17) this average has 'shot' up to 1.19 goals, and this season is currently at 1.23. 

The number of Home goals per Away goal declined from 1.39 to 1.29, and Away teams are now winning over 30% of matches (compared to 26.5% previously). 

Last season Home teams had their lowest winning percentage ever (41.3%) while the four best seasons ever for Away teams have all been in the past five seasons. 

It's not just an English phenomenon either - I wrote in May 2014:

Away wins were at record (10 year) highs in England, France, Italy and Spain. Only Germany failed to set a new high, although they were still 8 wins above their 10-year average of 89.

One other observation is that except for Spain, in every other league the Home Goals Per Game (HGPG) minus the Away (AGPG) figure, i.e. the home advantage, is down on its 10 year average.

In Germany it is at 0.34 from 0.40, in France 0.37 (from 0.41), in Italy 0.35 (from 0.39) and in England 0.38 (from 0.42). Spain was at 0.51 (up from 0.42, in part because of the frequent thrashings handed out at home by Barcelona, Real Madrid and this year Atletico Madrid).

In August 2014, I added:

One other trend worth drawing attention to is that of Away teams.

Historically, since 1947, Away teams have won 25% of matches. Home teams have won 49% and Draws the remaining 26%.

But averages can be deceiving. In the days of Division One, Away teams won 24% of matches.

Since the Premier League was formed, they have won 27%, and have steadily chipped away at the long established home advantage.

The last three seasons have seen an average Away win percentage of 30.3%. This is actually quite remarkable because it is a number not seen in a single season since 1947. Away teams over this three year period have averaged 1.22 goals per game, a number not seen since England won the World Cup.

Here are the win percentages over time – notice how the Away win averages are steadily gaining over the years, and in the last three seasons in particular:

I need to update that graphic.

The difficulty is always in determining whether observations like this are blips or a trend. Wait too long and any edge you may have found has long gone. Jump in too soon, and the trend becomes a blip and there never was an edge.

The thing with Unders and Overs betting is that your losing runs will be short and in low over-round markets, any losses should be small even if it's a blip you're following.

Brian concludes his post with these words:

At the risk of stating the obvious, if there’s one thing that is clear from all this, it’s that whether it’s the unders or overs that you are looking to back, you need to be finding odds of over 2.00 to show a profit long-term.

Not quite correct. If you limit yourselves to Overs where the implied probability is in the 50% to 54.99% range, your ROI is 12.4% (18.39 from 148 bets). There's nothing magical about the 2.0 / evens price. What's magical is when the actual probability is greater than the implied, and that can be at 1.01, 1000, or anywhere in between. But more likely at the lower end of that spectrum. 

G, possibly not his full or real name, left a comment on my Failing Assets post, writing:

Excellent (and often over-looked) comment on detachment.

Something I've found recently that is much easier when placing "place and forget" bets.

Much more difficult when trading a match/game etc.

Was curious if you found the same - obviously you're not trading as much/at all now- when your were up in the higher echelons of the trading world along side Messers Webb, Berry, Iverson et al.

I found fairly early on that the key to detachment, which is basically taking the emotion out of trading, is to stake sensibly. Back in 2011 I wrote:

While I don't consciously have an amount that I am comfortable betting, my body soon lets me know if I've over committed - and my wife can hear my breathing pattern change to heavy, so she knows as well and stays away!

It's hard to stay detached when adrenaline is in full flow, but by staking sensibly I was able to do a fairly decent job for a part-timer.

I'm not sure it's fair to compare me with the pros listed above, although at least one of them allows the fact that it's his job to have a negative influence on his trading. (How much the other two made on the Australian Open tennis that they were talking up last month has yet to be revealed). I was only ever a humble part-timer, in it for the intellectual challenge rather than the money.

If you are trading with money that you can afford to lose, then you are more likely to trade optimally, without emotion, than you are if you need the money to pay bills and feed your young children. No update from Mark on his horse racing venture, which may be good news (he's seen sense) or bad news (he's not making minimum wage) but he did have an embarrassing Tweet posted:

As many readers will have spotted, Mark has fallen victim to Survivorship Bias:

Survivorship bias, or survival bias, is the logical error of concentrating on the people or things that "survived" some process and inadvertently overlooking those that did not because of their lack of visibility. This can lead to false conclusions in several different ways.

Trading successfully requires, among other things, believing in yourself. The issue is that for many, this belief is irrational, and they do not have the skills or resources required and thus ultimately fail. Simply really, really wanting to make thousands doesn't overturn the laws of probability in the long run. And praying doesn't help, trust me. 

Trading came along at the perfect time for me. Not only did I have a career, and a job that allowed me some flexibility regarding hours, but I had no small kids to distract me, and was in a relationship with someone who left me alone to do my thing. For some reason she was happier with me trading most nights than with me going to the pub! 

I was also in on, if not the ground floor, certainly the first floor, of the exchange concept, and there were many opportunities back in those days.

Since then, court-siders, green-siders, pitch-siders, sooie-siders (in Arkansas, good joke if you get it) and other-siders have moved in, Premium Charges have been introduced, Betfair's liquidity has declined in most of my sports, and my time is better spent researching trends and betting and forgetting, although the consequent increase in nights out and drinking will probably shorten my life expectancy by a few years. 

Incidentally, if you want to measure how good you are as a trader, compare your average win size with your average loss size. The higher the win to loss ratio is, the better a trader you are.

Verification and Validation

Although I'm sure there was no intent by Brian to mislead anyone, I did clarify in my last post that the average number of goals per match in the Premier League is not 2.4 as asserted, but closer to 2.75. For this season, it's actually at an all-time high of 2.82. 

As this actual total moves from below the 2.5 level to above, it's not surprising that some of Brian's conclusions are wrong. 

As anyone studying the Over / Under markets in the Premier League will also be aware, since 2015-16 (630 matches at the time of writing), blindly backing the Overs has an ROI of over 5%.  

Over this time, 46.7% of matches went Under 2.5, while 53.3% go Over.   

A couple of filters improve this ROI still further. One I'll give away is that where the implied probability for the Overs is in the 40% to 50% range, the ROI is closer to 8.5% from 314 matches.

The alternative filter eliminates about two-thirds of matches and has an ROI of 15.9% from 212 matches. 

I just noticed that Brian has emailed me regarding my post, saying:

I'm really pleased your enjoying my blog. I have quite a few topics on my list that I hope to write about and your feedback as well as your own writing is always inspiring. You're right about that sentence and I still have to curb my tendency to rush my thoughts down at times!

The 2.4 goals stat for the PL I got from a Pinnacle article written last year but if it's incorrect that'll teach me not to do my own calculations. I am surprised it's as high as you've found though.

However you calculate the average goals per game for the Premier League, it's never been as low as 2.4 unless my numbers are wrong. The low for a full season was 2.45 in 2006-07, but perhaps I should have kept quiet as all those squares assuming the average was around 2.4 will now be driving the Overs price down. 

I'd not read the Pinnacle article before, but it's not one of their finest. The writer, Dafni Serdari, says this:

To give you a better idea about differences in the average goals per game across the major European leagues, Premier League matches have an average of 2.4, Italy’s Serie A whopping 3.21 and Spain’s La Liga 2.85 goals per game.

Nonsense. Serie A has 'whopping' 3.21 goals per game? I don't think so! I make it exactly 2.6 goals per game over the last ten full seasons, and the highest it has been this millennium is 2.76!

In La Liga, I have 2.73 goals per game in the last ten seasons which is close, but when you're looking at numbers in this way, you need the data to be correct. 

Always Above Average

One of the best written and readable blogs out there, is Brian's Betting Tools.

His latest post looks at "What do pro punters/sharps bet on?" and in the sentences on football, and Over / Under betting, are found these words:

What Buchdahl is able to confirm, is that there is a bias towards betting on over 2.5 goals. This isn’t surprising as you can see from forums and twitter that this is a very popular bet but why? Buchdahl explores a few possible reasons for this in his article but the one that stands out is the negative feeling punters get when a goal goes in. It generally feels better for most people to cheer on a goal and turn a bet into a winner than it is to start with a winning bet and it turn into a loser. Particularly for those who get excited by gambling.

Taking the above into account, it did surprise me a little to see fewer prices over even money for the under 2.5 markets, particularly in the Premier League. On closer inspection it seems that the average amount of goals scored in the Premier League is 2.4**, so unders should always be priced below evens on average. Perhaps this is another reason why people prefer to bet on over 2.5 goals. For the recreational punter, betting a tenner or so, the thought of getting less money back than you risk is a bit unexciting and at even money or more you will always win more than you risk.

Joseph's finding (from an admittedly small Pinnacle Tweeted sample of 200 matches last season) was that:

75% of matches witnessed a preference for betting on the Over (betshare greater than 50%) whilst the average Overs betshare was 62%.

Other than the small sample size which Joseph acknowledges in his article, I have an issue with Pinnacle telling us what the betshare is, because the number of bets in themselves is meaningless - what is important and useful to the punter, is how much money is being placed on each side. 

The betshare number could be 99:1 - but if it is 99 mug / square punters ("who get excited by gambling") backing Overs with £10 because the last three matches between the teams in 1908, 1930 and 2009 ended 4:1, 6:2 while one sharp is backing Unders for £990 because their model has a lower goal expectancy than the market suggests, the information is almost useless. (What is useful is that if such a betshare is reported, but the price remains the same, you can deduce that a similar scenario to my exaggerated example is playing out).

I think Brian could have phrased this sentence a little better too:

...the average amount of goals scored in the Premier League is 2.4, so unders should always be priced below evens on average. 

Always be odds-on, on average?  You can't have both "always" and "on average..."

** The average goals per Premier league game is actually a lot higher than 2.4 - since 2015-16 to date it is 2.75, an increase from the 2.66 of the ten seasons prior (2005-15).