My Personal “Scientific Gambling” Story

| January 11, 2019 | Reply

Our “lifestyle” columnist on the best thing to happen since Betfair

Once upon a time, a friend and I embarked on a sports betting project.

It wasn’t at all complicated or novel. The idea was to follow multiple tipsters, covering different sports and different returns profiles. A bit like investment fund managers, only with making bets instead of buying shares.

To build our portfolio, I applied some basic investment principles using a three-step process:

1. Study the tipster’s track record to check they’re profitable over the long run.

2. If profitable, decide on what sort of stake (as a percentage of our bank) we’d be comfortable with.

3. Decide what percentage of our overall bank we wanted to allocate to each tipster we followed.

To apply the process we needed to set a volatility target. In other words, how much did we want to see our bank size move up and down over time.

This is something of a Goldilocks art. Choose a target that’s too low and we may as well not bother. We’d be betting such low stakes that we’d barely grow our bank even if all the tipsters made a tidy profit.

On the other hand, choose too high a target and we’d almost certainly go bust (or very close to bust) the first bad run we hit.

We ended up choosing quite conservatively, and set about building our portfolio.

There’s a saying that diversification is the only free lunch in investing. With that in mind, we looked for tipsters with a diverse range of profiles.

Not just different sports, but different styles. Those who tipped favourites, those who went for long shots and Homer Simpson’s creamy middle (which I personally found to be the most reliable from the tipsters I studied).

We also added spread betting into the mix, and even some cryptocurrency at one mad point in time.

The idea was very basic: blend together different returns so that when some are on a bad run others will be doing well to compensate.

So long as overall the tipsters we followed were profitable, our betting bank should tick higher over time with tolerable ups and downs.

Simple, right?

Theory versus reality

As often happens when an idea meets the real world, things were not as straightforward as we’d imagined.

The biggest problem was finding enough tipsters with a long enough track record to apply even step one of our process. We quickly faced a recurring dilemma: add a tipster to the portfolio despite having limited conviction, or keep them out and have less diversification.

While a fair few tipsters did publish their track records, there was no standardisation. Just getting the data into a spreadsheet was usually a tedious process (I entered more than few by hand, either hunched over my laptop or using my iPhone on the tube).

Then I had to clean the data so I could compare each tipster with all the rest, to decide how their returns would be expected to affect the overall portfolio.

And there was too often that nagging doubt that comes from taking someone’s track record at their word when they’re trying to sell you something. Was I just putting fabricated garbage into my carefully calibrated spreadsheets?

Given these obstacles, we had more success than we probably had any right to deserve (the advantage of having Matt Houghton as a personal friend who could steer us towards genuinely talented tipsters was probably the deciding factor here).

In fact, we doubled our money in a few months.

That sounds good, but it gnawed away at the scientific, investment professional in me. We were way off hitting our volatility target (our actual volatility was north of 100% per annum).

Of course, as anyone who’s had a lucky run in a casino knows, there’s nothing like winning money to silence the voice of common sense. We thought we were geniuses.

And so, as you’ve probably guessed, gravity soon took hold. We entered a slide, and started handing back our gains.

Though I would-say-that-wouldn’t-I, I’m rather proud of how we handled it. Which is to say, we didn’t give a ****.

It’s gambling, and while I guess it’s OK to enjoy your wins a little bit, you should never cry about the losses.

That’s where the trouble starts. Never bet what you can’t afford to lose, and all that.

The bad run we hit highlighted another problem with having a very limited amount of quality track record data.

Should we keep following the underperforming tipsters or ditch them? When does a blip become the new normal?

Broadly speaking, when a tipster hits a run of bad form, there are three explanations:

1. They’re a good tipster who’s just going through a bad patch. Stick with them and the results will turn.

2. They never were a good tipster, and the track record you liked when you decided to follow them was just a lucky run (assuming it was genuine – most actually are, in my experience, though it’s sensible to be wary).

3. They were a good tipster with a genuine edge, but that edge has now eroded.

This last one will be familiar to anyone who’s followed a market for long enough (whether it’s betting markets, financial markets, even buying and re-selling on eBay).

If a good idea works, other people will eventually spot it. Word gets out. Over time, as more people try it, it erodes the edge that used to be there and it no longer works.

When a tipster you follow hits a bad run, the real skill is in deciding which of the three explanations above is the correct one.

You can never know for sure. Certainly not until a lot more data has come in (and if you wait for that and it still looks good, you’ve missed out on profits. And it could be that now the edge has eroded!)

Having access to reliable, apples-to-apples data can’t eliminate that problem. But boy does it help.

And that’s why I’m over the moon about the launch of Tipstars.

First and foremost, it allows you to study a much broader range of tipsters at a fraction of the blood, sweat and shouting at my laptop that I put in.

This puts you in a much better position to build a diversified portfolio.

Second, it gives you a deeper understanding of the risk-returns profile of the tipsters you follow. That’ll come in handy when, as will inevitably happen, you hit the bad runs.

I know Chris, the brains behind Tipstars, has been emailing you about the nuts and bolts this week, so I won’t repeat that stuff here.

What I will say is, make sure you register for access (it’s free).

You can do that now here.

And a huge three cheers for Chris for making every bettor’s life easier at a stroke.

This will sound like hyperbole, but it isn’t: Tipstars looks set to be the best thing to happen for sports bettors like you and me since Betfair.

Get involved now.

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