Caught In A Landslide

The Unknown Trader responded to yesterday's post saying:

I tend to agree with you on the use of P and L in blogs and that's why I committed myself on never using it in my own.

Nonetheless, if you compute a P and L/hour over a long time period (years or thousands of markets) some issues like initial bank size will be diluted. As so, a trading edge will take care of an initial small trading bank while the opposite situation also stands true: a huge trading bank will be gone if you don't have it. Either way, the inclusion of a time measure is very important when evaluating trading outcomes.

About your measure, I think a win/loss ratio of 1 is a good rule of thumb, but there are a lot of ways to go to Rome which I don't categorize as better or worse. In fact, they are better or worse when it comes to Betfair Premium Charge, but that's another subject! The numbers you stated in your post are pretty impressive and maybe I'm wrong here but I think you could find similarly impressive ones from traders with different ratios, higher or lower. In the end, each to its own I guess!

Keep up the good work, it's great that you're more active again in your blog! By the way, your feedback (good or bad) on my blog would be highly valued, hope you get the chance to read it.

There are indeed many ways to skin a cat, and if you have found a way that works for you, then stick with it. The mention of the Premium Charge is interesting too, as I'm sure many a successful trader has modified or added new strategies to mitigate these as much as possible. Green Is The New Black is a blog worth reading. I believe the writer is from Portugal where Betfair has recently stopped operating, so to fill up his spare time, the writer is now blogging. With eleven posts in August but just three in September and October combined, I hope this isn't a sign of waning interest already, but my award for "best post to date" goes to this one - Is there a blind obsession with statistics in the betting world?

Certainly there is for some people who nonsensically think that previous match-ups from years back between clubs are relevant when assessing odds, or who think that there is some predictive value to be derived from a 32nd minute own goal on a Tuesday night in Grimsby, but if you are smart and logical, put some context around your data (all goals are not equal), then as many have shown, it is possible to gain an edge, at least for a short while.

As for the kind words about the blog, they are appreciated. As some of you know already, responsibilities at work increased this summer, but after nearly two months, I've grown into the job somewhat, and learned what is important, and more usefully to whom it can be delegated! The result is a little more free time, no travelling for a couple of weeks, and hence - a few more posts.

The Daily Fantasy Sports scandal continues to grow, if not explode. My US correspondent, Scott, pointed me to a long-read article in the New York Times which is worth the long read. Scott commented:

A very long piece of investigative journalism, but an interesting read.

The Pinnacle connection is surprising in that they would choose to exit the UK market due to a Gaming Commission tax increase, but on the other choose to get their hands dirty in the US market where they are breaking the law.

Still incredible that the US has not chosen to simple regulate and tax sports betting.

The US is an outlier on many issues the rest of the civilised world have long since settled. Fahrenheit should be retired, the death penalty is never justified, evolution is a fact, religion is silly, climate change is a fact, elections should go to the guy with the most votes (i.e. Al Gore), healthcare should be a right and placing a bet is a perfectly normal activity. On the same topic, Bossman Megarain writes:

Your Blog continues to provide insight/thought provoking analysis.

We are all busy, gambling, but, the DFS saga, has peaked my interest, in that it seems the DFS win, by Artem Genchanok, was bet from Louisiana, - one of 5 states, that specifically prohibit, 'gambling by computer'.

I am v interested, how this pans out ..

I do feel, with all the Federal involvement, Sports Betting, may be legal, in far more States, within - say 3 yrs, than I had previously thought.

As it stands right now, Fantasy Sports is exempt from the 2006 law because it was considered a 'game of skill'. Back then though, the industry was a fraction of what it is now, and Fantasy Leagues ran for a season. Reducing the time span down to "Daily", and the element of chance is far higher, as almost everyone reading this will be only too aware of.

As the New York Times article says, the Act was passed in a hurry, late at night, and wasn't debated. Now that there is so much attention on Fantasy Sports, it is likely that new legislation will be passed at some point. Either Fantasy Sports will now be considered gambling and also banned, or the opportunity will be seized to have an informed debate on the topic, accept the realities of the 21st century, and allow US citizens to decide for themselves how to spend their money, and provide a regulated environment to facilitate that activity. Time will tell, but there's a lot of money lobbying against opening sports betting up.

The four Divisional MLB Series are now done, and it wasn't a good round for the UMPO with the ROI% now in the red down by 7.74%.

At least the round ended with a win, and we move on to the best of 7 Championship Series where in the National League, the Chicago Cubs play the New York Mets, and in the American League the Toronto Blue Jays face the Kansas City Royals. It's a good year for teams in blue! The AL series starts tonight with the Royals home 'dogs, which as you can see above isn't a category that has had any success so far this play-offs with all four selections losing.

The Cubs won all seven regular season games v the Mets this season, while the Blue Jays had the edge 4:3 over the Royals with home sides winning 5 of the 7 games.

Measuring Up - Is This Just Fantasy?

Green Is The New Black, aka Unknown Trader, commented (via Twitter) on my Time - The Hidden Cost post saying:

Nice post, IMO there is no better measure of a trader's performance than Profit or Loss/hour for a meaningful period of time.

The problem I have with using Profit and Loss as a measure is that a pound is worth far more to a pauper than to a prince. It's a lot easier to make £10 an hour from trading with a bank of a thousand times that and a seven figure net worth than it is if you are unemployed and unemployable, with a net worth of peanuts and a bank of £100.

That's one reason why I don't like P and L blogs - they have no context. A profit (or a loss) on its own is meaningless, and even more meaningless when there's no clarification on the time consumed.

As a measure of pure trading ability, I stand by my assertion from last September that the best traders are those whose average win size is the same as, or greater, than his average loss size.  Some esteemed traders offered their numbers, and the average win size from the informal survey seemed to be in the 80% to 90% range of the average loss. Bayes, well known to the Betfair Forum, wrote:

In tennis, my main trading sport, I win in about 60-65% of markets and my average win to average loss ratio is very close to 1. Four or five years ago this ratio would have been nearer 0.8 but I am much better nowadays at staying 'at market'.

Mark Iverson's Cricket numbers were a very impressive 0.997 (Ave Win: £230.85, Ave Loss: £231.59). My own NFL numbers were not (0.729) but the NBA was better at 0.874.

Moving on, and as predicted here last week, the FBI are now investigating the Fantasy Sports business in the USA.

The New York Attorney General’s office has asked both companies for a raft of internal data including the win/loss records of players, algorithms that determine the fantasy pricing for athletes and details on their policies to prevent fraud.

This article specifically mentions the issue of insiders trading:

DraftKings, as well as rival FanDuel, have acknowledged that their employees — many of whom regularly rank among the most consistent big winners — have played and won significant money on each other’s sites. In the wake of the scandal, they banned their employees from competing in any contests.

Don't hold your breath that the Gambling Commission will be asking the same of Betfair any time soon, but the pressure may be heating up - someone is certainly carrying out some interesting research:

Betfair viewed every extra bet as good business. They would stop people having $10 from New York on a new account, but super-courtsiding boss Jonathan Gale has fired in billions of dollars worth and been waved through.

A billion here, a billion there, and pretty soon you're talking about real money - Everett Dirksen

Time - The Hidden Cost

Toymaster77 commented on my Riches to Rags post writing:

I have done the same as you as a punter for 30 years and lost constantly. In 2011 Deposited $100 AUS and have not made another deposit but taken plenty out. I am a layer not a backer.

Go slowly and don't listen to all the get rich schemes.

Have listed my results over last 12 months on toymaster77

While it is great news that after a quarter century of losing, Toymaster has managed to turn things around over the last four, I'm not sure many of us would have hung in there for that long. Of course it's quite possible that the losses over those 25 or so years fell under the Entertainment heading rather than Investment losses. Some of us bet for fun, some as a serious endeavour to make a little extra money, and some as a full-time occupation.

Time is our most valuable asset. Time is money. Time is not equal to money. Time earns money, yet money can not buy time.

While I keep detailed records of the sums won and lost going back to January 1st 2006, (lost £123.72 that day if anyone is interested), I don't track the hours expended to earn (or divest) those sums, and I suspect time is something many of us overlook.

It may not be true for everyone but for me, with trading opportunities becoming less and less frequent and other demands on my time, after years of suggesting that 'in-play is the way', I'm now in a place where the value in simple strategies is becoming increasingly important.

The UMPO system is still in profit, with an ROI of 8.1% after a run over the last three days of two winners from eight which has seen that percentage decline. We've also had a glut of Overs in that time, with six of those eight going Over including all four of yesterday's games. So with no real football, it was a wash on the baseball but a decent weekend on the American Football, one of the few sports remaining where in-play trading can still be profitable.

Finally, it looks like our friend Clayton Kershaw will be pitching again tonight for the Los Angeles Dodgers after just four days rest. He's 1-1 on short rest in play-off matches, winning in 2013, losing in 2014. It's a must-win game for the Dodgers as the Mets lead the series 2-1.  

Cope Or Flourish, Bitches

Some of you may have heard of trading psychologist Brett Steenbarger whose TraderFeed blog has been in the 'other blogs I read' section of this blog for a long time.

He has some interesting ideas on trading psychology in his latest Forbes post, writing:

To appreciate the difference between the traditional psychological perspective and the newer one, consider two traders keeping performance journals. The first trader keeps tabs on various problems that creep into his or her trading, including the usual suspects of fear and greed. The journal entries note how these have occurred and what the trader will try to do subsequently to avoid the pitfalls.

The second trader keeps a journal that is broken down into five areas of performance: research and information collection; creativity and the generation of trading ideas; entry execution and position management; risk management and exit execution; and self-management along the four domains listed above. Each of those areas of performance is anchored by best practices and the reverse-engineering of successes, so that there is a continual refinement of strengths.

One journal consists of finger-wagging: don’t do the wrong things. The other journal consists of an exercise of strengths: do what you do best.

Which journal is most likely to be empowering? Which is a trader most likely to stick with Which is most likely to lead to exemplary performance?

Minimizing our problems can help us cope. Maximizing our strengths can help us flourish.

My experience is that the flourishing focus is a true paradigm shift for most people. Most of us view our typical day as an opportunity to get tasks done, manage challenges that arise, and hopefully accomplish some things. Once we view life through the lens of flourishing, however, each day becomes an opportunity to enhance happiness, personal satisfaction, energy, and relationships. This is the idea of life as a gymnasium: each day presents challenges that exercise the best within us.

His previous post was also a gem, including this advice which mirrors what I have said myself many times, only not quite so succinctly perhaps, bitches.

You have a relationship with the market and any time you're controlled in a relationship, you're the bitch.

The only way to have an even relationship with the market is to control when you play, so that you don't get played.

That takes rules, that takes finding and sticking to edges - and it takes the willingness to not play when your edges aren't screamingly apparent.

What you got ain't passion for trading; it's a need to play.

If you need to play, you're going to get played. You're going to be controlled by market behaviour. You're going to be the market's bitch.

Riches To Rags

Peter Webb's latest post is titled "A Fool And His Money Are Soon Parted" an ancient proverb which for me at least, always begs the question "How did this fool get his money in the first place?"

An inheritance, lottery win or a rare sporting talent are three likely candidates, and you don't have to look far to find hundreds of stories about former star players now working mundane jobs or lottery winners who have blown through millions. Some UK based readers will be familiar with lottery winner Callie Rogers who won nearly two million pounds in 2003 and ten years later, after attempting suicide, was studying nursing with a net worth of £2,000.

On a personal note, while he never earned the riches that top players receive these days, back in the day I was friends with the brother of David Price, the footballer who played in three FA Cup Finals and a Cup-Winners Cup Final for Arsenal as well as his local team Crystal Palace. 

Forced to retire at the relatively early age of 28, David was putting down computer room flooring and driving a mini-cab after blowing his relative wealth on extravagances and simply being too generous. He would often pick up the bill for nights out with friends, most of whom pretty much vanished overnight after his career was over.

Peter Webb's article takes a rueful look at the image of 'gambling markets' and the attitude of the press which loves a good Elliot Short-like story. While the business model used by traditional bookmakers - "we only accept losers" - should be ultimately doomed (a fate that would be accelerated with the banning of FOBTs), the exchanges and their shenanigans don't help themselves. The insider-trading scandal this week in Fantasy Sports is another example of the industry shooting itself in the foot.

Back to more mundane issues, Peter and I are on the same page on this issue:

You also have the issue that people who have never traded successfully are positioning themselves as experts or people are seeking to exploit the trading opportunity, rather than getting on and doing it, that isn’t helping matters. So even the best opportunity to profit from sports markets that ever existed, can get horribly fudged.

I feel sorry for people on the wrong side of these scams. But it has to be said, it’s fairly obvious that if you are producing stellar returns on something, you just reinvest the money yourself. No need to seek outside involvement. I know that, because that is exactly what I and many others have done. I’ve never met a serious participant in the market who wouldn’t do the same.

The infamous Sultan and Odwyer come to mind as characters here. Both were mentioned in a post back in February 2013 and then of course there was our old friend Adam Heathcote, but the key point to understand is that if you have an edge, you don't need anyone else's funds to get the ball rolling. I started with a Betfair deposit of £98.50 in 2004, and as I have mentioned before, that remains my only deposit into Betfair. It took me a while to get going, and honestly I don't believe the same opportunities exist today as they did 12 or so years ago, but it was a fun ride at least until I hit the 50% Premium Charge limit.

Having too much money actually works against you as Peter explains:

...even starting with small amounts, you can move to much bigger ones very quickly, if you have an edge. This is something fairly unique to sports markets. So if I start with a small amount of capital I don’t really need any more, I just compound what I have.

The fact is, even if you have a decent track record it’s impossible to put that extra money to use because your ‘system’ will collapse under the weight of your own stakes. In effect, you become the market! The upshot of this is that sports markets are just not scalable enough to warrant raising significant funds to deploy in them.

I do have a problem with Peter's qualification of the word 'unique' here - there is no degree of uniqueness! Something is either unique or it is not unique. Something can't be 'fairly' unique, but what Peter says is correct so far as scalability is concerned. If you are playing with a few pounds, it is much easier to get value than if you are playing with tens of thousands. The below market is from tonight's baseball game between the Toronto Blue Jays and the Texas Rangers:

With just £2,107 traded at the time of writing, that's not exactly a liquid market where a large stake would be required. So next time you read that someone needs funds, understand that means they have no edge. If they have an edge, they don't need your money.

Speaking of fools, I just saw this from TheLADbible:

 I don't think betting is their strong suit.

There is no fool like a careless gambler who starts taking victory for granted - Hunter S Thompson

UMPO

It's been a decent start to the UMPO system (Underdogs MLB Playoff in case you were wondering) with underdogs triumphant in four of the first six qualifying matches so far. The lines in yellow are provisional on the prices, but I'm in the pleasing position where even a wipe-out over the weekend wouldn't take me into the red.

It seems that more than a few of you might be following me on this system with the price on the Mets crashing from a high of 2.94 to around 2.68 last night before rebounding a little at first pitch. It's always tempting to lay off and have a risk free bet when a price moves in your favour like that, but unless that was your intent (and good luck picking up on pre-game moves) I'd advise sticking with the game plan and letting the bet run.

The prices I use in my records are taken from a US web site and can usually be beaten. For example on last night's St Louis Cardinals v Chicago Cubs game, the prices were -107 (1.9346) and -103 (1.9709) which is why although there was 'technically' an underdog, the system requires its underdogs to have a less than 50% implied probability!

The New York Mets were up against Mr. Clayton Kershaw, (I may have mentioned his name here once or twice before), whose seven year contract and $30,714,286 million annual salary contrasts rather dramatically with the Mets starting pitcher Jacob deGrom's (left) one year, $556,875 deal. DeGrom was the National League Rookie of the Year last season, but how he, or anyone else for that matter, manages on such a pittance, I have no idea. Don't feel too bad for him though - when Free Agency rolls around , he should be able to pay off some of his higher interest credit cards and afford a hair cut - scruffy git.

Kershaw's record in playoff games is poor, with just three wins from his eight appearances, and on a losing run of four.

Laying Kershaw in Playoff Games

The poor run extended to five as Kershaw was pulled in the seventh inning leaving the bases loaded and trailing 0:1. By the end of that half-inning, it was 0:3 and the Dodgers were done, although they did score one run. The Division Series are best of 5, and to state the obvious, lose the first game and you need to win three of the next four.

I'll update the UMPO results every few days. I'm sure some of you don't want a daily update, and quite sure some of you don't want any updates because you don't care about baseball, but the beauty of simple systems like this and the Bundeslayga are that they are low-risk and low-maintenance. There's no bet management required, no  need to watch the game itself - simply check the upcoming games each day, place your bet, and enjoy life.

Close To The Edge

Once again, I am indebted to my old friend Scott for drawing my attention to some breaking news - a sports betting scandal over in the USA.

Unlike the Betfair scandal, which sees UK regulators either incapable or unwilling to address, it's unlikely to take the US authorities long to act, unless guns are involved in which case it's business as usual. Got mental issues? Sure, no problem Sir - how many guns would you like?  13? - unlucky for some, here you go. 

Scott notes that;

According to this article, US federal law accepts that fantasy leagues where you bet on the results produced by individual players constitutes a game of skill rather than chance.

But betting on match outcomes themselves is somehow different.

Totally bizarre.

Legalising sports betting is the only (obvious) solution to the problem.

Equally as bizarre is that internet poker was considered a game "subject to chance" and banned in 2006. Buying stocks, options, futures etc. is all skill then. Right.

Here is the New York Times article on the US Daily Fantasy Sports scandal:

A major scandal is erupting in the multibillion-dollar industry of fantasy sports, the online and unregulated business in which players assemble their fantasy teams with real athletes. On Monday, the two major fantasy companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading, that employees were placing bets using information not generally available to the public.

The statements were released after an employee at DraftKings, one of the two major companies, admitted last week to inadvertently releasing data before the start of the third week of N.F.L. games. The employee, a midlevel content manager, won $350,000 at a rival site, FanDuel, that same week.

“It is absolutely akin to insider trading,” said Daniel Wallach, a sports and gambling lawyer at Becker and Poliakoff in Fort Lauderdale, Fla. “It gives that person a distinct edge in a contest.”

The episode has raised questions about who at daily fantasy companies has access to valuable data, such as which players a majority of the money is being bet on; how it is protected; and whether the industry can — or wants — to police itself.

The leagues have been swelling in popularity, their advertisements blanketing football game broadcasts.

The industry has its roots in informal fantasy games that began years ago with groups of fans playing against one another for fun over the course of a season. They assembled hypothetical teams and scored points based on how players did in actual games.

But in recent years, companies, led by DraftKings and FanDuel, have set up online daily and weekly games based on a similar concept in which fans pay an entry fee to a website — from 25 cents to $1,000 — to play dozens if not hundreds of opponents, with prize pools that can pay $2 million to the winner. Critics have complained that the setup is hardly different from Las Vegas-style gambling that is normally banned in the sports world.

On Monday, DraftKings and FanDuel released a joint statement that said “nothing is more important” than the “integrity of the games we offer,” but offered few specifics about how they keep contests on the level.

A spokesman for DraftKings acknowledged that employees of both companies had won big jackpots playing at other daily fantasy sites. Late Monday, the two companies temporarily barred their employees from playing games or taking part in tournaments at any other site; they already had prohibited their employees from playing on their own company sites.

“Both companies have strong policies in place to ensure that employees do not misuse any information at their disposal and strictly limit access to company data to only those employees who require it to do their jobs,” the statement said. “Employees with access to this data are rigorously monitored by internal fraud control teams, and we have no evidence that anyone has misused it.”

Industry analysts said the episode could leave the leagues open to further criticism that they are too loosely regulated.

“The single greatest threat to the daily fantasy sports industry is the misuse of insider information,” Mr. Wallach said. “It could imperil this nascent industry unless real, immediate and meaningful safeguards are put in place. If the industry is unwilling to undertake these reforms voluntarily, it will be imposed on them involuntarily as part of a regulatory framework.”

Already, there has been intensifying discussion on social media and among lawmakers over whether daily fantasy games are pushing the boundaries of an exemption in a 2006 federal law that has allowed them to operate. The law prohibited games like online poker but permitted fantasy play, deemed games of skill and not chance, under lobbying from professional sports leagues. The games are legal in all but five states.

But because Congress did not foresee how fantasy sports would explode, one member, Representative Frank Pallone Jr., Democrat of New Jersey, recently requested a hearing to explore the relationship between fantasy sports and gambling. “I really think if they had to justify themselves at a hearing they wouldn’t be able to,” Mr. Pallone said in a recent interview.

The data that DraftKings acknowledged was released by its employee, Ethan Haskell, showed which particular players were most used in all line-ups submitted to the site’s Millionaire Maker contests. Usually, that data is not released until the line-ups for all games are finalized. Getting it early, however, is of great advantage in making tactical decisions, especially when an entrant’s opponents do not have the information at all.

A spokeswoman for DraftKings said that Mr. Haskell simply made a mistake and that the company was certain he did not use the information improperly. She declined to go into specifics about the safeguards or the company’s auditing policies.

Representatives of both companies acknowledged that many employees of daily fantasy companies were players first and had continued to compete on other sites. Ben Brown, a founder of Daily Fantasy Sports Report, was first to disclose that Mr. Haskell had posted the information. Mr. Brown also said a FanDuel employee with access to its internal data, Matthew Boccio, had played on DraftKings; a FanDuel spokeswoman confirmed that.

"There’s a significant amount of crossover,” said Chris Grove, an industry analyst and editor of legalsportsreport.com. “The nature of the industry is so specialized and so new that, at the speed which they grew, they relied heavily on the player population.”

Many of these employees set the prices of players and the algorithms for scoring. In short, they make the market.

As daily fantasy sports has blossomed into a multibillion-dollar industry in the past year, DraftKings and FanDuel have become cherished sponsors of M.L.B. and N.F.L. franchises.
Eilers Research, which studies the industry, estimates that daily games will generate around $2.6 billion in entry fees this year and grow 41 percent annually, reaching $14.4 billion in 2020.

So high are the potential financial rewards that DraftKings and FanDuel have found eager partners in N.F.L. teams, even as league executives remain staunch opponents of sports betting.

Jerry Jones of the Dallas Cowboys and Robert K. Kraft of the New England Patriots have stakes in DraftKings, which recently struck a three-year deal with the N.F.L. to become a partner of the league’s International Series in Britain, where sports betting is legal. In addition, DraftKings has tapped hundreds of millions of dollars from Fox Sports, and FanDuel has raised similar amounts from investors like Comcast, NBC and KKR.

Adam Krejcik, a managing director at Eilers Research, said early missteps were often part of booming growth in a new and often misunderstood sector like daily fantasy sports. He said whether Mr. Haskell, the DraftKings employee, made an innocent mistake or not, the damage was done.

“Certainly does not look good from an optics standpoint, and it strengthens the case for additional oversight and regulation,” he said.

Mr. Grove, of legalsportsreport.com, said this may be a watershed moment for a sector that has resisted regulation but now may need it to prove its legitimacy.

“You have information that is valuable and should be tightly restricted,” Mr. Grove said. “There are people outside of the company that place value on that information. Is there any internal controls? Any audit process? The inability of the industry to produce a clear and compelling answer to these questions to anyone’s satisfaction is why it needs to be regulated.”

Curse Of The Billy Goat

October became a little greener on the final day of the regular MLB season with both the Los Angeles Dodgers (~1.29) and the Pittsburgh Pirates (~1.48) both winning. That makes it seven from seven for this season and over five years since the last sub 1.51 hot favourite lost an October regular season game.

The third profitable season in four, and the record of this strategy over the last twelve seasons looks like this:

Over the twelve seasons, the strategy is most profitable in April (+22.55) and least profitable in September (-64.90) but clearly things have changed and the conclusion of a famous study from 1994, updated in 2003, doesn't seem to hold true today*.

In contrast to the consistently observed favourite–longshot bias found in racetrack betting markets, it has been shown that gamblers in the market for Major League Baseball games reveal the opposite behaviour. This paper updates the previous study with ten years of additional data for the 1990–99 seasons. The strength of the reverse favourite–longshot bias is virtually identical to the original paper. The result suggests that, contrary to most reported inefficiencies in gambling markets, this bias appears to be permanent.

Permanent? Never say never. The strategy is profitable from as far back as 2008, with the most recent eight seasons +34.06. Since the 2007 season, every month with a full schedule is profitable bar May, which strangely was the most profitable month when the reverse  favourite–longshot bias was, while waning, still present.

It's also interesting that fewer teams, a lot fewer in fact, have been starting at 1.5 or less in the last few seasons. The 356 in 2004 became just 124 ten years later. Baseball punters becoming a little sharper?

Anyway,regular season is in the books now, and by the time the new season rolls around next April 4th you'll have all forgotten this, so it's on to the play-offs which start tonight with the New York Yankees visiting Houston for a one game play-off. The Astros are slight favourites, and the following evening the National League's Wild-Card play-off game sees the Chicago Cubs favourites to win in Pittsburgh.

While laying all favourites has been profitable in the play-offs since at least 2004, (only in 2009 would more than a small loss have been the outcome), laying away favourites has been more profitable than  home:

Should the strategy prove successful in Pittsburgh on Wednesday night, it will of course mean the Curse of the Billy Goat will continue for at least another year. It's only been 107 years - what's another one?

* Another study noted that:

Woodland and Woodland (1994) argued that betting in baseball yielded a reverse favorite-underdog bias, with underdogs underbet. Gandar et al. (2002) made a minor correction to the Woodland-Woodland methodology and found that if there were any bias, it was very slight.

Green October

The 100% October record for sub 1.51 favourites continued yesterday with the Los Angeles Dodgers beating the San Diego Padres by a single run. The Pittsburgh Pirates drifted to ~1.53 and ended up not being a qualifying selection, which was a good thing because they lost.

It's déjà vu all over again, as the recently departed Yogi Berra once said. Today our favourite pitcher is in action again, and even though the Dodgers have nothing to play for having already won the NL West, they are around 1.32 with Clayton Kershaw to beat the Padres again today. 1.32 will be the second shortest price of the season. There's not much chance of this price drifting past 1.50, but the Pittsburgh Pirates are possible qualifiers currently around the 1.47 mark. This one could drift, but either way, this will be the end of betting on hot favourites in baseball for a few months. The play-offs are a completely different ball game, pun intended.

Hopefully some of you have made some money on this strategy since I made the observation just before the All-Star Break in early July. Since that day, there have been 84 winners from 115 selections with a profit of 15.95 points - an ROI% of  13.9%. 

Regular Season October Baseball

It's the final weekend of the 2015 MLB regular season, and a good time to look at whether or not it is a profitable strategy to back the hot favourites in the play-offs. Unsurprisingly there are fewer such opportunities in post season play, an average of 10 a season if we define hot favourites as those with an implied probability of 60% or greater (1.6).

If we relax the constraint on 'hot' to 'tepid' 55% or greater implied probability, we get more selections - but an even worse outcome.

And if anything, the returns on favourites in the play-offs have declined over recent seasons.

The competitive nature of the post-season appears not to be kind to favourites. Note that down for the next few weeks.

Jeffrey's observations on the fate of favourites and underdogs at different times of the season resulted in me taking at look at results by moth over the last five seasons. Only May shows a loss for hot favourites (sub 1 .51) but I'll wait for the 2015 regular season to finish this weekend before publishing all the numbers.

With a couple of likely qualifiers today, namely the Los Angeles Dodgers and the Pittsburgh Pirates, some of you may be interested to know that hot favourites in October have a 100% record at 6-0 since 2011. Bizarrely, three of those six were on one single day, which was yesterday, and all three won. Happy days.

The Dodgers tonight are currently 1.41 on the exchanges, with the Pirates at 1.48. 

Hopefully, it's not meaningful that the six winners have all been against Right-handed starters and tonight's are both Lefties!

Pre v Post All-Star Break

Jeffrey had a comment on my Studies Have Continued post saying:

I'm on the other side of this coin, backing dogs coming off a win in certain situations.

One thing I've noticed for three years running now, is that it all goes south in the month after the All Star break. Suddenly favourites predominate until around mid-August onwards, when my dogs start winning their share again.

I can only think that by July-August, the bookies have got the measure of the teams when pricing games up, and it takes the back-end of the regular season, when teams gather themselves for one last tilt at a play-off spot (or in readiness for off-season contract negotiations!) that certain underdogs start over-achieving again.

I just wondered if you had noticed this trend and, if so, if you had any theories as to what might cause it.

I like these thought-provoking comments and did a little research. I took a look at how shorties (1.50 or shorter) perform in the period leading up to, and following on from, the All-Star break which is held somewhere around the second week of July. I compared June and pre-All-Star July with post-All-Star July and August for the past five seasons.

The results showed that over that period, backing shorties both before and after the All-Star break was a profitable strategy, with the 'after' period showing a slightly more profitable ROI%. while the win percentage was almost identical. With the All-Star game usually in the first half of July, there are more qualifiers in the 'after' period.

Over the past three years, Jeffrey's period of observation, late July / August showed a profit of 28.80 points after versus a loss of  5.65 points before the break when backing all shorties.

Without knowing what the 'certain situations' are that determine Jeffrey's selections, or the price ranges of his underdogs, it's impossible to say much more, but hot favourites have been pretty solid recently in the 6  / 7 weeks following the All-Star game.

Jeffrey suggests that "by July-August, the bookies have got the measure of the teams when pricing games up" but the days when bookies priced games up are long gone. Prices are determined by punters, and we are collectively pretty accurate. Sportsbooks such as Pinnacle Sports and the exchanges lead the way of course, with the more traditional bookies shadowing those prices and allowing anyone with half-a-clue to bet a whopping 25p if they're lucky.

Wanted - Active Investors

At the end of a rare second consecutive losing month for stocks, it was interesting to read the comments of Goldman Sach's Tim O'Neill on the topic of active versus passive investing, although given that he is 'primarily in the business of active investing', his opinion on the subject is not the biggest of surprises:

Tim O'Neill, Goldman Sachs' partner and global co-head of the investment management division, has a warning: If passive investing gets too big, then the market won't work.

"So in terms of the size, a market needs both active and passive investing because if everybody's a passive investor, there's no one to buy from," O'Neill said on a new "Exchanges at Goldman Sachs" podcast with communications chief Jake Siewert. "And if passive becomes a certain oversized percentage of the market, the market doesn't function."

O'Neill is getting to the heart of the debate on active vs. passive investing. Passive investing has boomed in recent years, with index-tracking exchange-traded funds hoovering up trillions in assets under management.

The problem is that the market needs active management, otherwise there will be no one to buy from, and individual stocks will just move with the overall index.

As a result, O'Neill, who previously called passive investing "a potential bubble machine," said that both strategies are necessary.

Here's an excerpt:

Well, the promise of active investing is that they're going to deliver performance net of fees better than the benchmark, whatever the benchmark might be for the US, global, or Europe. It's been a difficult seven years for active investors because the markets have risen so consistently and persistently higher. So most active managers have net of fees underperformed the benchmark. So it led back to this debate about whether or not the fees that you pay for active managers are worth it. And there's been simultaneously a great shift towards passive investing because it's cheap, and you would get all of the market returns, net of five or 10 basis points.

The problem for passive is that its size, at a certain point, may be too much for the market to handle. And it's also all on autopilot. So in terms of the size, a market needs both active and passive investing because if everybody's a passive investor, there's no one to buy from. So there's no one ... your beta is my alpha and vice versa. So you need a balance in the market. And if passive becomes a certain oversized percentage of the market, the market doesn't function.

The other problem with passive, of course, it's all on autopilot. And when you get to periods of misvaluation, over or undervaluation, you need active decision-makers. Because valuation always matters in markets, and investing.

Peter Andersen of Forbes has a slightly different opinion:

Rather than choose one of these philosophies over the other, I take the unpopular stance of embracing them both, and there are very good reasons to do so. Let me explain how I came to this position. Take a look at the (above) graph, which shows schematically what percentage of active managers outperformed the passive S&P 500 index investor.

Clearly there is some type of vague cyclicality here. There seems to be a horizontal line at 45% around which the graph oscillates. At some points such as March 2005 to March 2006, and again in March 2009 to March 2010, a high percentage of managers outperform the S&P. On the other hand, these periods of strong out-performance are followed by sudden drops in performance. That is, the passive investor beat the active stock picker. I’m proposing the following behavioral reasons for the cyclicality:

Picture many highly skilled analysts all competing to obtain and synthesize relevant information on a stock before everyone else. So many are working so hard, that it is difficult to uncover valuable information before others. At the extreme point, where all information is known by all hard-working analysts, there is virtually no advantage to staying in the game if you’re hoping to gain an information edge. Ironically, staying–and expecting not to gain an information edge–would ensure that no one else gains the information either.

If all keep working as hard as possible and none drop out, active management has no edge. With no information edge, indexing begins to look like an appealing alternative and may very well be outperforming active management. But what if some participants become discouraged from the lack of return on their efforts, and they drop out of the active circle and choose to index? That creates the opportunity for the other active die-hards that haven’t given up.

I propose that this dynamic is behind the cyclical shifts of active versus passive performance:

When market participants become frustrated by the lack of out-performance of active management, some exit the active arena, choosing instead to index. That very exit from the active arena sets the stage for the remaining active managers to outperform. The siren song of active out-performance then lures those participants back in the game. But when everyone piles into active management, the ability to gain an information advantage diminishes, causing the cycle of switching back to passive again. And thus the cycle continues. In an odd way, one could argue that the oscillations between active and passive promotes a type of market stability.

Examine the graph again, this time keeping my theory in mind. I’m sure you will see the pattern makes more sense. When considering the choice of active versus passive, a more reasonable answer is to open your mind to both alternatives, not just one.

Studies Have Continued

In my post "Studies Have Shown" from July, I pointed out that the strategy of backing baseball shorties has become profitable in recent seasons, after years of this sport being the poster-boy for the reverse favourite-longshot bias.

At the time of that last post, 2015's profit was a solid 7.45 points, and this has since climbed to 24.00 points with the subsequent 90 qualifiers generating another 16.55 points.

A more complete look at this strategy going back 12 seasons is below, and I'll update this again at the end of the season.

Some of you may have seen that this blog's most closely watched pitcher Clayton Kershaw, took his first loss since June at the weekend, although he returned to winning ways last night. Opposing Kershaw since I first mentioned the idea would have made 5.48 points (no prices yet from last night's game):

That 1.28 on 14th September was only the second sub 1.30 price this season (the other being Kershaw's 1.27 on July 8th). There was also only one such price last (2014) season, and that was also a Kershaw game.

Some of you may also have noticed the trend towards Unders on Kershaw's games - from 30 starts this season, the profit would have been 6.40 points. Impressive, and over Kershaw's career, backing Unders would be up 20.15 points (246 games). Of course Kershaw was an unknown as a rookie, so no one on Earth would have actually done this, but since the 2010 season when he did become rather well known, the Kershaw / Unders record has been solid:

A change in personal circumstances has meant that I have had to scale down my blogging, and indeed betting, activities as some of you may have noticed, but I do still try to keep up with some of those blogs on my blog roll, and found this entry from my old friend Geoff:

The King of Bloggers! As the saying goes, Once a King, always a King, but once a Knight is enough.  

Absolutely Disgusting - Wurst To First

The music loving, but apparently rather closed-minded TechnoViking100000 commented on an older post, writing about the statement I made - "As I have written before, P and L figures are of no interest to anyone but yourself" - saying:

Enjoy the blog, but got to disagree with this. I'm always interested to hear what others are making especially if they are fellow pros. Hearing how others are doing adds motivation to improve in ones own betting. Also have other people, both people in the game and regular Joes ask how much I make.

What I meant to say was that blogs stating only the profits or losses are not very interesting, it's the context that makes the outcome interesting. Reporting that Football was +£2.34 on the week tells readers nothing. It could be that he had one winning bet or had a hundred bets with thousands staked, ending up with a meagre profit.

Then there's the issue of trusting the numbers, although I really don't think too many people can keep telling porkies for too long. Losers rapidly lose interest in telling the world that they are, literally, losers and winners find it easy to add a little context and keep the updates coming. Admittedly, some choose to adjust the numbers and exclude bets with unfavourable outcomes, which is up to them I guess, but hardly makes the numbers meaningful to anyone at all.

There's also the issue of what does the win or loss mean to the writer. We're not all the same in wealth, age, stage in life or responsibilities. Reading about a win of say £500 and half the readers are wetting their pants, the other half are wondering how many hours of time did that win take and was it worth it. What was the opportunity cost? £500 after 100 hours of intense trading is quite different to £500 made on a punt while you were outside, smelling the roses. All pros are not created equal either. Some have huge banks to play with, others are living on state handouts incapable of being gainfully employed, and 'pro' by default.

That (opportunity cost) is probably the biggest reason why I think profit and losses are only of interest to the individual. If you think about comparing salaries, it is far more interesting to compare yours with those of your colleagues than it is with someone in a completely different line of work. You likely have similar qualifications, put in approximately the same amount of hours as your colleague, and perform a similar job, so any differences are extremely interesting (and probably extremely irritating to someone).

It might add motivation to know what your boss is earning, but I don't see how it is motivating to know what your brother's friend with a different IQ, different qualifications, different job, working more or less hours than you makes.

I'm not a rocket surgeon, so whatever they earn is meaningless to me. I'm also not unemployed, so what they get in handouts is also meaningless to me.

I'm not sure what kind of company TechnoViking keeps, although I can guess based on his Eurovision comments above, but in my circles it's considered extremely poor taste to ask people how much they make - "absolutely disgusting" in fact.

I'm also not sure what Techno's rather unhealthy obsession is with people who are different from him, but it's disappointing to see that such sentiments still persist. Live and let live.

Right, time to listen to a Eurovision winner who like to dress up - the great music is just a bonus.

Average Pairs

Although often misquoted, the words of Mark Twain - "The report of my death was an exaggeration" - are relevant here, as I prematurely wrote off Big Pairs' blog, which is still alive and well:

The blog is actually still running but I've made it 'by invitation only' to avoid any further aggravation. My journey continues! You would of course be a very welcome reader.

The latest post actually recorded a loss after many winning weeks, but Big Pairs is still well ahead. The most eye-opening blog post of the week was once again from Australia, where Steve M revealed a couple of surprises.

One was this:

My own personal experience with problem gambling started when I was 18 and I started playing the poker machines. I lost hundreds of thousands in my early 20’s and fortunately for me I looked into the maths and psychology behind the games and realised that I was never going to win.

Strewth, that was a shocker! While the source of Steve's bank is his own business -I'd always assumed he'd sold his grandmother - I was somewhat surprised that someone who is usually so disciplined in gambling once had a problem with it. The other surprise was this:

I’m your average aussie dad who likes to bet as a hobby. I see it as a mental challenge and believe that given the chance, I can use skills in maths and other areas to make a small profit from betting. I am a bit different in that over the past 5 years I have managed to make a profit. The numbers thrown around are that only 2-5% of people make a profit from betting. I don’t always win, over the last year if we added my sports betting and Horse race betting together, I made a loss.

While Aussies like a bet as Steve mentions in his post, I wouldn't agree with Steve's self-assessment that he is an "average Aussie Dad betting as a hobby". The sums that Steve puts down on outright punts are, to my mind at least, huge!

The post is actually an open letter in connection with an Australian government inquiry into offshore / on-line gambling, so Steve has every reason to play up his 'averageness' and play down his winnings, but if betting AUD 12,000 a day (£5,500) is "average", Australia has a few more problems than I knew. Next thing he'll be telling us he has 2.4 children.

Pairing Off

On the 27th June this year, I wrote:

New in-trading focused blogs spring up, but not many last the distance. I'm actually not aware of any long-running legitimate in-play blogs now that Mark Iverson has departed the scene. The latest that have come to my attention are Tennis Trading and Big Pairs, and how long they last will be interesting to see.

A little over two months later and Tennis Trading told me to go away, so may or may not still be active, but Big Pairs blog has now vanished almost as quickly as it began.

Courtesy of Steve M's trail-blazing and long-running Daily 25 blog, apparently the last post from Big Pairs read like this:

Soon after I started my blog back in October 2014 I began receiving comments from an individual called ‘James’. His comments became increasingly abusive and aggressive and eventually I had to block him from posting. Sure enough, a week or two later, he reappeared as ‘Anonymous’ and did exactly the same thing. I blocked all anonymous posts and then recently, presumably after his summer holiday, he reappeared as ‘Jonesy’. Last night James/Anonymous/Jonesy posted a comment full of defamatory remarks, false accusations and general abuse, none of which are remotely founded. I’ve chosen not to publish it, or respond.

In the whole time I’ve been blogging here and posting on Twitter I have probably been very lucky to have only experienced this one internet troll. In fact I’ve made some good friends, received advice from a couple of intelligent, very helpful betting professionals and enjoyed a huge amount of support from people in a similar position to me. Unfortunately the internet allows keyboard warriors like this to make their comments without retribution. It wouldn’t happen in the real world, but online there are sadly thousands of people with these tendencies.

As a result of this abuse, which is getting gradually worse, I have decided to end the blog here.

I could just block all comments, but if someone is willing to take the time to create three separate identities to continue with these personal attacks, then who knows what they are capable of. I will continue with my journey and share progress with the guys I’ve got to know well in private. Thanks to everyone who has taken the time to read the blog, offer advice and share their experiences.

Good luck with your betting and trading.

BP

Whatever the real reason for closing the blog down was, and it would indeed be disappointing if one troll were the reason, it's yet another blog dying a relatively early death. If you are successful in any endeavour, there will always be those envious of you, and a long-running blog is certainly one of the surer signs of lasting profitability. Human nature, as has been said before, makes it easy to continue something that is going well. When things don't go well, it's human nature to lose interest. For the record, Steve's been blogging for at least five years I believe.

On the topic of dealing with trolls, Steve wrote:

To put it mildly, I’ve had to deal with my fair share of trolls over the years. Like anything new, I had to learn to deal with it and at the start my method was to try and make them understand how dumb they were. Trolls feed off replies, it is their lifeblood. Knowing that they have made any type of impact gets them all sorts of aroused.

Unfortunately, trying to make dumb people understand how dumb they are doesn't work, so the best approach is simply to ignore them. Often trolls have an established track record, maybe thousands of tweets or perhaps other former targets all too willing to share information. Steve adds:

These poor lost trolls were living such sad lives that they needed to feel any connection they could and would do what used to get them attention as a child. They would simply act out. I went from hating these morons to actually feeling sorry for them.

That Big Pairs was able to attract a troll so soon after starting should have been taken as a compliment. No one trolls losers after all, and while most of us are not as nice as Steve and able to feel sorry for them, it is satisfying to know that their trolling is an implicit admission that they are not as successful as their targets. The irony is that if they put as much effort into learning from the advice and knowledge shared as they did into their trolling, they would be better off. Once again though, the mindset of a troll is probably incapable of understanding that.

Cheap Money

The term "free money" is eye-catching, but like much in advertising or marketing, it is often not exactly true. Fellow blogger Peter Webb has a post with this title today looking at the short prices on international (mis)matches. While internationals are generally not of any interest to me from a betting perspective for a number of reasons, Peter's words on 'shorties' were interesting, mirroring my own observations on them in the top leagues.

Using Pinnacle's prices for the three season 2012-15, backing every selection at 1.05 or shorter has a 100% winning record. Mind you, the competitive nature of league football means that there was only one qualifier in those three seasons (Barcelona v Celta de Vigo, 26 March 2014) so we need to lengthen our search.

Looking at those selections with an implied probability of 75% or greater,  sub 1.34 in decimal odds terms, there were 516 candidates, of which 437 won for a 17.539 point profit (ROI  3.4%).

Peter writes:

So the curious thing is, that there is probably value at that end of the market, but why won’t anybody take it?

• The first thing to note is that nobody will recommend it. If you do and it gets turned over, people will remind for the rest of your life. Therefore it’s safer to ignore it or pass it off.

• Second, there appears to be little satisfaction at grabbing value at short odds. Land a 60-1 and you are a god, pinch some cash at 1.04 and you are a moron.

• The third element is staking. If your staking is inconsistent then the one loss could kill a whole bunch of positive results. Human nature will rear it’s head again and the ‘sods law’ fallacy will prevent you from pressing the button if you use a larger stake or a progressive staking process.

So I suspect value gaps like this will probably always exists, because human nature will always get in the way and stop people from exploiting it; even if there is (effectively) free money on the table.

While many ill-informed punters are of the opinion that backing odds-on selections is a losing strategy, the truth is to the contrary. Value can exist at any price, including 60.0 and 1.04, and an ROI of 3.4% over 516 bets is a great result. When you consider that Pinnacle's prices can usually be beaten (although whether higher prices are available to you is another thing altogether) this simple strategy is, in practice, even more profitable.

London Blues

It may be slightly premature, but the next round of the EPL in two weeks time sees a potential title decider as the current top two face off at Selhust Park on September 12th.

It's rather an oddity that only one London Premier League club (Crystal Palace themselves as it happens) has won a home game this season with lesser city rivals Arsenal (L,D), Chelsea (D,L), Tottenham Hotspur (D,D) and West Ham United (L,L) all win-less in their home matches.

The decline in EPL home advantage I wrote about at the start of last season continued last season, where blindly backing Away sides to win would have made you 9.29 points on the 379 matches Pinnacle Sports priced following 19.30 points from 2013-14's 380 matches.

Having said that, a more profitable 'blindly backing' strategy in the EPL would have been that of backing the underdog which was +54.69 points over the last three seasons, with each season profitable, and a strategy that would already be in profit by 26.14 points this season

Early days yet, but Away wins in the Premier League are off to a flying start this season with a 42.5% strike rate and +30.48 points. Only seven teams have won a Home game while 13 have won on the road.