NPO Handicapping

Betting Rules of Thumb(BF in sports betting part III)

2010-03-23T20:39:00.000-07:00

Last installment on this topic for now and I wanted to summarize as concisely as possible while giving a practical application that hopefully people can use to improve their own game.

The fact of the matter is emotions play a huge role in bettors decisions. The challenge is to avoid psychological biases that make rational decision making difficult. The catch being these biases are subtle and hard to recognize, so to steal a page from the successful market investors play book use Betting Rules of Thumb. These are just a list of simple procedures created in advance to help you make good decisions and minimize the emotional bias that can trip us all up. These are adapted from a great old textbook, "Investments analysis and behavior" by Mark Hirschey and John Nofsinger.

Stay the course: maintain a long term perspective. The only way to build significant wealth is through regular contributions to your bankroll. Chasing a quick big hit is the surest way to bust out.
Long run returns reflect underlying business prospects: Don't be surprised when pigs don't fly. Try to avoid betting on bad teams or in negative EV situations.
Dumb money ceases to be dumb when it realizes its limitations: I know this to be true in my case. I busted out a couple of times until I admitted I was a bad sports bettor and started to study and learn why I was making the mistakes I was making. My bankroll has gone up ever since.Attaching your ego to your picks is an easy trap to fall in to.
Don't confuse luck with brains: It isn't always due to skill when you win or bad luck when you lose. Set the ego and emotions aside, learn from each situation no matter the outcome.
Let your winners run, cut your losses short: Be willing to admit a mistake, don't compound it by chasing. Being wrong and stubborn can be very expensive.
Bulls can make money, bears can make money, hogs get slaughtered: Be very aware of the size of your bet in terms of percentage of total bankroll. Risk should always be the primary concern, how much do you stand to lose with a bet?

These are the basics that I like to keep in front of me plus one more simple but powerful concept.

I look at my sports betting as a business and to be successful a business must operate under the following principles;

Preservation of capital:As stated above, my primary concern is how much do I stand to lose if I'm wrong, not how much can I win. Keep a personal acceptable risk reward ratio and stick to it. If a bet/investment doesn't offer the right price for the amount of risk then its a no play.
Consistent profitability: This dovetails with stay the course. Look to consistently add a certain reasonable percentage to your bankroll on a monthly or even quarterly basis. This will keep you from over extending yourself in search of the quick hit.
Pursuit of superior returns: Lets say you have a quarterly accounting system and start with $10,000 to invest/bet. I would recommend that you make your bet sizes somewhere between 3-5% of the total depending on how much edge you feel you have on any given play. If the first bet of say $330 wins and you clear $300 I would set aside half the winnings ($150) and make any future bets between 3-5% of my new bankroll which is $10,150. Likewise if my first bet is a loss my next bet will have to be 3-5% of $9,670. This way as you win you are not only banking profits you are playing for bigger stakes. When you lose you are protecting yourself from a run of bad luck/poor performance breaking you.

Hopefully this helps and as always Best of Luck in whatever you decide to play!

Using Behavioral Finance in sports betting Part II

2010-03-22T18:58:00.000-07:00

Gamblers Fallacy and Statistical Significance.

If I flipped a coin and it landed heads ten times in a row what do you think the odds are that the 11th flip lands heads? If you thought anything along the lines of "not very good" or "tails is due" then your brain is using a shortcut to process information called "gamblers fallacy." The odds of the coin coming down heads is 50/50, the previous flips have no influence at all on the next flip.

The human brain is very good at detecting patterns and using that information to make decisions. The problem sports bettors, and investors, run into is that they often think they have identified a pattern in what is really just random data.

I am not introducing anything new to the field of statistics at this point by pointing out you must test your data for any kind of statistical significance. Without going too deep into how to do this I will simply say that for the purposes of sports betting you should be looking for a 1:1000 event.

For example, you believe you see a pattern in hockey where home teams playing the first game after a 3 game or more road trip and who are +200 or better on the ML win a high percentage of the time. If you test this hypothesis it needs to have a minimum winning record of 66-34 out of a 100 game sample size to be statistically significant.

Hopefully this helps to get you thinking about how your brains natural processing of information can sometimes lead to mistakes and one way you can use statistics to combat that. Also, if you are not familiar with using statistics formally hopefully this will lead you to investigate that discipline more thoroughly. It will help you win more bets.

That is all for now and as always Best Of Luck in whatever you play!

Using behavioral finance in sports betting Part I

2010-03-21T17:51:00.000-07:00

Why do sensible and generally rational people sometimes make foolish and irrational decisions when it comes to sports betting? Concepts from the field of psychology, called behavioral finance in the investing world, can be useful in describing the traps that often ensnare bettors and can hopefully help readers make more reasonable choices in their own betting. It may be a bit long and some dry reading but you should grind through it (several times actually) to gain an insight into what it is saying and develop your knowledge from there.

Due to the scope of the concept I will break it into small installments over the coming days to make it easier to digest for those who may not have been exposed to these concepts previously.

Essentially behavioral finance says that the human thinking process does not work like a computer but instead processes information using shortcuts and emotional filters. An investor/bettor that is aware of these psychological biases and works to minimize their affect on his decision making will have a decided edge over the majority of the public money that does not. That is the point I hopefully communicate in every post on this blog, how to use concepts from other disciplines (mainly finance) to improve your betting results.

Prospect Theory
The traditional view of human behavior is that people are always rational when it comes to financial decisions. This normative (description of what people should do) approach tells how people should act in order to maximize wealth. It is the underlying assumption that has allowed to field of finance to develop portfolio theory, CAPM, arbitrage theory and option pricing theory. In contrast to this view of what people should do, behavioral finance studies how people actually behave when money is on the line.

One important concept to understand in Prospect Theory is called anchoring. Anchoring is simply a strong mental attachment to a certain price. It is important to remember because the founders of Prospect theory, Kahneman and Tversky, use it to illustrate a subtle yet powerful behavior that is insightful for bettors.

The idea is that essentially bettors/investors are happy with say a $100 win but not twice as happy with the next $100 they win and likewise on the down side. Bettors feel pain for the $100 loss but not twice as much with the next $100 lost. The downside is however much more powerful than the upside.

In the betting world we have all heard the phrase “let your winners run and cut your losses short” well Prospect theory starts to shed light into why otherwise rational human beings have so much difficulty actually executing this simple concept. Put simply, people hate to lose money more than they like to win it!

“So how in the hell does this help me make money, oh long winded one?” asks the dubious and bored reader. I’ll tell you. One of the worst things I see bettors do on an almost nightly basis is try chase their losses on a late game. They are anchored to a number which was their bankroll size at the beginning of the day and when it goes down they feel the pain of loss more so than they would feel the satisfaction of a gain and instead of simply shrugging their shoulders and chalking it up to the nature of sports betting they try and make it all back with a big hit at the end of the night. The flaws in this behavior are obvious, the bettor ends up putting a larger than optimal percent of their new bankroll size at risk in a spot that is probably less than a great value. In fact they probably wouldn’t have played the game at all if it were at say 7:00 instead of 11:30!

So the next time you feel the urge to chase, remember Prospect Theory. Everyone feels these urges from Wall Street to Vegas to a dorm room, the pro’s have the self awareness and discipline to avoid acting on the urge to chase. If you want to stop losing in big chunks on a bad night you need to develop this discipline yourself!

More next time and until then, as always Best of Luck in whatever you play!

How efficient is the sports betting market?

2010-03-13T19:30:00.000-08:00

"I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over."
-Warren Buffett

Once again, the guy who beat the stock market to the tune of Billions has good advice for those looking to beat the sports betting market.

Anyone who has taken a basic finance course is aware of the efficient market hypothesis so I won't bore anyone with a recap. I'll just say that most lines the average person bets into are efficient. The few lines that books float out there that are inefficient represent the opportunity for a bettor to make a positive expected value (EV) bet and make money consistently betting them.

In financial markets the higher the amount of trading volume the more efficient the market. This is quite often the opposite in sports betting and it's an important point to remember to make yourself a winning bettor. More action in the sports betting market means more public money which means more square money. The number of sharps is never going to really fluctuate, they will always be there, waiting patiently to hit their spots. Take the Super Bowl as an example, it seems like everyone in America bets on something during the SB, therefore books don't have to make the lines very sharp at all.

Regular season MLB or NHL games on the other hand don't get that much public action and you can generally count on them being much sharper on average. Not to say you can't make money betting regualr season MLB or NHL games because we do.

The point is, if you are struggling to win money, one thing to consider is what type of lines you are betting into and how often. An amateur sports bettor going head to head with professional odds makers on multiple MLB/NHL/NBA games a day is in trouble even before you take the juice into consideration.

Just a quick thought on the subject, I didn't want to turn it into a long winded dissertation on efficient market theory but I would be happy to go into greater detail with anyone who is interested. Just shoot me a line.

Best of luck in whatever you may play!

Futures bets. Good deal or not?

2010-03-12T18:32:00.000-08:00

Baseball season is upon us and that has many bettors playing futures like win totals and division winners. Before you put down a penny on these you have to keep in mind one thing: The Time Value of Money (TVM). This is a link to an excellent tutorial on the subject with a calculator.

Simply put, TVM states that a dollar today is worth more than a dollar tomorrow, or a week from now or in the case of a baseball season 6 months from now. This is because you can earn interest on the money while it is under your control today vs having it sit in some other guys bank account making interest for him until you get paid off (assuming you win). The key to remember is these bets tie up capital and you have to be compensated for that to make it a good bet.

The good news is there are plenty of sharp bettors out there that will often pass on an otherwise juicy futures bet to keep their working capital freed up and therefore these softer futures stay out there longer to be picked off by the non professionals.

Hope you found this useful and best of luck in whatever you may play!!

Sports betting advice from Warren Buffett

2010-03-11T16:29:00.000-08:00

"The stock market is designed to transfer money from the active to the patient"-Warren Buffett

I am an investor by nature and formal training which leads me to look at sports betting like I would any asset class or any market. Buffet's sage advice regarding the stock market is equally valuable to sports fans looking to make money betting on the sports they know and love.

Let me take a second and make a disclaimer. Most of what I write is geared for the sports bettor who is in it to make money. If you just like to bet for recreation or to have some extra interest in games that is fine, just as long as you understand you will never make money long term doing it that way. The recreational sports bettor can afford to be lax in regards to bet size and how much edge they need in order to bet because they have other sources of income, if they lose their bank roll it may be disappointing but its shouldn't impact their ability to feed their family.

(If it is affecting your normal daily finances please......get help.)

That said, on to some pointers for those looking to make money:

A winning sports bettor must be extremely patient. They look for lines that are inaccurate in term of the actual difference between the two teams based on their best efforts to objectively handicap the teams in question.

When they find these lines they bet and that is the only time they bet. They do not bet because their favorite team is playing, they do not bet because they are bored and need action.
They wait patiently while the losing bettors try and play every game on the board.
Winning sports bettors has respect for his money. It doesn't matter if they are betting $1,000 a game or trying to build their roll at $10 a game. They don't over bet, they don't bet scared and they don't chase.

All of this may seem very simple but its the foundation of winning sports betting. Its easy to say "I know, I know, I know" to simple advice, the hard part is what I touched on in my previous post.....having the self discipline to consistently implement the fundamentals.

I hope this helps and best of luck with all you do.

A quick comment on self discipline

2010-03-10T13:24:00.000-08:00

The past 2 days of spring training have reminded me of the old story about the little boy who was always optimistic. He always found the good side of everything. He drove people crazy. One day his parents decided to teach him that sometimes bad things happened without a good side. So on his birthday they filled his room with horse manure.

The little boy jumped in with great abandon and started searching. When asked what he was looking for he replied, "with all this manure there has to be a pony in here somewhere!"

The search for profits on sports betting reminds me of this as well. Thousands of us are optimistically flipping coins shouting "there has to be money in here somewhere!." Many of us are about as likely to find those profits as the little boy in the story is to find his pony. This is not to say that profits are not going to be made on sports betting, just that there are a lot of people chasing the same pony and you have to figure out how to separate yourself from the crowd.

Self discipline is the key to surviving the times when you are knee deep in horse shit until you find your next pony. Keeping a positive attitude, maintaining your confidence in the middle of a bad run and most importantly keeping your bet sizes in proper proportion to your roll are the the keys to long term success.

Don't panic, don't chase and keep grinding. Also remember, no one does better than 55-60% in the long run so don't set unrealistic expectations for yourself.

I started the spring training season on a 26-14 run and have gone 5-9 over the past two days so writing this for others helps me remind myself of the tried and true rules so even if no one is reading this it's helpful to me.

I'll post more later on my thoughts regarding bet size and holding out until you find an edge.