Bet Like A Champ: Part Two

Mr High-Low explains to a member how to properly stake when running multiple subscriptions

bank

Following multiple strategies

Last week we had a great question from one of our members who now bets for a living. The response from Rod was so well explained that we wanted to share it with everyone:

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Hi Rod,

Your article “Bet Like A Champ” got me thinking whether my overall staking may be a little conservative. My main betting activity has involved following 3 Champion bets services for a number of years now – NSW Ratings, Vic Ratings and NZ tips. I am currently trialling Key Bets and will most likely add it to the list. I have currently put my day job on hold and am attempting to make a living from the punt.

My bank and staking is as follows:

Total Bank $150 000

NZ Tips – Bank $50 000, Unit size $500

NSW Ratings – Bank $50 000, Unit size $500

Vic Ratings – Bank $30 000, Unit size $300

Key Bets – Bank $20 000, Unit size $200

The bank is ‘real’ and the majority of the funds sit untouched in a couple of different bank accounts, with enough of the remainder scattered around the various bookie accounts.

I understand and agree with the concept of 100 unit banks to minimise the chance of going broke. My question though revolves around the wisdom of treating the banks of the individual strategies totally independently. By keeping them entirely separate I suppose I am guarding against the possibility of each strategy going into severe drawdown simultaneously. I wonder though, whether the small probability of this occurring, means that in reality I am underutilizing my available funds.

Now, I am not suggesting I should go berserk and use a $1500 unit for all my strategies, but I think there must be some mathematical margin associated with uncorrelated strategies to allow me to safely increase my unit sizes by some amount.

Over the last couple of years my largest total drawdown has been in January this year and totalled $23 200. Even though a horrible feeling at the time, it represented just 15.5% of my bank. I`ve just today come out of another bad one of $19 000. During these and other lesser drawdowns, while one or two strategies have performed poorly, others have limited the damage.

A case in point is the NZ tips which are at the moment on a bit of a horror run. With this strategy, I am currently down over $30 000 from its peak on the 20th July. However, over the same time period, my total bank has increased by $28 000.

What is your opinion on setting unit sizes when dealing with multiple strategies. Do you think I can afford to be a little more aggressive or is safety the best policy?

Thanks for your time and good punting.

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G’day,

I could write a book about this topic. It’s been an interest of mine for a long time. Here are my thoughts.

I think you are staking too conservatively. Separate banks is a common approach recommended by several people I respect, but I disagree with them. My main issue is that the bets don’t know they belong to separate series. The bets belong to one series (your series) as far as you are concerned and you own one $150,000 bank. In that sense, your NZ Tips unit is really $500/$150,000 = 1/300th of your bank (300 unit bank), which I think is too conservative. I think in terms of one $150,000 bank.

Should your starting unit size be $150,000/100 = $1500 then? I think the answer is no. As you mention, that would probably be too aggressive. Personally, I think a 200 unit bank is fine. Yes, losing $23k feels awful (that’s called being human!) but the more important thing is that your bank management strategy is well considered and allows for these inevitable down swings, which it clearly does. The other side of the equation is that you want to take full advantage of your bank during the good times. In that sense, we really need to ignore the raw $ amounts involved. I think your 15.5% maximum drawdown provides good evidence your strategy is too conservative. 50% is not an unreasonable maximum drawdown to experience (as awful as that sounds) and I suspect based on some simulations I’ve been running lately, even worse is fine. There is a point at which you can drawdown so much that your unit size cannot recover but that point is below 50%. At the end of the day, the most important figure is the final bank. We want that as large as we can. If that means we need to lose half our bank (or more) at some point, so be it from my perspective. Some other points:

Betting 4 bet types under the one bank means 4 times as many bets in one series but it does not mean the maximum down swing will be 4 times worse (which is our natural first thought, what happens when they all lose at the same time, important point to consider). There are two reasons why.

The first point is hard to explain but in a nutshell, maximum drawdown % vs number of bets is not a straight line down (even at flat stakes), it’s a curve. Nick’s Risk Of Ruin program gives you hints at that.

Second, this whole approach to bank management of adjusting your unit size based on your current bank size functions (on a very simple level) like an exponential curve. Losing runs are not straight lines down, they slide down the curve. Betting 4 bet types under the one bank increases the frequency and severity of down swings in a given period but nowhere near 4 times. This is why I wouldn’t go with the 100 unit bank but at the same time 300 unit bank is too conservative.

I assume you are adjusting the unit size as your bank/s go up and down. That is essential. The more often you can do that, the better, because it makes the growth more efficient and protects from worse drawdowns than you should experience. Do it daily if you can. Sounds excessive but it really makes a difference.

NZ Tips down/bank up/various strategies: the benefits of diversification I call that. Always better having 1 x amount on 4 strategies than 4 x amount on 1 strategy.

When it comes to setting unit sizes on multiple strategies, I set them all to return a similar amount. That’s done for you on your packages with the pros aiming to return 5 units on their rated price. In theory, you want to outlay more on the better value strategies but with any sample P.O.T. figure it’s difficult to know how accurate that is due to sample variation and changes over time. It’s easier (and perfectly fine in your case) to just follow the recommended units. Returning a similar amount on each bet type also improves the benefits of diversification by having your investments spread equally, rather than weighted on one set of results or the other.

A small factor to consider with Key Bets in your stable is when they cross over with Melbourne Ratings. Any tips that are different, bet them both (different pros have different edges for different reasons, plus better strike rate/less variation), but when they are the same tip, just back it once. Two pros tipping the same horse does not double its chance of winning. It just makes you twice as confident it’s a good bet! I’ll put on the larger unit size out of the two recommended to compensate for that increase in confidence. Hope that helps and good luck with it all.

All the best,

Rod

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Rod is the brain (and the maths) behind our consistently profitable High Low service.

By focusing on the best specials he runs a package that has exceptionally low volatility. The High Low covers both racing and sports and is one of our most popular memberships.

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