Wednesday, 19 July 2017

Favourites (M) Slammed

Wimbledon 2017 ended a run of six Men's Grand Slam tournaments where backing the favourite in every game was a profitable strategy.

Here are the results for backing Grand Slam favourites this year at Pinnacle's prices:

and for the 2016 season:
Conventional wisdom for tennis betting is that in line with the favourite-longshot bias, backing the favourite will result in you losing your money slower than you would by backing the outsider. 

Backing the outsider would have been profitable in Australia this year, simply because of two long-priced winners - Istomin beat Djokovic at a best priced 41.0 and Zverev beat Murray at a top price of 28.0.  

In the eleven Grand Slams (Men) since 2015, an underdog backer at Pinnacle's prices would have lost 181.22 points, 16.47 per tournament, while a favourite backer would be up 14.24 points, 1.29 per tournament.

If you believe in unicorns, Santa Claus, angels or gods, then by backing at the best priced books, your losses would be reduced to 108.02 points on underdogs, and profits boosted to 35.24 points on the favourites.  

Tuesday, 18 July 2017

Patsies and Strumpets

Eggmund, possibly not his real name, commented on my Physics Presumptions post:

Hello, nice blog.
I used some of the principles of Statistical Mechanics that I picked up from my Physics degree when writing my Cricket model. It could be that this is the sort of thing referred to as "Physics Presumptions".
A very charitable explanation, and one that in my opinion, isn't supported by the evidence when you consider the individual's writing in more detail. 

Here's his Pinned Tweet:
It's hard to view this nonsense as the product of an educated mind, from an individual who might be into "particle physics" or "Statistical Mechanics". 

To me, it's a nonsensical rambling with the end goal of selling a worthless tipster service to gullible individuals by adding faux intellectual gravitas to the subject. 

Eggmund, (if there was never a King Eggmund** back in the day, there should have been), is clearly a much nicer and more intelligent person than myself, and he continues: 
By the way, I like your principle of Bet-And-Forget. It nicely expressed what I've been looking for for a while as gambling time competes with family time! I'm now working on how I can build positions purely during intervals in test matches, without having to follow games live. Thank you for the tip.
The only person who benefits from betting in-play these days is someone trading the game with the advantage of being court-side / green-side / pitch-side / table-side / etc. If you do not have this edge, and most of us don't, Bet-and-Forget is the only strategy that makes any sense.

It's gratifying to see that this message is finally getting through. Trading sports sounds dangerously simple, an easy way to riches, and back in the early days of the concept it was quite possible to find a trading edge, but the markets have evolved.

One more time - If you are trading in-play, you are competing against others with more information than yourself.

Here are my thoughts from a few weeks back:
You are not going to obtain any information from your TV that hasn't already been seen, evaluated, and acted upon, by others before you.
If you, and I think quite logically you can, assume that these full-timers are not donating their money to the market each day, i.e. they are net winners, how can you, sitting at home, seriously think that you can overcome this disadvantage over the long-term and make a profit?

It's a zero sum game, and as the Warren Buffett quote from yesterday puts it:
"If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy."
No guide in the world is going to be able to help you overcome this disadvantage. You are always working with stale information, which would be a level playing field if everyone else was too, but you're competing in markets where others have more current information than you.

It's frankly delusional to think you can be competitive under such conditions.
** I checked - no Eggmund, but we did have a couple of Edmunds and an Eadwig (955 - 959) with an interesting background:
The eldest son of Edmund I, Eadwig was about 16 when he was crowned king at Kingston-upon-Thames in southeast London. Legend has it that his coronation had to be delayed to allow Bishop Dunstan to prise Eadwig from his bed, and from between the arms of his “strumpet” and the strumpets’ mother. Perhaps unimpressed by the interruption, Eadwig had Dunstan exiled to France. Eadwig died in Gloucester when he was just 20, the circumstances of his death are not recorded.

Saturday, 15 July 2017

Physics Presumptions

There are worse ways of passing a Saturday night than doing research on behalf of @Statsbet, who prompted me to compare the League 2 Away returns discussed here, only using the Pinnacle odds scraped several hours prior to kick-off rather than the Pinnacle Closing Prices.

For the five seasons where the data is available, the results are as above. Closing prices beat the earlier prices (let's be clear that these are not "opening" prices), but over the past two seasons betting earlier has been the optimal strategy, possibly because someone revealed this simple system and the money consequently floods in towards kick-off, driving the price down. Or possibly not.

If you follow @Statsbet on Twitter, you'll find that he crosses paths and swords with some strange characters out there. 

One such individual is setting up a tipping service for next season, the cost:
Will be £50 per Calendar month for model data covering 6 leagues this season. Only accepting 10 clients to begin.
Only £50 a month! This sounded like a bargain, except that no verifiable results are to be found, and when asked how publicly available data could provide him an edge, the response was a nonsensical:
My interest was short-lived. If anyone knows what "physics presumptions" means, please let me know. My money, and I hope all of yours, shall also remain private. 
Call me old fashioned, but when someone admits to having no money, and is looking at betting on in-play football in China, it sends a message of cluelessnes and desperation rather than one of success. A few minutes later:
Imagine my surprise.

Closing Lines

Rodolfo commented: 

In recent weeks Joseph Buchdahl has published several articles on the importance of beating the closing odds. Do you consider beating the closing odds as an important factor whether particular betting strategy is profitable or not? Have you ever recorded closing odds yourself on a regular basis?
Long-time readers of this blog will know that I am a firm believer in the importance of beating the closing odds, which is why I became so excited when Joseph added Pinnacle's Closing Prices to his football sheets dating back to the 2012-13 football season.

As Joseph explains:
Closing odds reflect the largest amount of information about matches, and the maximum number of opinions being expressed through wagering on that information, and hence are most likely to be the most efficient.
As a part-timer, I have never had the time to record closing odds myself, but fortunately for all of us, Joseph has now filled the gaping hole in this area. 
Readers will know that one of my favourite sports for betting is baseball, and several years ago saw this quote on a forum discussion about closing prices:
In all free markets - pricing efficiency is generally enhanced with the addition of market participants and incremental information over time. The MLB wagering market is no exception. The closing line is generally a sharper number than the opening line. The fact that a winning MLB handicapper beats the closer more often than not is not the reason he's a winning handicapper but rather a reflection of his being a winning handicapper. He has the ability to identify the smart side of the early (weaker) number. More often than not, his good judgment will be confirmed by the subsequent line movement. His early wager will thus, more often than not, have a value edge vis a vis the ultimate closing number. It's as simple as that.
Anyone who is profitable in MLB over more than a half season without beating the closing price more often than not - who thinks he is good - is mistaking good luck for good play. And to any of you who believe that beating the closer is a meaningless or overrated measure of a good handicapper - I can only say you are wrong - and assure you that the Las Vegas books would agree with me.
So the importance of beating the closing line has been clear to me for several years and is why my MLB, NFL, NBA systems etc. all use the closing prices. In reality of course, it's impractical to place all bets at these closing prices, (sometimes you'll get lucky, other times not so lucky) but it's always the benchmark to be used when evaluating a system. It also allows others to easily verify the results. 

One of the many problems with measuring a football tipster's edge is that the prices they claim are often, to put it favourably, somewhat arbitrary. Prices move throughout the days leading up to a match, reacting to new information and money coming in to the markets. This allows someone to cherry pick the prices they record their results against. 

It is why my own selections and results were recorded using Pinnacle's prices wherever possible. This consistency and transparency was a welcome improvement to the opaqueness of others, but three seasons ago, was still less than perfect. 

Prices were scraped, at best several hours, and at worst, several days before kick-off, thus the role of luck played a bigger part than it should - for example, the late news that a star player would miss the game wasn't reflected in the odds used. The most extreme example is the scraping of a price on a Friday afternoon for a game on Monday night. Clearly less than ideal.

The long overdue addition of Closing Prices for football means that everyone now has a standard to measure their performance against. Be wary of anyone who doesn't report their results against this benchmark. 

A Closing Line for the Over / Under markets would be a nice addition too if Joseph is reading this.

Finally, Football Investor Stewboss clarified things, writing:
Sorry if I got the wrong end of the stick re your draws betting. Perhaps you should have replied to my last tweet
With everything else that's going on in my life right now, correcting a minor misunderstanding by one person on Twitter wasn't particularly high on my list of priorities. It became more important when repeated in a comment, but we're all on the same page now.

Friday, 14 July 2017

A Slightly Better Bettor

Stewboss commented on the Filter Bursting post with:

"Secrets are secrets. An edge shared is still an edge halved. If I give or sell you a secret then it's no longer a secret."

That would be true if indeed you were placing the bets yourself but as you've already informed me that you haven't I don't see why you're so keen to keep it a secret. I'm not that bothered personally as I have created my own version with slightly better results than yours :-)

Maybe you could introduce an paywall version of your blog for those in the know so to speak !!
I'm not quite sure where Stewboss got the idea from that I wasn't using this system myself. 

In response to Stewboss's initial enquiry about my Draws, I did say that I hadn't updated my own ratings in almost two years.

This was a very time consuming activity whose rewards were not justifying the additional time over a more basic single filter system.

With regard to the less time consuming Draw system, I stated that "it was a loser last season anyway!", but unfortunately for my wallet, that didn't mean that I hadn't followed the system.

Anyway, a minor misunderstanding, and good for Stewboss that he has a Draw System with improved results over mine, although some clarification on 'slightly better' is needed.

Are we talking ROI% or points?

Looking at the past five EPL seasons (i.e. those where the Pinnacle Closing Price is available), the highest ROI for backing the draw with one filter is 150.4%. Unfortunately this was from just seven selections, which across five seasons isn't too useful.

In terms of points, the best single filter for backing the draw returns a profit of 82.65 points (from 710 bets), while the best ROI from a filter generating an average of at least one bet per round (i.e. 38+ a season) is 21.5%, from 294 selections.

Filter Bursting

Jameson wasn't the first to ask:

hi. what is the second filter you applied for draws? 1st is ip 25+, and second?
Unfortunately, as I told Stewboss, since this filter has added value in each of the five EPL seasons for which we have Pinnacle Closing price data available, the filter will remain proprietary. A great man once told me:
Secrets are secrets. An edge shared is still an edge halved. If I give or sell you a secret then it's no longer a secret.
How valuable is such a 'secret' though? 

Some of you undoubtedly noticed that the number of Draws in last season's Serie A was the lowest since 1995-96. Of the 50 top flight seasons in England, France, Germany, Italy and Spain during the last ten years, only four have been lower, and two of those were in the traditionally higher scoring Bundesliga where you'd expect fewer draws. 
Unsurprisingly backing the Draw in every Serie A match last season would have been costly as usual, but the benchmark (matches where the Draw probability is 0.25 or greater) would have again been improved by applying the filter, reducing a loss of 35.01 points to a loss of just 8.99 points. 
It was the same story across Europe last season, with the filter adding a total of 133.54 points to the benchmark:
An ROI% of -1.61% isn't usually something that sets the pulse racing, but it's a whole lot better than the -12.37% on the benchmark.

One swallow doesn't make a season though, and one season doesn't make a golden goose, so I looked back a couple more seasons to see if the pattern held. 
As you can see, it did, turning a benchmark loss of nearly 150 points into a profit of over 100 points. 

For the five seasons for which we have Pinnacle's Closing prices, the results are here sorted by league / season Draw percentage:
While the correlation between the Draw and returns is obvious, the (usually) added value of the filter isn't apparently influenced by the Draw percentage.  

Sunday, 9 July 2017

Drawing Blind

Football Investor Stewboss asked me via Twitter "will you be revisiting your Draws system on the blog anytime soon?"

I think the Draws System he refers to is the one I mentioned early last season in this post.

Back then I mentioned that:

Backing the draw in the (conveniently exactly) 1,000 matches where the implied probability of the Draw was 0.25 or greater at kick-off would have boosted your account by 49.22** points, and you can all work out the ROI% on that.
I also mentioned a simple additional filter which can be applied to both reduce the volatility and increase the profits, and published the table below showing the results of blindly backing the Draw in all English Premier League matches, applying the Draw filter (IP 0.25+) and the second filter. 
Unfortunately for Draw backers, last season saw the second fewest Draws in the last eleven seasons, and the third fewest in the top English division in the last 30 seasons.
It's hardly a surprise then, that the numbers for last season reflected this. 

Blindly backing the Draw in every match would have cost you 38.92 points, using the draw filter would have lost 37.08 points, but by applying the second filter, the losses are reduced to just 4.51 points, which in the circumstances, almost seems like a win! A five year ROI of 12.25% for a simple system is excellent, and unless Draws are heading into a long-term decline which seems unlikely, the profits will soon be back. 
As I mentioned to Stewboss, last season was very much a season for Home teams, not just in the EPL but across the top leagues in Europe where the percentages were strangely consistent everywhere, Homes up, Draws down (if you'll pardon the expression): 
That Homes in the EPL would leap to 49.21% the season after the lowest percentage for English top division homes (41.32%) since the Second World War, makes it all the more surprising.  

For the record, blindly backing the Home win in the top five leagues in 2016-17 would have won you 97.80 points, an ROI of 5.36%

Eliminate the longshots with an Implied Probability less than 0.1 and the ROI climbs to 7.3% (130.31 points from 1,781 selections). 

** All calculations use Pinnacle's Closing Odds courtesy of Jospeh Buchdahl's excellent Football Data website.

Friday, 7 July 2017

Hotties Cooling in July

Favourites in MLB have been discussed here many times in the past, with many of you aware that the reverse favourite-longshot bias present in baseball for many years is no longer observable.

This post here from 2015 is one example of my comments, and although 2016 saw a loss when backing shorties, it was miniscule with 279 bets recording an ROI of -0.1%

The 2017 season to date has seen good profits from backing favourites, with May's +23.60 points a record monthly total, at least since 2003.
The All-Star break doesn't seem to help hot favourites (I use 1.5 as the definition of a hottie). 
July 2016 was nothing short of a disaster, if betting losses can ever be classified as a disaster in the whole scheme of things (probably not), but it's noticeable how profits start well enough with the new season, drop off in May and again in June, before struggling in July. August is like a new beginning, with profits then declining again in both September and October (which has only a few regular season games).

A couple of other simple, and not very original MLB systems, revolve around the idea that after two home losses, a home team will be motivated to win the third series game and are a value bet to avoid the home sweep. What this idea doesn't take into account is that if there were any such bias, it would long ago have been identified and the prices adjusted as necessary. Nevertheless, it's a fun play which wasn't much fun in 2016, but what may happen with systems such as these is that after a losing season, people drop them and move on to the latest hot system.

So far in 2017, backing all home teams in game three after losing the first two games is +11.83 points (ROI 12.1%), and in games where the home team is favourite, are +13.35 points, an ROI of exactly 20%.   

Little Puffy Balls

Conspiracy theorists across the globe have been analysing the comment posted earlier this week by Rap, and linking it to the lack of recent posts on this blog:

Have you ever felt so unproductive at some point in your life? Wherein all you’re doing throughout the day was tapping and swiping the screen of your phone; sugarcoating your miserable life online through filtering apps to make it look awesome; and staying up all night to surf the web without any valid reason behind but for plain vanity purposes.
Your life has become an endless scroll-react-share-comment-tweet since the invention of social media platforms. But without this breakthrough, people cannot converse as easy as a few clicks away. And your crush may message you, “hey!” all of sudden. You’ll then freak out; you’ll be at a loss for words. While your attention is on the seemingly impossible scenario, you didn’t notice that your mom is already inside your room which gives you a mini heart attack. And that’s it. That’s when the trouble starts. You’re doomed to be berated by your mom at the top of her lungs wherein every single sharp word of rampant rant she utters has 0.0001 interval in between. She’ll scold you for not doing the chores but you wouldn’t mind her at all though.
However, she figures it out and quips, “your little puffy balls have an undeniable chemistry with your phone; that’s why you got those two bags of Prada under your eyes and you flaunt them shamelessly. Bravo!”
If that’s the situation you’re usually in, you are one of the 58% of the Philippines’ growing population that spends long hours on social media. Today’s generation is gradually turning into a part of technology. They’re more afraid of network connectivity issues and low battery life than what challenges the world has stored for them from which they’ll learn. In fact, they feel pleasure every time they receive reactions and messages, and other things called “instant gratifications.”
Truly, social media has changed the way we live. But don‘t wait until the bridges between your social and personal relationships are burnt.
Every aspect in your life are at risk. There’s no application to solve the problem with which only you can deal. Set a time limit. Prioritize more important agendas and ask yourself, “do I really need social media for this?” before gluing your eyes to the screen. Otherwise, get offline and live every moment of your life. Break free from the addiction.
As is the case with almost all conspiracy theories, the suggestion neatly summed up by Jamie's follow up comment:
@ Rap's comment. With impeccable spelling and grammar like that, is it Cassini in disguise? It may explain the absence. off the mark, but Rap's thoughts were well written. The days of my Mum being anywhere near my room are long gone, and she was never likely to make reference to my "little puffy balls". 

As I related to a few enquirers asking if all is well, the answer is yes and no. I'm perfectly well myself, although sliding inexorably towards old age which is at best mildly depressing, and at worst quite terrifying, a fate made all the more unsettling by the decline of my father who was earlier this year diagnosed with Alzheimers, a fate I wouldn't wish upon my worst enemy. 

So family has been the priority recently, with betting and blogging about betting not the priority in life that it once was. Not even close. 

Ian Erskine, who many of you will know by name, if not in person, has also been through a bad spell of family issues and other problems, but is bouncing back as reported in his latest blog post Time to Resume.

Apparently even those who should know better aren't immune to the less desirable who prey on the vulnerable in the world of betting:
I also got ripped off by a guy who claims to make money on horses to people which was partly my fault but will leave that for another blog post as this guy is bad news for people and I have been working that behind the scenes with the police also involved and need to wait for the time I can discuss that, these things do drag on.
Adding to Ian's woes, apparently the 2016-17 football season wasn't a good one for Ian:
I am well aware the last year has not been great, Will has struggled, some of the footy struggled and this game is about making money.
The reason tipsters "struggle" is because there are too many entrants in the markets these days who are far better financed and resourced than any one individual. For sure the over-rounds are so tight these days that over the course of a season, one can get lucky, maybe over the course of two or three seasons, but inevitable the laws of probability will catch up with you. 

Many of you will know that I have for many seasons been attracted to the Draw, and enjoyed the challenge of comparing my Draw selections with those of others, although there aren't too many others around. 

One such was Pete Nordsted's Draw Picks which appear to have quietly vanished in late March for some reason. If anyone knows where the full season's results can be found, I'd be interested to see them. The last reference to them is here, when they were struggling a little with an ROI well into double digits at -13.7%.
Both Ian and Pete refer to odds sheets or stats sheets. The claim by Pete is that:
These sheets contain all of the IPL matches played on the grounds since 2012 and are useful in finding trading angles particularly after the power play.
I'm not too sure what a "trading angle" is in this context, presumably it's similar to an edge, but it's a big stretch to claim that publicly available data and knowledge can possibly give you an edge over anyone else.  
Aside from my family issues, June is usually a quiet betting month anyway, with baseball the main interest, yet even with 11 winners from 13 selections (the T-Bone System had a good month, with a winning run ended at 16 last night) the profits amounted to just 0.12% of my total investment gains that month. 

That number isn't typical, with gains from more traditional investment vehicles hitting a record high at the same time as my betting was significantly reduced, but it does make it all too apparent that at my stage of life, spending too much time trying to make a few extra quid from betting isn't justifiable. 

One bit of good news from last month was the arrival of granddaughter number three, with my son's efforts from last September finally coming to fruition, albeit a little prematurely with her arrival 12 days ahead of schedule. 

Sunday, 4 June 2017

Sharpe Minds

Mike sent me an email asking:
First of all, just a quick thanks for the blog – it’s always an interesting read.

I don’t know if you have written about this subject previously but do you ever use (or have you investigated using) financial type analysis to betting systems that you use? I am thinking of things like measuring volatility, drawdowns or Sharpe ratios etc?
Thanks for the kind words. Last month actually saw the daily hit count average over 1,000 for the first time ever.
I have written about the Sharpe Ratio before, and Sports Picks System published this piece on it as it applied to my NFL Small Road 'Dogs system, (which line was the optimal bet?) but in general I think its relevance to sports betting is extremely limited, at least for most of us. 

The Sharpe Ratio is used in the financial industry where most markets are quite different from betting markets, the exception being the options markets which like most betting markets, are only active for a relatively short period of time.

But as Investopedia explains:
The Sharpe ratio also tends to fail when analyzing portfolios with significant non-linear risks, such as options or warrants.
Along with the Kelly Criterion, I find this kind of thing interesting in theory, but of no practical use. Use 2% for your stakes and save yourself a whole lot of time for little benefit.

The primary concern for sports bettors is in identifying an edge, and riding that edge until it inevitably vanishes. 

The Sharpe Ratio might tell you that , for example, your NFL system is 'better' than your MLB system, but if both are profitable, you'll play both regardless. 

Also a factor is that most sporting systems are seasonal and not year round, so systems often don't overlap, which is a contrast to the year round financial markets where comparisons are more meaningful.

Also worth mentioning is that no system will remain profitable indefinitely. If there's an inefficiency in the markets, it will be identified, and disappear, soon enough. 

Evaluating the Sharpe Ratio or measuring volatility is mildly interesting, but for most of us, it’s not a useful exercise.

For more on the Sharpe Ratio, I'd recommend this post here from Betfair Pro Trader and the book Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown.

Wednesday, 31 May 2017

When The Fun Starts - You're Stopped

Jamie commented on my Gaming v Betting post from the Guardian that:
It really is a scary amount of money the FOBT's make for the bookies. Until the internet and the likes of Betfair came along the bookies had it real good without the need for them. The overround for a football match would be about 130% and they didn't take singles. Trebles and upwards was the minimum bet. Now with Betfair and others at about the 106% overround mark for a soccer match they had to rake the profits back in some way.
Unfortunately there is nothing mainstream out there to warn of the dangers of FOBT's and indeed the practices of bookies who stop anyone who may look like they may be long term winners. The likes of ATR & RUK are the only portals large enough to get the message across but they are in bed with the bookies as it is they who sponsor the channels. It would be a conflict of interest to even dare to call them to account.
I moved from England to Ireland 5 years ago and up to now the gaming terminals or roulette machines as they are commonly known are not allowed in the bookies. They have betting terminals that allow bets on other sports other than horse racing but there are no games.
Also they do B.O.G. on all UK/IRE racing which is is on a par with most online companies at least. Also I've also had a few cheeky football bets bets accepted over the counter that were refused in England for "online customers only". But I'm guessing the liabilities in Ireland are much lower than they are in England where the high street bookies certainly run a tighter ship.
Just to finish, I had on my twitter timeline, from a leading high street bookie the following message regarding responsible gambling.
"When the fun stops, it is time to stop." I replied "The fun part of gambling is winning. When we win, YOU stop us". To my great shock and surprise I didn't receive a reply.
Does everyone named James or Jamie emigrate to the Emerald Isle these days? Signora Cassini is now pressuring me to change my name to Jim.

I'm not sure how old Jamie is, but I too can remember the introduction of Fixed Odds football betting with its restrictions of at least trebles - I think it was quintuples if Home wins were included.

FOBT's have no place in High Street betting shops in my opinion. As the Guardian article explained, there's a difference between gaming, where the house edge is fixed and players have no chance of long-term profitability, and betting, where in theory players do have a chance. The bookmaking business should be a contest of skill between bookie and punter, albeit with the odds (literally) tilted in favour of the former.

Another Guardian article noted in March that the GambleAware charity reported of FOBTs that:
Seven sessions saw customers lose more than £10,000 within a few hours, with one gambler losing £13,777.90 – more than half the UK’s national average wage – in a marathon seven-and-a-half-hour sitting.
The Association of British Bookmakers response was to be expected:
As with all forms of gambling there will be winners and losers and the research also shows a customer won over £13,000 in four hours on a gaming machine. In both cases there is no reason to believe that the individuals could not afford their stakes. Losses in other forms of gambling can be significantly higher than the exceptional loss cited here.
"A customer..." Single. Great.

Not mentioned is that with gaming, there will be no long-term winners, and as Jamie pointed out, when it comes to betting, the ABB members will do their best to ensure that long-term winners are identified and stopped as soon as possible.

To put it bluntly, traditional bookies want customers who are stupid, i.e. who don't understand over-rounds or the concept of +EV. 

Tuesday, 30 May 2017

Clockwork, Delusion and Cash Out

While I was away earlier this month, I had an email from my old friend Tony, aka Fizzer, who wrote:

Some really good stuff on your blog this year, and it looks like your love of blogging has been revitalised with 100 posts already in 2017, compared to 135 in total last year.

I really like the coverage you have been giving on the pitfalls of in-game trading and spending money with 'trading touts'. Some of your blogging during the Australian Open about the futility of tennis trading was about as subtle as Alex's behaviour modification treatment in A Clockwork Orange, but if it saved some of your readers from losing money then it was well worthwhile.

I'm a rare Betfair user and, as you know, a baseball 'bet and forget' man but last Friday night, with nothing interesting for me in the baseball games, I found myself following the Everton v Watford game and, convinced that Everton would, at the very least, score in their final home game I had some small lay bets on 0-0 and 0-1 on Betfair, interested in following the market.

When Everton scored both bets were winners so the £9.50 profit on these bets is secured but looking at the screen a few minutes later (attached) I'm being offered a cash out for £6.23. I'm sure you have seen this before but it seems nonsensical to me. Even if you allowed for the fact that the model still has to price 0-0 and 0-1 at 1000, then 1 penny stake on each of them would be enough to level the book and cash out a profit at £9.48.

It suggests to me that the Betfair cash out model is very sub-optimal and, in addition to any concerns that cashing out is not a good option anyway, the cash out calculation is not being done using available exchange prices. Any thoughts?
Tony seems to be tracking my numbers closer than I am since I had no idea my blogging was so relatively prolific this year compared with last. The 'some really good stuff' comment is especially appreciated. As any blogger knows, it's not always easy coming up with a post, but I'm under no obligation to post every day, and I don't worry too much if I miss a few days while awaiting inspiration. 

This month is also the first with a daily hit average of over 1,000 so it appears I am doing something right. 

Tony suggests that my pitfalls of trading posts during the Australian Open were not exactly subtle. That was for a reason, which is that in an environment where most readers are looking for conformation that 'it can be done', and 'we're all winners', even though just a cursory examination of the logic would soon dispel those illusions, the only way to help people is to be blunt about it. Even so, people believe what they want to believe. 

Psychologists call this Belief Perseverance:
People tend to hold on to their beliefs even when it appears that they shouldn’t. Belief perseverance is the tendency to cling to one’s initial belief even after receiving new information that contradicts or disconfirms the basis of that belief.
On saving people wasting their money on 'trading touts', I fear this is a losing battle. It's not helped by official Betfair Twitter accounts promoting garbage like this:
Depending on the racecourse and the popularity of the event, certain races will be featured on TV
As traders, TV pictures are important to us as they can give us a warning of what might happen in the market. Failing that, they often help us understand why things have already happened in the market.
So the claim here is that TV pictures are both useful for predicting the future in a market AND explaining what just happened in a market? It has to be one or the other!

If TV is helpful for explaining the past, then I'm not sure understanding why a market move just happened is of any use to the home-trader at all, other than to hopefully help them understand why they are now looking at a loss, and prove to them that they are engaged in an ultimately futile exercise. Someone is ahead of you.

As for the claim that TV is helpful for predicting the market, well sorry to burst the bubble, but TV pictures are useless for trading. This is a false claim. 

Betfair, TV broadcasters and others may want you to believe that TV time is real-time, but it's not. It's not even close. 

TV pictures are, by all accounts, several seconds at least behind real-time, and you don't need to be Hercule Poirot to know that on any given day, on any given course, there are likely 20 plus track-siders present who are thus several seconds ahead of you.

You are not going to obtain any information from your TV that hasn't already been seen, evaluated, and acted upon, by others before you.

If you, and I think quite logically you can, assume that these full-timers are not donating their money to the market each day, i.e. they are net winners, how can you, sitting at home, seriously think that you can overcome this disadvantage over the long-term and make a profit? 

It's a zero sum game, and as the Warren Buffett quote from yesterday puts it:
"If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy."
No guide in the world is going to be able to help you overcome this disadvantage. You are always working with stale information, which would be a level playing field if everyone else was too, but you're competing in markets where others have more current information than you.

It's frankly delusional to think you can be competitive under such conditions.

How subtle was that? 

As for the Cash Out feature on Betfair, also available on other sites, I can say that I have never used it. I'm aware that the calculation uses the current odds, (or so Betfair claim):
Betfair do the math to offer you a value in real time of your current bets based on the live market prices.
Thus in an illiquid market you will already be getting awful value. 
On top of that, presumably Betfair et al will calculate the cash out to an over-round that is extremely favourable to them, so calling the feature sub-optimal is flattering indeed. Ripping off the gullible seems more accurate. I would suggest that anyone staking sensibly should never use this feature. 

The screenshot above from Tony is a great example of how useless this feature is to any clued up trader.  

Spot the Patsy

Although written for financial traders rather than sports markets, there's some useful advice in the post below, courtesy of Alex ( @MacroOps ) from the Macro Ops web site.


Market speculation is a zero-sum game. In order for someone to win, someone else needs to lose.

You can think of the market as a collection of players… some weak, some average, and some strong. Your goal is to take action against the weak players and relentlessly separate them from their money.

To do this you’ll need an edge.

Now the word edge is thrown around a lot in finance, but what it really means is the ability to exploit the errors of your opponents.

If you can’t find these errors, or if your opponents just aren’t making them, you can’t win.


Because to make a bet with positive expectation, someone else needs to make a bet with negative expectation.

A bet with positive expected value or “positive EV” means that placing it repeatedly will result in net profits. The outcome of any single instance may be negative due to variance or luck, but over the long-run the bet’s edge will express itself and profit.

The opposite is true for a “negative EV” bet. A negative EV bet may win in the short-term due to variance or luck, but over the long-term it’ll produce net losses.

To thrive in this zero-sum environment you need a relentless focus on other players’ errors. You need to find and exploit them.
How To Find Errors

Finding errors begins with asking the right questions:
Which market players make the most errors?
Why do they make them?
What market situations trigger these errors?

In answering these questions, we can break market errors into two types — unintentional and intentional.
Unintentional Errors

Unintentional errors are made by players who try to win, but then fail because of flaws in their process and implementation. Taking advantage of these errors can be very lucrative.

Here’s a list of the most common reasons weak players make bad bets:

Many players are only in the market to stroke their own ego. True or not, they want the world to know they have the “biggest dick” in the room.

In the poker world we call these guys “ballers”. They aren’t at the casino to win, but are instead trying to bully the table in order to come off as rich and aggressive. They could care less about making positive EV bets. These guys are there to show off.

You can easily spot ego-driven market players on Finance Twitter. These are the ones who hold onto particular narratives with a vice grip until the bitter end, win or lose. In the process they make tons of negative EV bets which are perfect for the astute Operator to exploit.

Look no further than the gold bugs to see ego in action.

Gold bugs will never stop buying gold. It doesn’t matter where the price is going. They have a certain set of beliefs about inflation and central bank policy that need to be proven right. The system has to fall apart, vindicating the gold bugs who can finally yell “told ya so!” Nothing else matters.

Their desire to be right about gold is purely to satisfy their own ego.

Making a trading decision based on ego instead of positive expectation is a huge error that can easily provide you with profit. A gold bug will always be there to buy the gold you’re trying to short in a downward trend. And as you know, it’s pretty easy for a bear to crush a bug…

Fear is a key evolutionary emotion that helped keep us alive over millions of years. But in the game of speculation, it only kills us.

Succumbing to fear creates large unintentional trading errors. A great example is the investing public that consistently sells at market lows. Fear overwhelms their trading decisions and leads to them sell at the bottom when they should be buying.

It takes a considerable amount of time, effort, and mental rewiring for an investor to overcome the fear of losses. But doing so gives you an edge over those who haven’t.

Take hedge fund titan David Tepper for example. In 2009 he loaded up on shares and debt of various banks when everyone thought they were headed for bankruptcy. By the end of the year he pocketed himself a cool $2.5 billion…

Watch for trades made out of fear. You can take the opposite side for huge gains.


It’s tough for investors to picture a future drastically different than their immediate past. Weak players lack the imagination and foresight to do so. This can be exploited.

Many short sellers, for example, constantly step in front of innovation trains and get mowed down in the process. The unimaginative bears in Tesla have been getting flattened for years…
Their first mistake is not accepting that Tesla could indeed revolutionize both the auto and energy industries. Their second mistake is discounting the power of other investors’ belief in that same possibility. Herding and reflexivity can push prices much higher than what “conventional” valuation methods infer.

Watch for these trigger happy short sellers fighting large upside momentum. Most of them can’t take the pain and puke out. The resultant buying pressure they create from covering their shorts will send the market screaming higher once again. It’s easy to benefit if you’re on the right side.

In professional fund management there exists a game within a game. You have the trading game and then you have the asset gathering game. Managers have to balance both. This means that sometimes a manager may have to take a negative EV action in trading because it’s a positive EV action in asset management.

I call this “labeling”.

Since a manager may be known as the “oil bull”, “equity bear”, or “value guy”, he’s forced to tilt his bets towards his brand. That way he can maximize the business side of his fund (sales and marketing).

The charming and brash founder of Eclectica, Hugh Hendry, paid greatly for his industry label. Hugh defined his brand by betting on a market collapse in 2008. He knocked it out of the park and his assets under management swelled.

But from then on he was forced to stick to his permabear view. That’s what his new investors hired him to do. They didn’t want him to own beta. They wanted protection if the global economy went double dipped.

Unfortunately for Hugh that meant fighting the central banks and putting up multiple years of poor performance.

Eventually this label drove him mad. In late 2013 he finally decided to flip the cards and go full bull.

I was actually on the investment call the moment he announced his decision to bet on higher prices. The fund of funds at my prior employer had money with him.

His reasons for turning bullish were sound. The central banks had too much control over the current macro narrative and it was a fool’s errand to fight them. But his investor base didn’t listen. Everyone began pulling out like crazy, including my employer.

And guess what? Hugh ended up being right!

Despite the fact that he took a positive EV bet in the trading game, Hugh took a massive negative EV bet in the asset gathering game. His fund management business suffered greatly for it. Hugh’s assets under management are now a fraction of what they were even though he’s trading better.

Errors stemming from the reality of professional fund management make fertile hunting grounds for traders on the outside. Track the “big brands” and fade their trades when the data clearly supports the opposite of their brand biases.
Intentional Errors

Capitalizing on unintentional errors is definitely lucrative, but it takes significant time and energy. Players making these errors still want to win the game. They’ll put up a fight and force you to wrestle their money away. Sometimes they’ll even beat you if you aren’t on your A-game.

On the other hand, players committing intentional errors are literally giving you their money. These guys are much easier targets.

Intentional errors come from players who don’t care if their trade has positive expected value. They’re willing to lose on trades because their goal isn’t long-term profitability.

Now that may sound a little crazy… who in their right mind is willing to consistently lose on every trade?

Answer: Central banks and hedgers.
Central Banks

CB’s are the ultimate source of intentional errors. They’re like the guys at the casino willing to donk off millions of dollars with no regard for risk control. In poker we call these players Whales. Nothing is more profitable than exploiting a Whale. Nothing.

CB’s don’t care if their trades have positive expected value. Their goal, no matter the cost, is market stability (whatever that means). Post-2008 CB’s made their intentions very clear when injecting record stimulus into the system. They said they’d buy bonds no matter the price. You can make a TON of money exploiting scenarios like this.

Ray Dalio has been taking advantage of CB’s for decades. He modeled their behavior into his macro machine and has been benefiting ever since.

George Soros plays the CB’s like a fiddle as well. Back in 92’ he broke the Bank of England by taking the other side of their negative EV trade defending the European Exchange Rate Mechanism. Then in late 2012, when Japan began their unprecedented QE program, Soros shorted the yen and massively increased his Scrooge McDuck sized chip stack.

These guys know how to exploit a whale — a must-have skill for any serious speculator.

Central banks may be the most lucrative whale in the game, but they’re not the only profit gusher. Hedgers make plenty of intentional errors you can take advantage of too.

Trader’s have been extracting profits from commodity hedgers since the beginning of the futures markets.

When a farmer shorts grain futures, he’s doing so to avoid unexpected shocks to his income come harvest time. The farmer isn’t worried about his hedges’ expected value. He’s only focused on his crop and its profits.

A large portion of the CTA industry lives off this fact. They consistently make money by taking the other side of farmers’ hedging.

The same goes for FX markets as well. Multinationals hedge foreign currency exposure to keep their core operations running smoothly. And once again, they’re not focused on making positive EV bets on the trading side.

In equity markets, large institutions like pension and insurance funds hedge their accounts to meet short-term cash flow obligations during volatility events. They purchase protection at a premium and are willing to consistently lose money to avoid liquidity crunches.

These negative EV hedging trades create extraordinary opportunity for the nimble speculator who can take the other side when conditions align.
Attack The Whales First

Whales making intentional errors don’t care that they’re losing. They’re willing to pay you for decades without batting an eye. You can systematically extract profits without them noticing.

Compare that to a weak speculator. They need to win or at least break even to stay active. If they’re consistently losing it won’t be long until they go broke or evolve to stop the bleeding. Once they leave the game, there’s nothing left for you to harvest.

Ask yourself, “How long can I expect this player to continue making errors?” 

The best edges come from those who are willing to make mistakes repeatedly without changing their strategy.

Use this concept as a starting point for your search.
It’s All One Giant Competition

Speculation means fighting for a living. Instead of delivering value in exchange for dollars, you need to find weak players and take their dollars. 

This means constantly searching for poorly performing players and the errors they make. If you’re not thinking in this fashion… then you’re probably the one getting exploited.

I’ll let Buffett close this one out.
“If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.”

Monday, 29 May 2017

Gaming v Betting

Greg Wood has been mentioned in this blog before, and has another interesting article in the Guardian on the reported £13.8 billion lost by UK gamblers in the year to September 2016. He clarifies the difference between 'gaming' (where most of the losses occur) and 'betting', where sharp minds can make a long-term profit if they are able to continue to find an outlet for their investments. 

Why gamblers are on a losing streak – and the industry is cashing in - Greg Wood

There is an old gambling story about the late Australian media tycoon Kerry Packer, and an irritating Texan oil magnate who tried to goad him into a high-stakes head-to-head in a casino. “I’m worth $60m,” the oil man boasted, at which point Packer is said to have taken a coin from his pocket and snapped: “Toss you for it.”

The Texan, predictably, backed out, but there is no chance that the British public will do the same; though the oilman’s fortune pales into insignificance when set against the record £13.8bn lost by the country’s gamblers in the year up to September 2016. It was a year that seemed to play out in the Twilight Zone, a time of shocks, outsiders and expecting the unexpected. But £13,800,000,000-worth of shocks?

In fact, there are several reasons why the gambling industry did so well last year, and the results in 2016’s biggest sporting events are some way down the list.Leicester’s 5,000-1 Premier League title success, for instance, was a loser for the bookies in the “outright” market, but they got their losses back, and more, in markets on individual matches every weekend as the more obvious contenders, such as Chelsea, Manchester City, Arsenal and Manchester United, underperformed woefully from start to finish.

Gamblers like to back the big-name teams in accumulator bets, linking three, four or even five results at a time to bump up the odds. Only one needs to fail for the whole bet to go down, and the 2015-6 season had at least one “coupon-buster” almost every weekend. Chelsea won just 12 games all season – and failed to win 26. Man City failed to win half their 38 matches, while for Arsenal, it was 18. Every one of those failures was a big result for the bookies’ bottom line.

Yet profits on all sporting events account for less than £2bn of the gambling industry’s record haul last year. The serious money was made elsewhere. Online casino games and bingo generated more than twice as much as sports betting, with profits rising to nearly £4.5bn, while Fixed-odds betting terminals (FOBTs) in high-street outlets generated £1.82bn for their operators. The National Lottery – which still counts as gambling even if it also raises money for good causes – raked in £3.2bn.

Some may dismiss the exact source of the profits as a detail. When it comes down to it, isn’t it all just gambling? And everyone knows, or should do, that in the long run, the house, or the bookie, always wins. But it is “all just gambling” in the same way that animals and plants are “just stuff that’s alive”. In fact, there is a fundamental division in gambling every bit as basic as that between animals and plants, and what the latest numbers make clear is that one facet of the eternal struggle between gamblers and chance is very much on the rise.

The primary division in gambling is between betting, on sporting and other events with an uncertain outcome; and gaming, on roulette and other games of pure chance. The difference between the two is rooted in mathematics, but it comes down to the odds. In betting, the odds can fluctuate, due to weight of money for one outcome or another, or a sudden change in the apparent probabilities. If Lionel Messi gets injured in the warm-up, for instance, the odds about a Barcelona win will immediately start to drift. And because the odds fluctuate and come down to a matter of judgment, shrewd gamblers – and there are plenty – can make a longterm profit from their betting.

In gaming, the odds are fixed, because the chance of every possible outcome is known, and also fixed. The maths which governs the payouts and probabilities is as immutable and well-understood as the laws of planetary motion. For as long as we live in a universe where an apple falls down and not up, no gambler can win at gaming in the long run.

For 200 years in Britain, from the birth of both bookmaking and roulette in the last decade of the 18th century until the arrival of internet gambling, betting and gaming knew their place. Betting took place on racecourses and, since the early 1960s, in high-street betting shops. Gaming was restricted to casinos. Its availability, in other words, was more tightly regulated.

The internet has changed all that, and it is betting firms, both online and on the high street, that have been doing their utmost to blur the centuries-old dividing line. The “B” in FOBT stands for “betting”, for instance, but these are gaming machines, pure and simple. The FOBTs produce guaranteed profits – an average of more than £50,000 per machine per year – and never ask for a pay rise or phone in sick.

Increasingly, the gambling industry is moving away from betting towards the easy, guaranteed profits to be made from gaming. Customers who show a profit from betting find their accounts closed down, or their stakes restricted to derisory amounts.

When it comes to gaming, however, everyone is welcome. In all, fixed-odds products (FOBTs, the Lottery, roulette etc) account for about £12bn of the £13.8bn headline figure for British gamblers’ losses last year. And who, given a choice between easy money and hard work, would not do the same as the gambling operators? Unless or until the regulatory balance turns again – and removing FOBTs from the high street entirely would be a good start – the trend will continue, and the gambling industry’s profits will rise ever higher.

Bitcoin, Bookie and Blockchain

Continuing on from yesterday's Bitcoin themed post, I should mention an article that appeared in the Racing Post earlier this month on the same topic. It's worth a read if you haven't seen it already:

Technology that could revolutionise gambling and change the world - by Tom Kerr

New bookmakers spring up all the time and rarely elicit much interest from the betting public, just another name with the same old product. But later this year a new service is set to launch that it is really worth paying attention to – because it could herald the beginning of a revolutionary new era in betting.

Simply called Bookie, it will be the first true betting exchange run on blockchain technology and utilising digital cryptocurrencies such as Bitcoin as payment method. Readers of this column may be familiar with blockchain from an article I wrote two years ago about Augur, a prediction market. While the technology has moved on considerably in the intervening period, the enormous implications of this technology remain the same.

For those not familiar with the concept, a blockchain is a distributed database that runs concurrently on a vast array of servers around the world. To understand how this works in practice, consider how your bank operates. Right now, whenever you interact with your savings –withdrawing, transferring or spending money – the bank updates its central database to log the transaction, the digital equivalent of the old clerk's ledger. This digital ledger is the fulcrum of every transaction.

Blockchain takes the place of the bank's central server, facilitating and recording the same transactions the bank used to. Every time a transaction takes place, it is automatically replicated to every participant in the blockchain network, meaning the database of transactions exists in potentially millions of places at once. This means that a blockchain-based platform cannot be easily shut down, controlled or manipulated by any outside party, including governments and regulators.

Developed and supported by the Peerplays Blockchain Standards Association, a non-profit organisation founded in December, Bookie will be the world's first blockchain-based betting exchange, with no central database and no established business behind it. Users will bet using Bitcoin, the most widely known cryptocurrency, which also runs on blockchain technology and provides a significant degree of anonymity to users.

The Bookie application, currently slated for a November launch, will be what users interact with but the true star of the show is the Peerplays blockchain, a peer-to-peer betting platform (think of Bookie as equivalent to the Betfair iPhone app and Peerplays as equivalent to the Betfair database).

In as far as anyone runs the platform, it is a worldwide network of 'voters', who might be considered the digital equivalent of shareholders – those who have invested in the platform's crowdfunded development. But, in practice, because of the way blockchains work, Peerplays is largely automated and self-sustaining. No one owns it, no single person or organisation is responsible for it and no one is able to stop it.

If you're not sure whether to be appalled or amazed at this prospect, you're starting to grasp the magnitude of the disruption this technology could wreak.

In a white paper on its website, Peerplays co-founders and PBSA directors Jonathan Baha'i and Michael Maloney write that "blockchain-based companies may be among the first organizations in history to enjoy complete global autonomy". Taxes, regulation and local laws all become virtually irrelevant when weighed against a globe-girding, fully decentralised platform.

I spoke to Baha'i and Maloney about their plans for Bookie for this column. They see themselves as at the vanguard of a technological revolution that has sweeping implications for the world around us.

There is undoubtedly an ideological side to what they are doing. It is rooted in the belief that users are entitled to anonymity, that middle men take an unwarranted share and depress economic activity, that regulators and governments have no right to your information or to interfere in your affairs.

These developers and entrepreneurs believe they are going to change the world for the better. And if they get rich quick doing it, that wouldn't hurt either.

"The betting exchange is only one thing that blockchain is going to disrupt in this world, in fact it is one of the smaller things when all is said and done," Baha'i told me.

"We have the internet and see the implications of that, but the blockchain is certainly another evolutionary step and when historians look back they will see the significance of it.

"Right now, not everyone sees what is happening, much like back in '92 when the internet was first introduced – lots of geeks got it and likewise a lot of us geeks know what is happening and it's just going to take a bit of time for the rest of the world to catch up."

Blockchain technology has implications for currencies, the nation state and dozens of industries. For betting, its effect could be particularly pronounced.

Most obviously it will sweep aside local restrictions on betting, providing a nigh-on invulnerable global betting market. User anonymity will make attempts to police the integrity of sports enormously troublesome and offer cheats the perfect place to bet.

In racing's worst case scenario, where blockchain-based exchanges won a significant share of traditional bookmakers' business, the sport's financial model, based upon taking a cut of a betting operator's profit, would be crippled.

There is, however, little reason to suspect Bookie will prove an overnight success, at least in countries like Britain already boasting a well-developed and competitive betting sector.

Digital currencies such as Bitcoin may have rapidly accrued value – if you had invested £100 five years ago you would now be sitting on about £48,500 – but they are deeply unstable, making their appeal to value-motivated punters limited.

Traditional bookmakers, with their ability to invest extravagantly in user-experience, bet offers and perks such as pay-to-view streaming, also have significant advantages over a decentralised startup like Bookie. And on a parochial level, the uniquely intense data demands of providing racing markets and results in a decentralised network means the sport is not slated to become available on the platform for 12 to 18 months after launch.

Bookie could however see rapid adoption, particularly in those countries where legal betting is restricted or takeout is high, with the US being one obvious example.

Peerplays also promises a rigorously fair and secure betting environment, underpinned by the transparency of the platform –every transaction is publicly auditable – meaning it is illegal gambling operators, their fly-by-night services plagued by fraud, who have most to lose.

But if the exchange grows more popular so its effect could begin to be felt even in those nations with a liberal approach to gambling; the opportunities presented by a worldwide betting exchange, to "provide liquidity to a virgin market" as Baha'i put it, are considerable.

Blockchain technology is not going to change betting overnight. Yet the underlying message that should be digested is that from later this year gamblers around the world will have the option to bet using an unregulated, ungovernable and supranational betting exchange that pays no tax or levy, is answerable to no government and is all but immune to attempts to control it.

That is what the blockchain could mean for betting. Welcome to the future.