Good News, Bad News

It's been a while since I vented about Betfair's Premium Charge so bear with me. I'd almost forgotten how annoying this Premium Charge is. This week, while my back is turned, I am robbed of another £500.00, a sum which is especially painful since it follows close on the heels of a £1,400 loss on Monday. (The good news is that next week's charge will be reduced!) To be quite honest, the impact prior to this week has been less than I feared, but this week was quite a hit.

Sadly for an alternative, BETDAQ just doesn't cut it. The liquidity simply isn't there, so I don't have any realistic alternative but to continue, and accept a reduced profit. For all their denials, the fact is that Betfair is a monopoly. There is no other betting exchange that has the range of markets and the liquidity that Betfair offer and like many monopolies before them, they abuse their position in the market, and take advantage of customers that they know can not pick up and move elsewhere. There was much fuming on the forum when the charge was first announced, with many people saying they were leaving, but I suspect that the reality is most people are still there.

The original concept of a betting exchange was really quite brilliant, and like so many brilliant ideas, really quite simple. Model it on the Stock Exchange, match backers and layers and take a percentage commission. I just don't think that the Stock Exchange charges anything like 20% commission based on a formula that isn't verifiable or consistent and which penalises one group of customers over another.

Vent over.

Handicap Betting NBA

As my regular reader already knows, I'm not a big fan of handicap betting. The idea of an imaginary finishing line certainly makes for wild finishes in-play but these markets just seem too much like gambling. It's hard enough to find a winner as it is without complicating things further! Who can really say that backing a team -9.5 is value, but at -10.5 isn't? While I don't mind putting my money on a team to win, I do mind putting it on a team to win by some random number.

I've long suspected that there might be value in laying teams that start as big favourites, but have also suspected that the probability of that team resting top players once they gain a big lead (or just easing up, as is human nature) has been factored into the price. So I've pretty much stayed away from these bets.

However, since the start of the year, I've been tracking the NBA handicaps, and while the sample to date is small, so far my initial suspicion is being borne out.

Of 49 games where the spread was 6.5 or more, the favourite has failed to cover 33 times. Something to follow as the season goes on.

Staying The Course

A few weeks ago, a friend of mine was sat next to a guy on the train who was studying the football page in the Racing Post.

Striking up a conversation, the guy started spilling his heart out about how lately he couldn't buy a winner and had had several consecutive losing weeks.

"I can't do anything right," he complained. "I do all my analysis, Overs/Unders, Home teams, Away teams, Favourites, Underdogs, Cup games, League games - but I just can't buy a winner. Penalties get missed. Goals get disallowed. Last second equalisers go against me. It’s the worst losing streak I’ve ever had."

After listening to this tale of woe for what seemed like an eternity, my friend helpfully suggested "Maybe you should switch to cricket for a while?"

"Cricket?!" the guy said, in a tone of disgust, "What the hell do I know about cricket?!"

OK, so it's an apocryphal story - (and I don't really have a friend).

Nanny - It's Not My Fault!

Back to the subject of the morality of gambling. John the (former) Gambler has posted again, comparing gambling with alcohol and saying about gambling that: "I now think it is bad, and should be controlled, especially on the internet. When you see friends lives deteriorating, it is is very difficult not to draw this conclusion."

When you drink or take drugs to excess, you lose your health. When you gamble to excess, (or invest in a rogue hedge fund), you lose money. Which is worse?

Anyway, the conclusion that I draw is that your friend is the problem, not Betfair.

John goes on to say: "Then the betting exchanges came along. This is good. The average savvy punter can make a few quid on Betfair. Then the exchanges like betfair evolved. Bots, Poker, Casino. The average savvy punter can now lose lots. Not so good."

A savvy punter would never get involved with on-line poker or casino games. Only an idiot will play those games. And before someone says that they only play them for small sums for 'entertainment' I would suggest that they need to get out more as there are far more entertaining ways of spending your money and time.

As I said before, it's up to the individual to control themselves - no one else. It really is quite pathetic when people do not take responsibility for their own actions.

Betfair (for all its faults) provides a wonderful opportunity for the truly 'savvy' punter to make money if they are disciplined - i.e. have self-control. It seems that this lack of discipline in someone's life is what causes them so many problems, be it alcohol, narcotics, sex or gambling.

From a rather selfish point of view, I'm glad that such people do continue to lose their money on Betfair. As John says, for every loser there is a winner. 

It's up to the individual to decide which hat they want to wear.

A man sooner or later discovers that he is the master-gardener of his soul, the director of his life. ~James Allen

Two Swallows

Following up on my post yesterday where I again reiterated my reasons for avoiding the horse-racing markets, I remembered earlier today a story (early 80s I believe) from my youth that may have something to do with it.

I was dating a girl in Banstead, Surrey, who had a friend whose husband worked for a stables in Epsom. One evening, he told me that he'd had word that a horse called Two Swallows was to be backed next time out. I scanned the racing listings over the next few days, and one day there it was. A 20 runner race and the probable SP was 15/1 and I excitedly told everyone at work about it, collecting a vast sum of money from my colleagues (about £20! - remember, this was around 1980) to add to my own tenner. I handed the cash to Mr Ladbroke and sat back to await my big win.

It didn't happen. The stupid thing finished somewhere in the middle of the pack, and I returned to the office with empty pockets.

Two weeks later, and I saw it was running again. I said to myself "I'm not wasting any more money on that stupid creature" and left it alone. That night, I went to pick up my girlfriend from her friend's house, and her husband was there. He greeted me with "Did you back that horse I told you about?"

"Yes, bloody thing cost me £20"

"No, I mean - did you back it today?"

"No - what happened?"

It had won at 33/1. He related that the stable had run it that first time and deliberately held it back to get the price out for next time. After that, it won something like six times in a row, but of course never again at 33/1. I think 6/1 was the best winning price I had on it, but it really was a stellar tip. As I recall, it ran in the Scottish Grand National (it was a grey horse, so it was easy to follow) and I did make some money from it, but I never forgot missing out on the 33/1 that day.

Anyway, the lesson I took from that little story was that racing is very easily fixed, and that unless you have an inside source, you are going to find it very difficult to make money.

Level Playing Fields

When I wore a younger man’s clothes back in the 80s, I worked in the City of London for a merchant bank, and was exposed to the world of options trading. At first sight, it seemed an easy way to make some money, but of course it wasn’t. I soon discovered that theory and practice were two completely different things, and that however much I read and studied, there were always going to be plenty of people in these markets who knew far more than I did about the direction of a company’s stock price. And so I gave it up.

Winding the clock forward twenty years, and how very similar stock options are to bets on a sports event. Whereas a stock option will run for months, the time-frame is reduced for many sports events to a number of minutes. (As I have stated before, I don’t touch the horses or dogs because as in the financial markets, there are people who know far more than I do).

You can buy or sell a stock option the same as you can back or lay a sports selection. At the end of the term, your option and your bet both expire, either worthless or ‘in-the-money’, and during the timeframe you can re-sell your bet, or part of it, or you can add to your position. Information drives the prices of both, but whereas financial information leaks out to a privileged few before becoming public knowledge, an event occurring during a sporting contest is there for all to see at the same time. It is a level playing-field (pun intended).

It seems to me common sense that if one is serious about making money from betting, the very least you need is a fair contest. Why get involved in markets that can potentially be rigged, or where others know far more than you do? Markets such as Big Brother / Next Manager are deadly unless, of course, you are privy to inside information, in which case you have a very big edge and should use Kelly to maximize your advantage (and be prepared for jail if you are breaking the law).

I personally have nothing to do with any markets of this nature, and stick to sports, usually betting in-running. It never ceases to amaze me that people think they can take on the world at, say, trading currencies or betting horses, when they are obviously at such a big disadvantage. I guess it says something for the natural optimism of human beings.

Enjoy Life Responsibly

The subject of the morality of betting has recently been raised by John the Gambler with comments on his own and on Bert Black’s blog.

He wrote:

“Back to the “gambling” front, I am predicting a “paradigm shift” in attitudes to gambling, particularly gambling on the internet. At the moment it is possible to lose an absolute fortune on the internet 24/7/365. I have recent experience of this destroying one friend’s life, and having a very serious impact on another friend’s life, not to mention both families and a wide circle of friends. I feel slightly culpable as I introduced him to Betfair. I thought he was a social gambler who liked the odd fiver on the gee-gees. 18 months later I find out he had discovered Betfair Casino where he had been wagering vast sums, which he had allegedly stolen form my other friend’s company. Consequently both parties are now seriously in debt.”

“For every winner there is a loser. It has definitely changed my attitude to gambling, and sometimes I can be “ahead of the curve” on these things. I don’t believe the story above is a one-off, and as these stories emerge over the months to come, I predict a change in people’s attitudes, and some sort of government legislation.”

Bert Black’s measured response was quite correctly that “this is not a new problem or necessarily a growing one in the UK. It is a very important issue, but regulation already exists and I’d be surprised if much were to change in the short term.”

In my opinion, it is hardly the responsibility of the government to nanny us all and put rules in place to the detriment of the majority, just because a minority can’t control themselves. Let’s be honest, anyone who thinks they can win long-term by playing in an on-line casino has got some serious problems. 

Fair enough, we all make mistakes, but when the losses begin to mount, is it too much to expect that an individual should be responsible enough to stop their activity themselves? Learning from your mistakes seems to me to be an essential part of life. Touch a hot stove once, and you tend not to do it again.

The idea that the government should pass legislation that may benefit a few, but to the detriment of many, seems extreme. Prohibition didn’t work, and in this Internet age, if people want to bet, they will. What kind of legislation would help in this situation anyway? While it is sad that a minority of people can’t enjoy alcohol responsibly, or can’t enjoy an occasional flutter, the problem lies with those individuals. Such people typically have problems coping in other areas of life too. They are the ones that need help.

We should all be responsible for our own actions, whether it relates to diet, exercise, financial investments or whatever, and passing legislation to restrict the rights of the majority to enjoy life responsibly is not the answer.

The Long-Term View

January always seems to be a dramatic month for me. January of 2007 saw my worst ever month, with the reason being a lack of patience following a few days away, and a consequent recklessness to start the year off with a big win. 

It didn’t work. I couldn’t buy a win for love nor money, whereas in 2008, January was one of those months where everything seemed to go perfectly according to plan. I am hoping 2009 will be a repeat of last year.

A few days away from the Internet and betting does allow time for reflection. 

As I have written previously on this blog, I do not believe in setting goals per se, but paradoxically, I am aware that I have a tendency to do this.

One downside of keeping records on a daily basis is that my aversion to a loss is magnified. Over a three day period, I might have two wins of £100 and one loss of £140, and a net total of £60 profit, but it is far more pleasing to me if the three days all reflected profits of £20. It makes no sense I know, and I would probably be better served by totalling up my numbers on a more infrequent basis.

I have become aware that despite my reluctance to admit to it, my daily profit level does affect how I react to a situation. My investment goal for 2009 is to change this.

Deer 2009

The holidays are almost upon us, and this will be my final post of the year. I am preparing to close out 2008 with a couple of weeks away from the Internet visiting with family and friends in Surrey, North Devon and Dorset, eating and drinking too much, though not to the excesses of my youth, (with the possible exception of the Weymouth stop).

2008 has certainly been an eventful year. My ‘traditional’ investments (house and shares for example) are all worth less than they were a year ago, but with just two losing months on the betting exchanges (and one of those being a mere £70 doesn’t really count!), 2008 is my best year to date, exceeding 2006 and 2007 combined.

I still make mistakes however, although less often, and when I do, my ‘Bambi-in-the-headlights’ act is usually a lot shorter than it used to be when disaster strikes. I am getting better at not falling in love with a position, and with letting winning trades run. I do still have a tendency to go ‘on tilt’ after a big loss though, as evidenced by the increased probability of following a bad day with another bad day and I need to work on that.

There was also the introduction of the Premium Charge which affected my numbers, although I have to admit, not as significantly as I first feared, but one wonders what other tricks Betfair have up their sleeves.

BETDAQ is still a work in progress. As much as I would like to use them more, I still find the liquidity there sadly lacking. Faced with the choice of making £20 on BETDAQ or £50 on Betfair less the Premium Charge, well, it’s not much of a choice really. And sadly, with the introductory 2% commission offer scheduled to end in a few days, liquidity is unlikely to improve significantly.

Goals for 2009: Continue learning. Trading is an art, not a science. There are no ‘systems’. It’s all about the approach.

And finally there’s this blog. I started it back in March, with an opening post which included the following sentence “So, as arrogant as ever, I am hoping to fill this gap with a blog that goes a little deeper into the reasons why I made or lost money, my thoughts and emotions as the win / loss was happening, and perhaps filled with other observations from the world of betting”.

It’s not easy finding something worth saying about the world of betting on a daily basis, and I don’t try. I do try and find something to say every two or three days though, and hopefully some posts achieve the goal of being interesting and thought provoking.

Happy Holidays, and Good Luck.

Kelly Criterion

There is currently some debate on the Betfair as to the merits of the Kelly Criterion, and I thought I would post an excerpt from a piece I wrote some time ago on the subject.

In Kelly's analysis, the smart gambler should be interested in "compound return" on capital. He showed that the same math a colleague (Claude Shannon) had used in his theory of noisy communications channels applies to the gambler. The gambler's optimal policy is to maximize the expected logarithm of wealth.

Though an aggressive policy, this offers important downside protection. Since log(0) is negative infinity, the ideal Kelly gambler never accepts even a small risk of losing everything.

Fortunately for non-mathematical people, you don't even have to know what a logarithm is to use the so-called Kelly Criterion. You should wager this fraction of your bankroll on a favourable bet:

Edge / Odds
Edge is how much you expect to win, on the average, assuming you could make this wager over and over with the same probabilities. It is a fraction because the profit is always in proportion to how much you wager. The edge is usually diminished by tax or commission. When your edge is zero or negative, the Kelly Criterion says not to bet.

Odds is a measure of the profit if you win.

In the Kelly Criterion, odds is not necessarily a good measure of probability. Odds are determined by market forces, by everyone else's opinions about the chance of winning. These opinions may be wrong, and in fact MUST be wrong for the Kelly gambler to have an edge.

For example: The odds on Red Rum are 4 to 1 (i.e. the market estimates that Red Rum has a 1 in 5 chance of winning, or a 20% probability), but by your calculations, Red Rum has a 1 in 4 chance of winning (i.e. odds of 3 to 1, or a 25% probability).

Assuming your estimation is correct, then by betting £100 on Red Rum you stand a 1/3 chance of ending up with £500. On the average, that is worth £166.67, a net profit of £66.67. The edge is the £66.67 profit divided by the £100 wager, in this case 0.67.

The Kelly formula of edge/odds, is therefore 0.67 / 4, or .1675. This means that you should bet 16.75% of your bankroll on Red Rum.

A quick search of the Internet will provide you with links to a number of easy to use Kelly calculators.

Unlike some mathematical formulas, the Kelly formula does have the virtue of being easy to remember.

By always making the Kelly bet, your bankroll will increase faster than with any system.

However, gamblers need to understand that their progress and bank balance will not be a smooth upward slope, but will be interrupted by frequent drawbacks. For this reason, a common practice among investors and gamblers is to use the Half-Kelly bet. This greatly reduces the volatility of the Kelly bet, but returns 3/4 the compound return. For many gamblers, that is a price worth paying.

It can be shown that a Kelly bettor has a 1/2 chance of halving a bankroll before doubling it, and that you have a 1/n chance or reducing your bankroll to 1/n at some point in the future. For comparison, a “Half Kelly” bettor only has a 1/9 chance of halving their bankroll before doubling it.

For sports betting, there is the added complication that the true odds on an outcome are not known. When calculating your Kelly bet, your estimate may well differ significantly from the true odds.

Both under-betting and over-betting will give you a reduced rate of return. Under-betting, which the Half Kelly is, will provide steadier growth, but with reduced returns, whereas over-betting can be fatal, as betting twice the optimal Kelly bet results in almost no long-term growth at all.

Most gamblers are probably best served by using a flat 2% of their bank per bet, since figuring edges in sports is, as mentioned earlier, very difficult. For a season-long win rate of 55% (on a bet paying at evens), a good target for most bettors, this represents a little more than 1/3 Kelly, which is a conservative compromise between risk and return.

Increasing this to 3%, or occasionally 4% on an especially good play, is reasonable. More experienced gamblers, with a good understanding of the downsides of Kelly and an above average ability in estimating betting advantages, may wish to adopt the more aggressive Kelly approach to maximize their returns.

The Apprentice

In the book, "High Probability Trading" the author, Marcel Link, writes "From everything I've ever heard, read and seen, a trader needs about 3 to 5 years to get through the learning period. During this time in which he is learning and honing his skills, a trader will be paying his 'tuition of trading' the same way lawyers, chefs and doctors pay to learn their craft".

I joined Betfair in April 2004, so I should be about done with my apprenticeship.

When I read that piece, I rather thought the author was exaggerating – something along the same ultra-cautious lines that McDonalds informs us that the contents of our coffee cups may be hot, or a fitness magazine tells you to seek medical advice before embarking on a 10 minute a day walking program.

However, after my 4½ years, I think he may have been under-estimating. Either that or I am a slow learner, because I am still learning. The numbers suggest that I am getting better, but every once in a while I do something that makes me question my sanity.

Another piece of advice that I am often reminded of was to concentrate on PPC, an acronym for "Preserving Precious Capital". He says "forget about making money, just try as hard as possible not to lose any" and "the key to being a winning trader is to not lose a lot when you lose. If you cut losses, the winning trades will take care of themselves".

Richard Wildman

Some of you may well have been followers of Richard Wildman and his very interesting Bet Trading: £100 to £100,000 blog.

You will be saddened to hear that he has passed away after an almost year long battle against cancer. My condolences to his wife Sam and young children children Rebecca and Harry.

It's news like this that makes one realise how unimportant winning and losing is in the whole scheme of things.

Live, laugh, love.

Greater Fools

I read an article recently about an American company called Webvan who delivered grocery orders placed via the Internet. To cut a short story short, the company’s valuation increased from $375million to $8.5billion on the day the stock went public, but within two years, the company was bankrupt.

But the part that caught my attention was this:

“But it wasn’t just faith in the Internet that led speculators to bid up Webvan’s price. They also had faith that other people believed even more fervently in the Internet’s potential. In short, people who paid a foolish price for Webvan and hundreds of other Internet firms figured they could always find a greater fool to pay an even higher price. And many did…”

Now this is one time when, as a trader, “value” really doesn’t matter. All that matters is that your valuation differs enough from someone else’s valuation, and that you are able to trade out of your position with a profit.

Of course, the problem with this kind of trading is that at some point you will run out of greater fools, or more specifically, greater fools willing to risk enough money.

This is certainly a situation I have found with the betting exchanges. I have a tendency to go in big or not at all, and while the bet may prove to be value, at least for a time (as evidenced by a certain percentage being taken), the in-play markets can move so fast that in illiquid markets, they turn against me and I am sometimes left with a position that I have to take a loss on.

Doubling-Up On Betfair

What is this? A double overtime game so they double the markets?

I could live with the doubling up, but there are different prices on each line!

Very confusing. And the over-rounds were playing havoc with my brain.

Blink

Every once in a while, an opportunity presents itself that looks too good to be true. Tonight was one such occasion (again).

Basketball, and with 32 seconds to go, the Miami Heat v Charlotte Bobcats game stands at 95-91, and both teams are in the penalty.

One point is needed for the game to go Over. Now in a close finish such as this, the losing team will foul intentionally, putting the other team on the line for free-throws hoping that one or both will be missed, affording them the opportunity of a quick score at the other end, thus closing the gap.

The Overs was available for a larger sum than I have available for backing (I have never requested Betfair to raise my default £5,000 exposure limit since that is usually more than enough for my needs) at 1.1 but before I could react, it vanished.

Cursing my old age and consequent slow reactions, I was about to check the handicap market when the same huge sum popped up again at 1.12. This time there was no holding me back. The bet was matched, and at that same instant the Heat fouled. Two free throws coming up.

My cup of tea went flying, the cat moved with lightning speed to avoid the steaming contents, and my adrenaline kicked in to rev my heart rate up a few notches.

How ever good the value is, I still get a little excited when I am exposed... no, let me re-phrase that.

Even if I know the bet is tremendous value, I still get a little nervous wondering what key factor have I missed, but I'm getting better at trusting my Blink* instinct.

What WAS the true value at that moment? I would say that 1.01 would be close, for even if BOTH free throws were missed, the Bobcats would still foul the Heat and put them on the line and so on...

Anyway, the first free-throw went in, and that was that, though I wish I'd had more available to bet with. For the record the game actually ended 100-96.

* Blink by Malcolm Gladwell is about the first two seconds of looking--the decisive glance that knows in an instant. Add it to your Xmas list.

JAGIS and the Under / Over Markets

Regular commenter JPG (the provocative devil) got me thinking again about the Under / Over Goals markets.

As my regular reader will know, I have written in the past about the futility of these markets, but in the light of JPG’s prompting, I decided to re-evaluate it this week. My thinking is that if JPG can make money in these markets, then darn it, so can I!

Although I have watched football for over 40 years, (and even played for Holland* in my youth), I can’t claim to be able to predict or read a game well enough to make money from it, but trading the Under / Over markets following certain rules doesn’t require an in-depth knowledge of the game.

So as with all trading, we need to determine entry and exit points. Unfortunately the market does not signal the ideal entry / exit point of ‘just before a goal is scored’ but there are others.

It appears to me that the entry points can be narrowed down to two types:

1) Pre-determined (i.e. enter the market prior to kick-off, at half-time, after x number of minutes or after a certain change in price).

2) Event-determined (i.e. enter the market just after a goal is scored (JAGIS), a substitution, a yellow or red card, a change in tactics or conditions etc.)

Exit points can be similarly Pre-determined or Event-determined.

Historically, my entry points have always been somewhat arbitrary, as have my exit points, but after much pondering I have settled on a new strategy. Enter the market JAGIS. My exit strategy remains to be decided upon, but for today’s experiment in the Everton v Aston Villa game it was to exit after a target price had been reached.

It worked rather well. The early goal for Aston Villa meant I could lay the Over 2.5 at 1.56, and go Green-All-Over when the price climbed to 1.68. Then when Everton equalized I layed the Overs at 1.24, greening-up again at 1.34. (I wasn’t totally comfortable with this strategy after two goals because another goal kills the bet – perhaps after two goals, I should switch to the 3.5 goals market?).

Anyway, a nice little profit today but further analysis is required. Not to mention that I still need to address the issue of what games to try this method in, although if one isn’t too greedy, then it may be a profitable strategy in any televised (i.e. liquid) game.

On a side-note, there was some serious damage at the end of this game with an equalizer and then a winner both scored in time added on. £62,313 traded on the draw at 1.01. Ouch.

I’m a firm believer that 1.01 bets can be, and often are, value, but I seriously question whether 1.01 in a one goal game is EVER value in football. Which gives me another idea…

* Holland Sports FC, in Hurst Green, Surrey – not the ‘other’ Holland you may have heard of.

Sunday Footy Lays

There are three 'big' games today, two Premier League matches and the East Anglia derby.

I have run the numbers and my selections are lays of home teams Norwich City (2.73 v Ipswich Town) and West Bromwich Albion (2.8 v Portsmouth).

Interestingly enough my numbers for Everton v Aston Villa are almost exactly the same as the market's - I have Everton at 2.86 and the exchanges have them at 2.82, and I have Aston Villa at 2.825 with the exchanges at 2.8. So, no bet there.

Update: One winner, but a net loss on those predictions. New rule: no betting in derby games!

College Ball

College Football in the United States is a big deal, unlike England where 'college' sports consists of the Boat Race. That's it.

OK, so we could possibly include the Varsity Match, (incidentally, my school always gave us this particular afternoon off with encouragement to head off to Twickenham while the teachers presumably took the opportunity to go Xmas shopping), but I have never been to either event, and no doubt there are other college sporting events, but none capture the public's imagination.

The US is quite different though, with college sports being a huge part of the sporting landscape. College Football crowds are enormous, (with some people taking up more than one seat!), but seriously Michigan attracted over 112,000 for a game in 2003, and the average over 791 games of top-level games in 2007 was 46,962. Several Premier League clubs would envy those numbers, although of course most teams only play half a dozen or so games at home each season.

Anyway, the reason I started writing this post is to point out how ludicrous their system of deciding the national champion is each year. Basically teams are rated by various people voting in different polls) and a computer working out who the top two teams are who then get to play in the National Title game.

As of this morning Alabama was top-ranked, with Florida ranked at number 4. Alabama was unbeaten in 11 games, whereas Florida had lost once (by one point) back in September.

These two were playing each other today in their Conference Championship (don't ask), and one might expect Alabama to be favourites, but no, Florida were 9.5 points favourites and won by 11.

One can't help but wonder why the computer used to calculate the spread isn't the same one used to calculate the rankings. It's just stupid to have a team ranked at number one when the market (i.e. everybody) knows they are NOT number one.

Roulette System - Win Or Your Money Back

I have a Roulette system, one that comes with a money-back guarantee. Look at the table layout from http://www.roulette.sh/ above - notice anything strange?

I think the 19 reds and 17 blacks means that the evens on Red is a fair deal (and if it wasn't an American wheel with the double zero, we could all give up our day jobs and turn pro).

Sadly, I suspect that were we to travel to St Helena, we would be disappointed and find that the layout in use actually has a black 28 and not a red one. Darn it, so close.

Now why was someone so keen on value looking at a roulette site I hear you ask?

I shall explain. Years ago, when I was a young man, (ok, so it was many years ago), I read an article, the gist of which was that because the numbers on the roulette table were not spread evenly (e.g. the middle column has 8 blacks to 4 reds, the 3rd column vice-versa), then it MUST be possible to combine bets to produce a winning system.

I am still waiting to hear of such a system.

The truth is that NO bet at roulette is at true odds, and no combination of two or more bets at unfavourable odds will produce a winning system.

I was reminded of this when reading a post on the Betfair "General Betting" forum where someone named Slicer is claiming to have 'discovered' the Holy Grail of football betting - a guaranteed 100% system on football by placing two bets, with the occasional third bet. Except that sometimes the third bet is actually more than one bet!

Bet 1 allegedly is to lay the Half-Time 0-0 score. Bet 2 is allegedly to back the Full-Time 0-0 score. Bets 1 and 2 to return equal profits, but Bet 3 is the subject of much debate and apparently many hours of wasted time.

With 553 posts to date , it seems there are a lot of gullible people around. Quite simply, for this to be true, then one market MUST be out of line with the true odds, and if this were the case, the market would soon pick up on it. Once again, no combination of unfavourable bets can possibly produce a winning system, but nevertheless, the 'hunt' goes on with conferences being held to discuss various ideas.

Good luck to them. I can personally think of better things to do with my spare time, (not that I have any), but the 'discoverer' must be having a quiet chuckle at how naïve some people are.

Fooled By Randomness

I am currently reading "Fooled By Randomness", sub-titled "The Hidden Role of Chance in Life and in the Markets" by Nassim Nicholas Taleb. It's not exactly light reading, and I have to say the author has a very high opinion of himself which is a little grating, but within its pages are some nuggets that might well be of interest to followers of this blog.

I accompanied my beautiful girlfriend to the hairstylist yesterday morning (since her appointment would only take an hour), and waited for her whilst enjoying my book and a cup of coffee in Munch. (They need the business).

Six coffees and three hours later she showed up (looking extra gorgeous I must say, very apologetic and no doubt somewhat lighter in the purse), but I'd at least had the time to read 103 pages even if I may need to re-visit some of them since I was on a caffeine high for the last 37 of them (and also by this time well acquainted with the toilet facilities).

Anyway, I digress, but one example he gives is of a bet which will win you £1 999 times out of 1000, but the one loss will set you back £10,000. This is similar to how the Unders / Overs market seems to work, although in the book the numbers are exaggerated to make the point that the bet is not a good idea, even though you will often win. This is why the idea of nicking a little money isn't a long-term strategy. He mentions how it is human nature to think that we are somehow special, and that we are somehow immune from that 1/1000 chance, but of course we are not.

The stock market works the same way. It seldom goes up big in a short time period, crawling up slowly but surely during a bull market; but when it crashes, it crashes big and fast. Look at the chart above to see how big the falls are. It's not surprising that the world and his grandmother thought that buying stocks in the late 90s was a sure-fire winning strategy. It was, for a while, but even though history is littered with examples of similar bubbles ending in crashes, the prevailing mood was that "this time it is different". It wasn't.

The author gives several examples of traders who made money year after year and were considered almost invincible, but when the black swan event hit them, (as they ultimately will), they lost all they had made and more (and not just money - but careers and reputations too).

As an aside, he mentions how one trader went from a net worth of $16m to $1m (still a total that 99.9% of the planet would envy), but that "there is a difference between a wealth level reached from above and a wealth level reached from below. The road from $16m to $1m is not as pleasant as the one from 0 to $1m".