Last week we showed you why level staking is for losers and why both progressive and regressive plans are doomed to fail. So what is a better money management solution?
Well the best approach is one that balances two competing beasts – risk and reward. Professional punting is about maximising your returns, but it is just as important to protect your bankroll. Following literally years of analysis and number-crunching we found the best risk/reward balance is to bet to collect 5% of your bank. So if a horse is at odds of $2.00, you outlay 2.5% of your bank which will return 5% (2 x 2.5) if the horse wins. If a horse is at odds of $5.00, you outlay 1% of your bank to return 5%. If the horse is at $10 you only outlay .5% of your bank to return 5%.
The simple calculation to determine your stake is 5 divided by the odds. This method works because you’re outlaying more on horses likely to win and less on those with a lower chance of winning. You’re taking advantage of the fact that on a long-term basis the betting market is a very good guide – there is a perfect correlation between market rank and winning percentage. Favourites win more races than 2nd favourites, who win more than 3rd favourites and so on. And horses starting at $2.50 win more races than those at $3.00 and on it goes. The greater the price, the lower the winning strike-rate. At Champion Picks we maximise our returns by betting to collect 5% of our bank, but instead of using the market odds we use our own rated prices. This means the greater the overlay the greater our collect and it has some strong similarities to a well known method called the Kelly Criterion. Horses that we rate at $2.00 will win very close to 50% of races.
Horses we rate at $5.00 will win very close to 20% of races. But our profitable edge is in backing these horses at a price equal to or better than their true chance of winning. For example getting $2.50 about a horse we have rated at $2.00 has a positive expectation. Our staking plan involves outlaying no more than 2.5% of our bank on any one race and typically we’re in the 1.5% to 2% range. A punter’s bank might be $1,000 or it might be $100,000 but the percentage of their bank outlayed on any one race is the same and this maintains a good balance between achieving profits and protecting your capital.
Now if you wanted to get aggressive and bet to return say 10% of your bank per winner, in the short-term you may do well. But in the long-term you’ll almost certainly blow up your bank due to one of the most dangerous yet under-estimated enemies of a punter and that is variance. Proportionate betting with the aim of collecting 5% can reduce the drawdown on your bankroll and is a great way of maximising returns.