Tuesday, 21 February 2017

Verification And Validation

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

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

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

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

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

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

I just noticed that Brian has emailed me regarding my post, saying:
I'm really pleased your enjoying my blog. I have quite a few topics on my list that I hope to write about and your feedback as well as your own writing is always inspiring. You're right about that sentence and I still have to curb my tendency to rush my thoughts down at times!
The 2.4 goals stat for the PL I got from a Pinnacle article written last year but if it's incorrect that'll teach me not to do my own calculations. I am surprised it's as high as you've found though.
However you calculate the average goals per game for the Premier League, it's never been as low as 2.4 unless my numbers are wrong. The low for a full season was 2.45 in 2006-07, but perhaps I should have kept quiet as all those squares assuming the average was around 2.4 will now be driving the Overs price down. 

I'd not read the Pinnacle article before, but it's not one of their finest. The writer, Dafni Serdari, says this:
To give you a better idea about differences in the average goals per game across the major European leagues, Premier League matches have an average of 2.4, Italy’s Serie A whopping 3.21 and Spain’s La Liga 2.85 goals per game.
Nonsense. Serie A has 'whopping' 3.21 goals per game? I don't think so! I make it exactly 2.6 goals per game over the last ten full seasons, and the highest it has been this millennium is 2.76!

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

Always Above Average

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

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

What Buchdahl is able to confirm, is that there is a bias towards betting on over 2.5 goals. This isn’t surprising as you can see from forums and twitter that this is a very popular bet but why? Buchdahl explores a few possible reasons for this in his article but the one that stands out is the negative feeling punters get when a goal goes in. It generally feels better for most people to cheer on a goal and turn a bet into a winner than it is to start with a winning bet and it turn into a loser. Particularly for those who get excited by gambling.
Taking the above into account, it did surprise me a little to see fewer prices over even money for the under 2.5 markets, particularly in the Premier League. On closer inspection it seems that the average amount of goals scored in the Premier League is 2.4**, so unders should always be priced below evens on average. Perhaps this is another reason why people prefer to bet on over 2.5 goals. For the recreational punter, betting a tenner or so, the thought of getting less money back than you risk is a bit unexciting and at even money or more you will always win more than you risk.
Joseph's finding (from an admittedly small Pinnacle Tweeted sample of 200 matches last season) was that:
75% of matches witnessed a preference for betting on the Over (betshare greater than 50%) whilst the average Overs betshare was 62%.
Other than the small sample size which Joseph acknowledges in his article, I have an issue with Pinnacle telling us what the betshare is, because the number of bets in themselves is meaningless - what is important and useful to the punter, is how much money is being placed on each side. 

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

I think Brian could have phrased this sentence a little better too:
...the average amount of goals scored in the Premier League is 2.4, so unders should always be priced below evens on average. 
Always be odds-on, on average?  You can't have both "always" and "on average..."

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

Monday, 20 February 2017

Failing Assets

There's a lot of woo-woo out there about desire, as if all that is needed to make millions from trading is desire. It's nonsense of course. Certainly you need a positive attitude and be prepared to put in a lot of work, but 'desire' alone isn't going to get you anywhere. Desire, however strong, isn't going to upset the laws of probability for example:

“If I desire it, I will achieve it” is a common mantra of positive thinkers. After all, the first stage of making something happen in life is to understand exactly what it is you want. But success is not achieved just by desire; it has to be coupled with a plan and with another factor that can impact your success: detachment.
Being emotionally detached from your financial or trading goals is, in my opinion, a critical and often overlooked factor.

A detached approach makes it easier to accept when markets change, and make the move to different approaches.

That your edges are going or have gone doesn't go unrecognised as the profits that were there previously are reduced, but being too close to the action, enjoying the thrill of it too much, and the mind is very creative on telling you why you should carry on. 

In Mark Iverson's case, he appears to believe that jumping into a new sport is the panacea for his trading woes. I very much doubt it. There are still ways to make profits, but they're not to be found in trading horse racing markets. 

Sadly Mark's grip on reality is somewhat frail, with his much publicised support of Big Pairs, despite some rather obvious clues that the latter's claims (CEO of a "multi-billion dollar global organisation") might not be completely true.

His inability to accept that his habit of 'easing up at the end of a calendar month' was also ridiculous and not a sign of a sharp mind, and the less said about his Soccer In Play app, the better. 

James took time out of his busy schedule to comment on Mark's moving to horse racing, writing: 
As his website states, "I'm not ready to give up on gambling just yet"
That's the problem with action gamblers, they just can't leave off and often they give it all back. If he was a trader rather than a "gambler" then he would realise that for him sports trading might now be a failing asset and should be dropped.
Another bon mot was "If you treated Betfair as a hobby that only paid a small amount, would you write and publish a book on your Betfair trading techniques?"
I would say, if you treated Betfair as a primary source of income that paid for your livelihood, would you be flailing around trying to relive former successes (unsubstantiated) in areas for which you struggle to find edge, should edge actually exist.
The fact that he went on one of The Tangled Webb's "courses" suggests he is not as clued up as he purports to be. Going on a "How To Push a Mouse Around A Table" course is not the stuff of PC giants.
Many readers will no doubt say that Mark has done very well from trading, and reaching Super Premium Charge (in 2014) was no mean feat, but it has come at a cost, mainly that of a career. Divide the profits by the time spent and the hourly rate is distinctly average. 

As for 'action gamblers', when you rely on profits to pay the bills, at least the prospect of Mark giving it all back are slim.  

Two hours to make £14 (after 40% Premium Charges) doesn't seem that great to me for a pro, and Mark readily accepts that he would have made more from working [as in a 'proper' job]:
I'm not sure where this opposition to a 'proper' job comes from. 
Choose a job you love, and you will never have to work a day in your life - Confucius
Many of us might not 'love' our jobs, but the security, benefits, holiday pay etc. aren't bad. Trade in your spare time if you must, but don't expect your competitors on Betfair to keep funding you should you find an edge. 

I agree with James that the sight of Mark 'flailing around' in horse racing is concerning, an example perhaps of someone unwilling to accept that former glories have gone forever, and indeed you would certainly think that an experienced pro sports trader wouldn't need to spend 28 hours income on a "course". If Mark could detach, and see his situation as an outsider, I'm sure he would see that his horse fix is flawed. That some edge has been overlooked by far more experienced horse racing traders and will be discovered by Mark is something of a long-shot and no amount of desire will change that fact.  

Sunday, 19 February 2017

Cherries And Apple

Tobias B commented on my Amateur Hour post, writing:

Thanks for the encouraging words! Did some more thinking on the subject, and concluded that the "low cost" advantage we part timers have over the syndicates is our huge asset and therefore should be handled with biggest possible care. I cant even image the amount they need to turn and the roi they need to produce to finance courtsiders, analyst, tools and more. Puahhh! / Tobias
I always like to be encouraging when there is some merit in the idea or thoughts being expressed. Taking up trading tennis or horse-racing makes no sense for reasons clearly laid out many times in this blog, but Tobias' approach of specialising, keeping costs low and not seeking an unsustainable ROI all make sense to me.

Thinking that your part-time, one-man activity can realistically compete with the resources we know are out there, just doesn't make sense. Syndicates are not flying court-siders around the world for fun. Companies such as Starlizard aren't charities. 

The big advantage part-timers have is that they don't have to get involved all the time - they can cherry pick, rather than be picked off.   

On the importance of specialisation, others have written about this in the past:
An initial mistake I made was to get involved in too many different markets too quickly – looking back I cringe at how I thought I could trade well on completely different sports! This is possible after time but it was a totally unrealistic expectation considering I was a rookie! Luckily I realised this early on and decided to concentrate on researching 2/3 sports. ‘Specialising’ was definitely the key word - Mark Iverson 2007
This blog has recently taken an interest in Apple's stock price, and at 135.72 our Canadian Apple stock specialist is in a world of hurt.

The truth is that as much as he studied Apple, he wasn't an expert. His mistake was irrationally believing that he knew more than the market.

Speaking of Apple, and this headline today caught my eye:
Apple Is on a Crash Course to Being First Company to Ever Be Worth $1 TRILLION
I was a little surprised, given that the headline implied this valuation is somewhat imminent, but of course it is still a long way off as the first line of the article says:
Apple's (AAPL) market cap is surprisingly only 40% away or so from reaching $1 trillion.
Only 40% away from. I suppose a headline of  "Apple Is A Little Over Halfway to Being First Company to Ever Be Worth $1 TRILLION" isn't quite so dramatic. 

Rather sadly perhaps, but I keep track of actual versus targets for various assets, but usually only watch a target that is either within 10% of the current value or that will be reached within a year. When the target is reached, I move it up to the next level, but constantly hitting targets is psychologically important for me.
I've found that one of the things with goals and targets is that they need to be small. You can have a long-term goal of course, but you need to break it down into smaller sub-goals for it to be effective.
What gets measured, gets done - Peter Drucker 
If you set your goal to have a net worth of £1 million by age 60, you're far more likely to achieve your goal by breaking it down into smaller incremental goals than without them - although this won't help you if you are 59, unemployed and with a net worth of 50p. 


A lot can change over ten years and one month. 

On 21st January 2007, Mark Iverson very sensibly blogged:

The Heineken Cup has finished for a couple of months, the NFL season is nearly over I’m not going anywhere near Soccer or Horse Racing.
Three months later, he followed up with: 
Ah well, it had to come – my first losing day in April decided to appear on the last day of the month. It was all my own fault as I dabbled in the horse racing markets and got stung several times. I acknowledged this risk before getting involved and will look at it as an ‘investment in education’. At least I’m fully aware that I haven’t got a clue when it comes to trading horse racing and soccer.
By July 2008, the urge to get involved in horse racing was proving irresistible, as Mark posted:
So did I do the sensible thing? Of course not – instead I thought it would be a great idea to give the horse racing markets “another go”. You’ll see from my results below that I lived up to the old adage that a fool and his money are soon parted. It got so ridiculous that by the end of the afternoon I was ‘laying’ any horse I didn’t like the look of!   
August 2008:
 In a review of 2011, Mark wrote:
And the rest? Well throughout the year I’ve also dabbled with the horse racing and soccer markets but without sufficient time to devote to them it’s been a futile exercise. 
The 2012 annual review said that results had been helped by: 
cutting out involvement on sports that had a negative expectancy (e.g. horse racing & darts). 
So it came as something of a surprise when I was told that the "cricket guru" had turned his attention to horse racing. In fact, when I first saw the message, my assumption was that Bossman Megarain had lost the plot, but it turned out to be the original king of cricket trading, Mr. Iverson, who has chosen to ignore his own sound advice of many years. 

Here was the Tweet in question:
The always rational Scott Ferguson politely queried this unexpected post, asking:
What Scott really meant was "What the hell are you doing?". 

Mark's answer contains a hint of desperation. Yes, many markets are dying on Betfair, and a full-timer with bills to pay 'needs' to replace that lost income, but I don't understand how the cut-throat pre-race horse markets are going to offer a positive edge. 

Perhaps thinking that Peter Webb's trading master class was the key to an edge, Mark 'invested' £400 last year, and 'found it helpful' - perhaps not quite the ringing endorsement of the course that some were hoping for: 
Mark started trading and blogging in 2006, so we both go back a long way and we both pay the Super Premium Charge. 

Back in 2010 / 2011, we both collaborated on a few live NFL trading events, which Mark wrote about:
Trading the NFL LIVE on Sunday night turned out to be good fun and if the reader statistics are to be believed, it would appear that 53 of you joined me to watch the game. Those are pretty good numbers which gives me encouragement that quite a few of you like the idea of me giving opinions as I trade. As for the match itself, it started the way I expected with the Colts finding it difficult to break down the Jets defense and I was able to capitalise on this to end up with a medium green figure. Unfortunately, the Jets couldn’t keep up their good start but fair play to Cassini for forecasting a comeback by the home team – it ended almost bang on his pre-match prediction of a 12 point difference. If you’d like to see exactly what was said then you can review the comments at anytime by going to the post and clicking on the section under the heading. Thanks to those of you who took the time out to be there – I really enjoyed it. 
Well there’s two main reasons. Firstly, Cassini from the well respected and popular blog ‘Green All Over’ has agreed to help me co-host. By sharing the hosting responsibilities it’ll hopefully take a little pressure off me to fill the gaps whilst also providing a different outlook on what’s happening on the field. Cassini is a big follower of American sports and has a proven record so I see his input being invaluable to myself and others.
More good news is that I’ve managed to coax Cassini into covering another game next Sunday. So, if you’d like to take part then click on the link at the top of this page to register. The match in question will be the 6pm kickoff on Sunday (Buccaneers @ Vikings) which promises to be a close one so hopefully we’ll do well. As I couldn’t do this alone I’d also like to thank Cassini again for giving up his time, and it’s good to see he was able to post a fantastic result on Monday night with this result. 
Apparently I used to know what I was doing! 

Where our paths differ is that for me, trading was always a part-time (but never amateur) activity, whereas for Mark, trading became a full-time endeavour and when trading is your primary source of income, squirelling funds away for a rainy day isn't so easy and the pressure to keep finding profits is inexorable. 

Mark did very well at trading Cricket for several years, but I suspect that as markets evolved, pitch-siders moved in, more resourceful competition etc., Mark's edge gained from keeping records and being an early entrant into the market has eroded.

Yes, we should always look for new opportunities, but how logical is it that after years of self-described futility, horse racing is suddenly offering Mark an edge? 

Slim to none. There are a lot of people who trade this 'sport', presumably including some who know what they are doing with years of experience, and it's simply not rational to think that you can waltz into these markets and expect to beat this knowledge and experience. 

If "I attended Peter Webb's course" is the answer, well any edge these courses might have offered has long gone - Mark isn't the first person to attend - and it's debatable whether any edge would be given away for just £400 anyway.  

It will certainly be interesting to check in on Mark's new venture from time to time.

After scanning Marks' recent posts on Twitter, one pleasing entry was this one:
With many of Mark's followers fellow Cricket fans, it's not a surprise that sport tops the list, but it's gratifying to see that Tennis is in single digits. Perhaps one message is getting through? 

Friday, 17 February 2017

Amateur Hour

Tobias of Machine Betting had an interesting post this week in which he extols the virtues of automated betting. 

Read the post in full, it's short and to the point, but Tobias concludes with this:

My models are niche models, and they are really good in their niche. I consider this to be the only possibility for me to build successful models, if I would try to model all markets and all live situations I would probably have a poor losing model (being an amateur with limitations in time and money I would be outperformed by the bigger syndicates).
If I were to give you a few tips how to be successful in your model building:
  • Model one or few markets, and focus on a certain events/situations there. 
  • Settle with a low ROI, and maximize number of bets instead.
  • Keep your costs low, don’t pay a lot of money for data, software or other. Your profit will vanish!
Great advice. I'm almost shocked at reading such common sense and logical thinking in a blog other than my own or James'
Someone who recognises their limitations as an amateur! I actually prefer the term 'part-timer' because amateur has some negative connotations to it implying a less than dedicated approach, which is far from true in Tobias' case. 

He's amateur only in the sense that it's not his full-time job or his primary income stream. Understanding that in many markets you are competing against people with more resources than yourself is key.

The three tips Tobias offers are worthy of note too. 

Staying Passive

A couple more articles on sector correlation and active v passive investing.

From CNBC last month:
Investors bailed on actively managed funds in record numbers during 2016, preferring the reliability and low costs of index funds over taking a chance on finding a stock picker who could beat the market.
Amid one of the worst years ever for stock pickers, passive funds took in more than half a trillion dollars — a record $504.8 billion to be exact — according to Morningstar data released this week.
When it came to funds that focused on U.S. stocks, there was nearly a dollar-for-dollar switch: Passive funds brought in a record $236.7 billion in investor cash, while their active counterparts saw $263.8 billion go out the door, worse even than the $208.4 billion in outflows during the height of the financial crisis in 2008.
That doesn't even count the more than $100 billion that left hedge funds during the year.
In addition, December saw passive funds bring in a one-month record of $50.8 billion, while active witnessed redemptions of just more than $23 billion, marking the 33rd consecutive month of outflows.
The trend comes amid an intensifying debate over active vs. passive.
Active is represented primarily by the $13.5 trillion mutual fund industry, which is populated heavily with managers who move in and out of positions to try to beat market benchmarks such as the S&P 500. On the other side, the $2.4 trillion exchange-traded fund industry tracks indexes with offerings that carry much lower fees and trade like stocks, providing more liquidity than mutual funds.
Active mangers haven't done much to boost their cause. Just 19 percent beat the large-cap Russell 1000 in 2016, according to Bank of America Merrill Lynch, giving further fuel to the exodus.
"Certainly for the smaller investors and the long-term investors, the passive strategies are more comfortable and seem to make more sense," said Carol Roth, partner at Intercap Merchant Partners. "The active traders have not proven that they're worthy of the allocations."
All the money flowing toward indexing, though, has generated some critics who believe passive investors are ignoring risks. Passive investing offers fewer opportunities to generate "alpha," or the ability to beat benchmarks, and offers little downside protection.
When the market falls, investors tracking indexes can lose money unless they're properly diversified.
The question, then, is whether the investing community is reaching "peak passive" — a high-water mark for the popularity of passive funds.
"If you use the magazine headline indicator, then certainly we are at peak passive," said Nick Colas, chief market strategist at Convergex.
"Everyone has chiseled out the tombstone for active management."
Colas believes conditions are changing that could lead to better times for active managers.
Specifically, he said correlations, or the tendency of stocks to move up and down together, are breaking down after years of exceeding 90 percent. The prevalent correlation trend has made it difficult for stock pickers to find the price differences that lead to alpha generation.
With market volatility increasing, that could lead to better conditions for active management. Indeed, the year closed with a somewhat better performance, as 37 percent of managers beat the benchmark in the fourth quarter, according to BofAML.
"The missing piece is going to be more active managers outperforming. That's going to take time only because we literally just had the breakdown in correlations two months ago," Colas said.
"Investors will want to see at least a quarter or two of out-performance before they start shifting allocations."
They may get an assist from central banks.
The Federal Reserve and other global central banks have contributed to the tough climate for active managers as liquidity policies have kept market volatility low. But the Fed is expected to raise interest rates multiple times this year, and others around the world are contemplating their exits from collective monetary policy that is at record levels of accommodation.
"One could say that perhaps central banks have actually underpinned the performance of passive funds," said Quincy Krosby, market strategist at Prudential Financial. "But if you have the European Central Bank, if you have the Bank of Japan beginning an exit from easy money, tightening liquidity, that also introduces more volatility."
The industry is hoping that increased volatility, higher rates and opportunities created under President-elect Donald Trump will make for a more welcoming landscape.
However, the ability of active mangers to outperform remains in doubt.

"As an investor, what makes you think now all of a sudden (active managers are) going to have keen insight about what Trump's actions or potential actions are going to be or are going to mean?" Roth said. "That may sound like a great sales pitch, but in reality you have to evaluate the data, and that says a lot of people don't know."
And from Yahoo! Finance today
Active investment managers have been taking a beating through most of the eight-year bull market run for stocks, and Berkshire Hathaway's Charlie Munger thinks the pain isn't going to stop anytime soon.
Much has been made over the poor performance of stock pickers. Fewer than 1 in 5 beat the S&P 500 (INDEX: .SPX) in 2016, driving half a trillion dollars of investors cash into indexes, primarily through passively managed exchange-traded funds.
During a talk Wednesday, Berkshire's vice chair had little comfort to offer.
"The index thing is absolute agony for investment professionals … who have almost no chance of beating it," Munger said. "Most people handle that with denial ... I understand — I don't want to think about my own death, either."
Investors have turned to ETFs for their low fees and ease of trade compared with mutual funds. ETFs mostly track indexes such as the S&P 500, Nasdaq or specific sectors, and are thus not subject to the vagaries of individual stock movements.
The funds had just a few hundred billion under management a decade ago but now boast $2.7 trillion in U.S. assets.
Munger said the rise of ETFs has driven fees lower overall, squeezing managers accustomed to generous compensation.
"It's a huge problem, and it means your generation of money managers have way more difficulties and causes a lot of worry and fretfulness, and I think the people who are worried and fretful are absolutely right," he said. "I would hate to manage a trillion dollars in the big stocks and try to beat the indexes. I don't think I could do it."

Monday, 13 February 2017

Volatile President

James suggested that my last post was:

A little confusing. Are you still a little jet lagged?
What was the premise of the article and what was the conclusion?
The title suggested a rant but the content was unrelated.
I know people's concentration levels are very low these days but do three weeks into a new presidency constitute a long enough period to perform a correlation study?
Not to be too nit-picky, but the election was actually more than three months ago, so any 'Trump Effect' would have been in-play since November 8th.

The timing could turn out to be coincidence of course, but after eight years of mostly 80%+ correlation, the sudden separation certainly warrants a closer look. A change in President, especially when there is also a change of party, is always a significant event, and Donald Trump with no political experience whatsoever, was always going to have more impact than a traditional new President. I'm not sure many 'experts' were predicting that a Trump win would result in the S&P 500 gaining 8.9% since election day, and the FTSE 100 up 6.4% in that time. 

The 'President Chaos' title was chosen from text in the article I linked to, and wasn't meant to imply any sort of a rant. I think the premise of the article was that a President, who in so many ways is causing chaos in almost everything he does, should be the cause of markets reverting to how they have behaved long-term, is somewhat ironic. Organised chaos perhaps. 

While that is all very interesting, more interesting perhaps is that the lower the correlation between sectors, the lower the overall volatility
Quite a decline from the days immediately preceding the election and close to all-time lows.

As the source article summarises, the lower correlation means three main things:
Point #1: Lower correlations mean less price volatility in the S&P 500. That’s just math: the lower the correlation between assets in a portfolio, the lower the overall volatility. That’s one reason why the CBOE VIX Index has been so low (along with realized volatility). We’ll have to wait and see how much the sector correlations stay low when we get a systemic shock, but for now we can expect volatility to remain under pressure.
Point #2: Getting sector and stock bets right just got a whole lot more serious. As correlations drift lower, different sectors will tend to show greater price and performance dispersion. Use Health Care as an example. Say you under-weighted that group at the end of last year. Big mistake: it is up 4.1% year to date, and only overweights in Tech (+5.9% YTD) and/or Consumer Discretionary (+4.8% YTD) would have saved you so far. No other sector has better YTD performance than those three. 
Point #3: The same goes for international equity portfolios. Emerging markets are up 8.2% in dollar terms so far in 2017. EAFE is up 3.9% - more than the S&P 500’s 3.1% price return.
Good luck if you're trying to beat the overall index by picking individual stocks or sectors.

Sunday, 12 February 2017

President Chaos

I was reading an interesting article on how the stock market in the US is different now than it was prior to the election of Donald Trump. 
The US equity market is very different than before Election Day 2016, and that’s not just because we are at fresh all-time highs. There were plenty of new highs from 2013-2016, after all. What’s different is the lack of sector and asset class correlation now versus 2009 – 2016. Simply put, they are finally back to normal. The drop in correlations among the 11 sectors of the S&P 500 has been profound, from 75-80% pre-Election to 57-62% afterwards.
Within any index, there are a sub-set of 'sectors'. The S&P 500's eleven sectors are shown above, and the FTSE 350 has a less compact 41, but the principle is the same.

From 2009 - 2015, correlations between the S&P 500's eleven sectors rarely dipped below 80% meaning that it mattered little in which sector you were invested:

Own everything or nothing, give or take. The hedge fund guys absolutely hated it, blaming the Fed every chance they got for rendering the type of analysis they had been doing since the 1980’s and 1990’s no longer useful.
This rather nicely supports my opinion expressed on multiple occasions, that trying to beat the market is an exercise in futility, and that buying a low-cost index tracking fund is the way forward, but the article suggests that with sector separation back, opportunity knocks for the active managers.

This trend also applies to non-IS equity markets, which "have been tied at the hip to US stocks since the Financial Crisis as well, but now correlations for the EAFE (Europe, Australasia, Far East) country stocks to the S&P 500 are 61.4% and for Emerging Market equities it is 34.6%". 
It’s kind of funny that President Chaos has succeeded in “normalizing” market conditions. I suppose this is what happens when the Federal Reserve and its programs become back page news after being the dominant (only?) story for almost a decade.
For the active managers, no more excuses. Show us what you got.
It'll be interesting to see whether this separation holds up over the next couple of years and how active managed funds compare to index tracker funds. 

I'll be sticking to the latter, although at my age, conventional wisdom tells me I should be reducing my exposure and moving rapidly from stocks to bonds.

From CNN Money:
The old rule of thumb used to be that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks.
Fortunately for me, the new rule of thumb suggest that the number should be 120 but if I can live to 140, I should be just fine. 

Friday, 10 February 2017

Basic Models, Priorities

In one of Steve M's recent posts, he writes:

Taking a leaf out of Cassini’s blog to generate as much content out of one post as possible, I’ll be replying to a very well written comment on my last affiliate post. Instead of in the comments (where no one really reads them), I think it will be better to make it a whole new post.
Good to see that at least one of my 'best practices' has found some support, and it's one that makes sense, if I do say so myself. 

I try to comment on all published comments, because not only does it give me a topic for a new post, but it also gives the comment some oxygen - as Steve says, comments typically tend to get overlooked.

It's rare that I'll publish a comment and not respond, at least in passing, to it in a subsequent post, because if the commenter has taken the time to post their thoughts in a polite way, I feel they deserve a response.

Unfortunately not all comments are polite, well-written or even timely, and so never make it to the blog. One recent comment was asking about the XX Draws service that was retired after the 2014-15 season! Keep up people.  

Sadly, I'm not sure a couple of the 'best practices' there - namely conditional bets and money-back guarantees, have made it into the mainstream tipster world yet, and I doubt that they ever will.

Betting Tools' Brian wrote in response to my post about his post about my posts (you get the picture) on court-siding:

Appreciate the kind words, thanks Cassini. I'd be interested to hear why you think the US sports that you used to trade so well are more difficult for you now?
I would think that the introduction of the cross-matcher (which certainly seems to prevent selections trading as low as they used to inplay), as well as the premium charge and lower liquidity levels, have been the biggest factors but I would think that these sports could have 'courtsiders' as well?
Apologies if you've touched on this before and I do remember you saying you have less time for trading in general.
The in-play trading environment in general has, as expected, become more difficult in recent years for the home-trader. The Premium Charges are certainly a big reason, but as the exchange concept has matured, the expertise of the competition has improved greatly. Court-siders are certainly one weapon, but behind the scenes, models in all sports are far more sophisticated now than they were ten or more years ago. Markets become more efficient and sports trading is no exception.

Opportunities for the part-time / home-trader are now few and far between and, in my opinion, effectively non-existent in sports such as tennis where court-sider data and efficient pricing models exist in large numbers. 

Stephen High, who should know, stated in 2015 that some 75 court-siders were present at a Wimbledon Final. If you seriously think that you are going to have any kind of an edge against that level of competition (and remember, these 75 court-siders and their back-offices are in it to make a profit), frankly you're delusional. 

Add in that you need an edge large enough to cover the commission cost, and the time (and thus money) that you would need to spend on this venture, and it should be obvious that it's a non-starter. 

No two of us are at the same stage in life or have the same goals, so it's a personal decision how much time to spend betting or trading. As Brian says, I do spend much less time trading now. My real job takes priority and while I'm not the CEO of a multi-billion dollar global enterprise, I do currently have responsibility for the careers of some 43 people right now, a responsibility which is more deserving of my time than trading a sports event, and the reason the Draw Service was retired. 

With a 50% Premium Charge and court-siders / more sophisticated in-play models now out there, the time required to find a rare opportunity can no longer be justified. Hence the move to a more cost-effective system / portfolio strategy these days. 

It's also fair to say that another factor is that I'm not getting any younger and have other priorities. I plan to travel again next month, as well as in June, August, November and probably next February. Paid holidays is another advantage of a 'proper' job.

JokerJoe, perhaps trying to convince himself rather than me, writes on this same topic:

I'm not sure I agree with you. Courtsiders are trading information flow and only need a basic model to profit. They need to know the direction price will move in and approximately where the market will settle after the news. They want to capture the bulk of the move and close out the trade immediately afterwards. They do not need to predict to the tick where the price should be afterwards as sweeping those last few ticks aren't worth the effort. As such a basic model calibrated against market prices is sufficient. Essentially the courtsiders are just reflecting the market's opinion, if the market knew all the information.
If they have a more sophisticated model then they may end up holding positions, so they aren't "pure" courtsiders and a portion of their funds is being used speculatively. That means their model is competing against others. One can view that as their courtsiding money sweeping to the basic model (market) price, and the speculative portion as being a trade at that price.
Either way, no matter where the market settles, it isn't necessarily at the fair price. Markets aren't perfectly efficient, I presume you'd agree otherwise you wouldn't be involved in them at all. I don't see why there shouldn't ever be moments when your model/view might not significantly disagree with the market price.
It's been previously covered, but these pricing models are extremely efficient. If the model is only 'basic' as JokerJoe suggests, they wouldn't be in business, and as new competitors enter the market, models need to be ever more efficient. If all they knew was 'approximately' where the market will settle after a point is decided, they would lose out to a model that knows 'exactly' where the market would settle, either by not getting any action or by getting action but with a negative expectancy. With the vast amount of data that some syndicates have accumulated, the 'true' price is known. 

Why would the price ever NOT settle at this fair / exact price? Back at greater than that price or lay at less than that price, and they make a profit. Get it wrong and they make a loss. 

If losses start to accumulate, a model will soon adjust (or go extinct), but there are at least tens of full-time models out there for tennis. I'm not convinced that a part-time or home-trader's model is realistically going to have an edge that will cover commission and be better than those other, well-financed models.

Essentially, any time you get matched in-play in an event where court-siders are active, you are taking the opposite side of someone who is ahead of you both in time and (almost certainly) in ability to price the market accurately. The 70 or so syndicates have already passed on that price, or are offering you that price. Are they all wrong?   

As for holding positions, why would they not? No one should ever trade out of a position for the sake of trading out, but only if there is value in doing this.

It's the single biggest trading error to close out a position as soon as a profit can be locked in. If you back at 2.0 and can lay at 1.9, it makes no sense to do so if the 'true' price is less than 1.9 and your staking is sensible. You are giving value away at that 1.9. Positions don't need to be held until expiry, but until there is value in closing out the position. 

JokerJoe suggests that "court-siders are jut reflecting the market's opinion". I'd say that the market IS the opinion of court-siders, and that in an efficient market like tennis, it's almost always correct. 
Moving on, and for those watching the Apple story, unfortunately for our protagonist, the price continues to soar. Shorting a company such as Apple is a dangerous game, and as I asked in my last post, before entering any trade, be it financial or sports betting related, asking the question "what do I know about this that others don't?" is always time well spent.

Finally, I mentioned last month that:
Using just two filters in one league, the system would have generated 417 bets for a profit of 174.25 points, an ROI of 41.8%. My P-value calculator gives a value of 0.000368, (or 1 in 2,716) for these results.

Too good to be true? With half the season left, I'm adding this to my portfolio and will provide updates here from time to time.
From time to time is here, and since that update, another 9 bets have added 0.32 points to the pot. Unfortunately this system isn't for sale, but to the person making the offer, it's appreciated, but we can only sell it when it starts to lose!