Compound Gambling

So if I was able to give you a $100 starting bank and send you off for the day to the races would you be able to win ONE dollar?

Bear in mind that would be a losing proposition on both our parts for a couple of reasons. It would probably cost you $10 in transport costs, $8.00 in the gate, $10 for high priced over rated and generally over cooked food, $7 for two cups of coffee - so it would be a losing proposition, wouldn't it?. You'd be seeking to make 1% profit ($1) and incurring 35% ($35) fixed costs so it wouldn't make much sense would it? Duh - I wonder why so many people don't go to the races these days?

So say you stay in the warmth and comfort of your own home, could you sit at your computer betting online and make me one dollar if I staked you $100?

I'd be amazed if any of you reading this said no. Pffff - a dollar? Of course I could. Why ask stupid questions? Because it's generally how you discover sensible answers.

So working on the premise that you can win me a dollar, let's look at all this slightly differently. Let's forget the term dollar and substitute one percent - because that's what it is - and let's accept that the reason you think you can do that standing on your head is because it is such a miserable return.

Now the reason it IS such a miserable interest rate return is because the perceived risk in your mind is so low.

So hold that thought in your mind and let's just jump sideways and think about compound interest. It's something that Albert Einstein once described as the "eighth wonder of the world". Here's a simple example of how it works:

If, in 1498, the King of England had put ONE cent in an interest bearing account in the Bank Of England that paid 6% a year interest and forgot about it and LEFT IT THERE, that account today would be in credit to amount of $95,919,936,112 - that's over 95 billion dollars after 513 years.

Wow. Now it wouldn't make any difference to King Edward IV who is long since gone but you can bet the current Buckingham Palace mob would be eternally grateful. So there's the answer - slip on down to Westpac today, stick one cent in a 6% interest bearing account, make sure the tax office don't discover it and sit back and wait. In the year 2523 you'll be rich. Oh - I see the problem! You're going to be dead. So will I. The passing of time is the villain. We don't have that much time so we need to make some shortcuts to enjoy the money ourselves.

The Power of Rule 72

If all this is getting a little far out for you as far as horse racing and punting to win a dollar or two is concerned, please stick with it because it will eventually make sense and the light will shine!

Rule 72 simply is this: If you divide 72 by the interest rate, it will tell you how long it takes for your money to double.

For example - if you win one per cent of your hopefully increasing bank every day, and then stop, it will take you 72 days to double your bank. If you are trying to win 2% of your bank every day before stopping, it will take you 36 days to double your bank. Here's the table that tells the tale:

% Target	Days to Double Bank
1%	72 days
2%	36 days
3%	24 days
4%	18 days
5%	14 days
6%	12 days
7%	10 days
8%	9 days
9%	8 days
10%	7 days
12%	6 days
15%	5 days (approx)

Let's stop there because anything else is way too unrealistic and living in fantasy land. Bear in mind that the Rule of 72 is just a guideline. Clearly, in the real world of gambling on horse racing you’ll almost never have a constant interest rate return because of pesky things like minimum bets etc etc. but we are in the land of hypothetical here so stick with it......

So say you'd been doing this successfully since January 1 this year. It was your New Year's resolution to be in control and moving forward financially and you realistically set yourself the 1% a day target (and stopping when achieved) where would your $100 be today? (I am writing this on October 8 - 280 days into your betting expedition).

Your mythical $100 would now be $1605.70

Bear in mind, this is with that fixed target of just 1% - you know, the 1% target you scoffed at after reading the first sentence of this article. Remember that one?

If you'd had $1000 as a starting bank you'd be up to over $16000 or about $1666 a month better off than when you started the year. So why aren't you doing it? Ah - I see. Is it because you realise you would have to put the money there and LEAVE it there to accumulate and that's a problem? If that's the case I have NO solution for you because there is NO OTHER solution.

If you think this too slow and boring ask yourself this: how long does it "seem" since New Years Day this year? If you are getting on in years like me, it seems like about two weeks.

Naturally, as you can see from the table above, the more risk you are prepared to accept, the shorter the time you have to invest for so what is the maximum risk you are happy to accept?

From our "stating the bleeding obvious department": As you will by NECESSITY be adopting an increasing staking approach to cover past losses to achieve that % target, you have to have some idea of what the average winner's price will be BEFORE you start or the progressions will get too big before you achieve the % return goal so it goes without saying that the lower % risk the better.

This is important to understand: the lower the % target risk the better and the more chance of long term success.

So being a punter too, let me read your mind at this point. You're thinking "well this is all very well and good but how boring would it be at the start of the progression winning just 1% of what I have got to put in to it?"

Yes, you're right. Go back to what you've been doing for the last x number of years. Continue on. Enjoy the journey. What's that? You've been mostly losing for the last x number of years apart from a few really good wins? Oh. I see.

So let's again go hypothetical. What if instead of "days" we use the term "winners"? So using a 1% return rate (because it is sensible and mostly achievable) we don't stop after winning 1% each winner and just continue on on a rolling basis where there is never a day or a last race but a continuing offering of choice on a never ending conveyer belt of bets.

Your target resets to 1% after each winner. Your bank should double every 72 winners or increase 16 fold every 280 winners. This all depends of course on your capacity to select winners on a reasonably frequent basis so that the progression doesn't get too big and you can bet race to race to compensate for previous losing amounts on non winners.

Here are some more hypothetical figures concerning that mythical $100 bank: (at a 1% target)

After 280 winners: 1605.70
After 300 winners: 1959.25
After 325 winners:  2512.61
After 350 winners:  3222.25
After 375 winners:  4132.32
After 400 winners:  5299.42
After 425 winners:  6796.14
After 450 winners:  8715.59
After 475 winners:  11177.15
After 500 winners:  14333.94

Compound gambling can be very rewarding. With a lack of discipline and self control it is also very risky. The higher your % interest target, the higher the risk on an exponentially frightening (and potentially financially disastrous) basis. If you are in a hurry to "win big", good luck. You'll need it.

Naturally if your target was one half of one percent, your return would be halved BUT your inevitable progression staking escalation would seem infinitesimally small and not so psychologically damaging to your belief in your selection methodology. At 2% target the amounts in the progression chain will seem to start rising steeply after a relatively short period of time.

It all comes down to time. As does everything in life I guess. But be very aware of this. You HAVE to leave the bank in place for a seemingly long period of time to achieve anything worthwhile so make sure your starting bank isn't needed for anything else and you can comfortably afford to lose the lot - as that may happen as well!

I don't believe you can do it once your target rate exceeds 5% - the progressions simply get too big to comfortably handle.

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