Risk vs. Reward

Risk vs. Reward

For most players, sooner or later a “happy medium” in their wagering activities is found.  They establish for themselves and settle into a comfort zone where they feel alright with the level of risk versus potential for profit.

– A couple of posts back, we discussed a money management approach – progression betting – which is a higher risk, potentially higher reward way to approach the game.

Progression betting may be of interest to some few players with a tolerance for higher risk (and the bankroll to match), but I think it likely that the far larger proportion of race bettors are conservative in their nature and do not well tolerate (nor can afford) large losses.

– Then in the last post, we brought up the value of studying what the “old time” handicapping gurus had to show us and then applying it to modern racing.

This post will do both . . .

We’ll revisit a money management method (that we’ve previously written about over at the Horse Racing Gold site) from an astute (and not so old-time) handicapper, James Selvidge – who is still alive and kicking! 

“Base Bet Plus Square Root” – is a betting approach which quite a few successful players use, and believe to be the optimal approach for hitting the best compromise between Risk and Profits.  Interested?

Also – our annual Breeders Cup Special Report is on sale now – see the order page (or link at bottom of this post). . .

There are many ways to wager (on win), from the more conservative “flat” betting and “Percentage of Bankroll” betting, to the less conservative like “Progression Betting,” “Due Column” betting, “Parlays,” and “Kelly” betting. etc. (of course, the list could be expanded).

Base Bet Plus Square Root” falls into a middle ground between those. It will protect profits very well when the losing streaks rear their ugly heads while also offering the potential for escalating those profits fairly rapidly when the winning streaks come.

As mentioned earlier, I was first exposed to the method in the early 90’s via the book “Money Management,” by its discoverer and main proponent, James Selvidge.

At its most basic:  Your next wager amount will always be your “base bet” – and in addition, you add the square root of your profits at that point. You’ll need a calculator with the square root function, or for the lower amounts – the chart below:

With a profit of: add:
$0-2 $1
$3-6 $2
$7-12 $3
$12-20 $4
$21-30 $5
$31-42 $6
$43-56 $7
$57-72 $8
$73-90 $9
$91-110 $10
$111-132 $11
$133-156 $12
$157-181 $13
$182-208 $14
209-240 $15
$241 – 272 $16
$273 – 306 $17
$307 – 342 $18
$343 – 380 $19
$381 – 420 $20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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To show BB+SqRt use in real-time, below is a large table with all the races issued in the HRG Index last week (our ‘closing’ week before preparing for Breeders Cup).  For simplicity’s sake – the table below shows 1-horse betting (simply the first horse in the Index top three that went off at 5/2 or greater).  The table shows the races in order of start times.

Some points;
– the first day (the 10th) was a very good day that had a couple of juicy payoffs
– the second day (the 11th) was a very poor day that included (carrying over from the 10th and following through to the 12th) losing streaks of 8 and 6 races
– the third and fourth days were average to good days.

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date trk race base Sq Rt tot in pays out p – l tot p – l
10-Oct bel 1 $2   2 11 11 9 9
  kee 1 2 3 5 x x -5 4
  kee 2 2 2 4 x x -4 0
  bel 4 2   2 x x -2 -2
  kee 4 2   2 8.4 8.4 6.4 4.4
  kee 6 2 2 4 38.8 77.6 73.6 78
  kee 7 2 9 11 x x -11 67
  bel 8 2 8 10 30 150 140 207
  kee 8 2 14 16 x x -16 191
  bel 9 2 14 16 x x -16 175
11-Oct bel 1 2 13 15 x x -15 160
  kee 2 2 13 15 x x -15 145
  bel 3 2 12 14 x x -14 131
  kee 3 2 11 13 x x -13 118
  bel 4 2 11 13 x x -13 105
  kee 4 2 10 12 x x -12 93
  kee 5 2 10 12 7.8 46.8 34.8 127.8
  bel 6 2 11 13 x x -13 114.8
  kee 7 2 11 13 x x -13 101.8
  bel 8 2 10 12 x x -12 89.8
  bel 9 2 9 11 x x -11 78.8
  kee 9 2 9 11 x x -11 67.8
12-Oct kee 2 2 8 10 x x -10 57.8
  bel 4 2 8 10 14.6 73 63 120.8
  bel 6 2 11 13 x x -13 107.8
  kee 6 2 11 13 x x -13 94.8
  bel 7 2 10 12 x x -12 82.8
  bel 8 2 9 11 x x -11 71.8
  bel 9 2 8 10 7.9 39.5 29.5 101.3
  kee 9 2 10 12 11.8 70.8 58.8 160.1
  bel 10 2 13 15 x x -15 145.1
13-Oct kee 1 2 12 14 x x -14 131.1
  kee 3 2 11 13 19 123.5 110.5 241.6
  bel 4 2 16 18 x x -18 223.6
  kee 5 2 15 17 x x -17 206.6
  bel 6 2 14 16 x x -16 190.6
  kee 7 2 14 16 x x -16 174.6
  bel 8 2 13 15 8.5 63.8 48.8 223.4
  bel 9 2 15 17 x x -17 206.4
  kee 9 2 14 16 9.6 76.8 60.8 267.2
  bel 10 2 17 19 7.1 67.5 48.5 $315.70

.

There were 41 races issued in total. Twelve were won for a strike rate of 29%.   Had the same races been flat bet at $2 – there would have been $82 in and $174.5 out for a great ROI of +113% on the four-day series.    Profit would have then been $92.5 (on the $2 base bet starts).

You can see that profit using the BB+SqRt was $315.70 – or 341% more profits than flat betting!

Now – you might observe that a lot more money was put through the windows (all in the col Sq Rt) than would have been if flat betting.  Yes that’s true, but the risk on initial bankroll was exactly the same! 

That is:  Say a player had elected to use the flat betting approach and then gone on to lose every wager above.  His risk would have been the $82.  If that same player had elected to use the BB+SqRt approach – and also lost every wager – he would have also only lost the same $82.

A player is not going to flat bet $2 forever (or $5 or $10, or $20) – with profits come the ability and desire to wager at elevated amounts.  The problem with flat betting that the BB+SqRt method solves fairly elegantly is: 

When to raise – and how much to raise wagers? 

With flat betting, Murphy’s Law will invariably come into play. A bettor will decide he’s going to raise his flat bet amount – and immediately hit a losing streak.  After 8 or 9 straight losers , he decides to lower bet back down and – naturally – hits a winning streak.

Fixed % of BR betting solves that ‘zigged when should have zagged’ dilemma, but raises a new one – at what % level of the bankroll does one ‘fix’  – how does the average player (that is to say – one who likely does not keep copious records of all wagers made – and each separated into categories) actually know his long-term advantage over the game (and more – on each of the different, specific types of races and wagers), so that he can optimally select that percentage?

All money management approaches have their pros and cons – their supporters and detractors.  But “Base Bet plus Square Root” really may be the method with the fewest ‘cons’ . . . and the fewest detractors. 

It is an approach you should possibly consider.

As usual – all comments are welcomed          – Gary

7 comments

  1. Ray – Thanks – I hope others read that and take action. Whatever handicapping method is used (if profitable at all) – results should be run through the P3+ software to see how to optimize overall return. For those who read this and don’t have the software – it’s a bargain investment, and a potent tool that will increase your chances of success many-fold in this most fascinating of all challenges. – Gary

  2. Ray – Much thanks. I present ‘other’ ideas on the blog that will serve to educate in general. It’s important to build a base of knowledge over time – even if only to be sharper at what not to do and what kind of ideas not to pay much attention to. Also – it would just appear too self-serving if all I ever mentioned were our own products and ideas . . . but, yes I am in total agreement re the P3+ software. – Gary

  3. Ray – I didn’t want to get into the subtleties/complexities of James’ mm method. For the folks who want more – they should pick up a copy of the book referenced in the post. You are correct – the approach does better with higher hit-rate methods.

    Thanks a lot for the tip on Texas online betting – there are quite a few Texas residents among our readers. It will give them a good (only?) option. – Gary

  4. Seems to me to be some problems with the figures in this article.
    11 Oct. Kee 5th race, the out column is missing the 46.80
    The first paragraph under the table is;
    “There were 41 races issued in total. Twelve were won for a strike rate of 29%. Had the same races been flat bet at $2 – there would have been $82 in and $174.5 out for a great ROI of +113% on the four-day series. Profit would have then been $233.70 (on the $2 base bet starts).”
    How can the profit be greater than the total out? My calculation shows a profit of $92.50, the ROI shown is correct. I cannot figure where the $233.70 came from.

    • Ray – Thanks for checking – I know I can always count on readers for ‘quality control.’ Yes – oversight on the “out” figure for Kee – and for the life of me, I also do not know where the erroneous flat-bet profit figure came from?! Those numbers have been corrected and that then makes the advantages of the BB+SqRt approach (especially in this series) even more pronounced – returning approximately 3 1/2 times more profit than flat betting would have. – Gary

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