reward in horse racing
Talking with a relative
who works in the superannuation business, the topic of risk and reward
came up. Very interesting topic with regard to superannuation, especially
for those who are in the habit of saying stiff like "too complicated
- don't understand it." Boy - you better make it your business
to understand it especially if you have all your super going in to
the "default" fund with your superannuation company.
This is not the forum for
getting in to detail about this but you do need to understand it so
make it your business to find out. Ignore this advice at your peril.
Here's a good starting point that illustrates why you may be disadvantaging
yourself in the long term: http://www.superguide.com.au/superannuation-topics/default-investment-option
reward is also an important consideration if you are trying to make
a few bob out of punting on the horses.
if I want to have little risk I can expect an infinitesimally small
return. If I want to have negligible risk, I may take $100 and invest
it with one of the big four banks and at the tend of 12 months they'll
pay me about $5.50 in interest for having that $100 tied up for 12
months. Is there a risk the bank will fall over? Well, I guess so
if there is a catastrophic event in the world's financial system but
this risk is ameliorated by the government guarantee on bank funds
(up to a certain limit of course). So the risk could rightly be considered
could be taken over in a invasion by a foreign country and then the
whole banking / government system would collapse so there is that
risk. How small? You'd probably be with me and say almost zero but
we are looking at pure risk so it does have to be taken in to account.
$100 I could take and put on a horse racing at Port Macquarie today
and get $4.00 about it on Betfair and stand to get 300% interest for
around 90 seconds investment, assuming it is a mile race. So instead
of $5.50 for twelve months, my make is $300. BUT of course the risks
are far greater. The horse could be having an off day, I may have
read the form wrong, the trainer may be just as surprised by a form
reversal as I am, the horse could miss the start, the jockey could
fall off, the horse might get bumped in to by another one that costs
it all chance, the horse may be blocked for a run at the vital time
of the race, it could be taken wide at the turn and cover too much
extra ground, any number of things could happen when you are running
a dozen 750 kg horse tightly together in a horse race.
So the risk
to my $100, as you can see, escalates beyond belief compared to giving
it to the bank for a year. The reward is exactly the converse of course.
A lot of
folk, especially those starting out, believe that level stakes betting
is a low risk high return strategy. It isn't of course but the belief
is firmly held because level stakes bets are easy to comprehend, they
are essentially a "control" strategy BUT neither minimise
the actual risk nor realises the maximum potential profit. A very
low risk level stakes strategy uses 2% of the available betting bank,
allowing for a losing run of 50 before the bank is exhausted. In contrast,
a very high risk strategy uses stakes of 10%, allowing for just 10
losers before the punting bank waves goodbye.
a progression staking approach based on extremely conservative principles
strictly following a minimum odds approach.
The probability of wining
a single bet (win or place depending on odds) is enormously greater
than cracking a first four, trifecta or quinella because the more
horses you need to "salute", the greater the risk factors
multiply. More things can go wrong, the combination of those things
and the result they create is accelerated. Don't ever lose sight of
that immutable fact.
Also worth noting is the
increased risk of betting early on markets like the Melbourne Cup
- months before the final field is known. Rarely, and I mean RARELY
have I seen what I would consider "good value" in any of
these markets. Only 24 horses currently racing in Australia and around
the world will be able to run. Never lose sight of that. The odds
of actually getting in to the race are quite remote.
This isn't the AFL where
every team, no matter how poorly they are performing, gets to play
If you are to be in the
the small overall % of people who regularly make an annual profit
out of racing, the key is to understand your long term strike rate,
now you can capitalise on that with a structured investment approach
and develop and enormous element of self discipline that encompasses
an understanding of risk and reward. Good luck.
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