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Certainties In Horse Racing Gambling

Death is a certainty for all of us. Some get there quicker than others but it is one of the very few certainties in life. You can bet on it. Insurance companies do - even knowing they'll eventually lose the bet.

It's also a certainty that the Julia Gillards, Tony Abbotts and Bob Browns of this world all eventually float to the top of their respective political septic tanks and either bore us, confound us with their dumbness or amaze us us with their nanny State mentality. That's just the way of it and why we have to watch it every night on the news and get angry. (Well, I used to - don't any more - a total waste of time. I mean, living here in Tasmania I can tell you not enough happens in the space of a day to fill in 30 minutes of news so why do they bother? Once a week is enough - anyway, I digress).

Let's get back to insurance companies because they interest me a lot lot more. Knowing that you are going to die, with certainty, why do insurance companies bet you won't? Of course they don't really - they just bet from year to year that you won't die now. All insurance companies employ people called actuaries which is a great name for a risk assessor. That's all they do. Assess risks.

Sounding familiar? Perhaps we should all call ourselves racing actuaries. Isn't that what you do? Assess risk in every race? These insurance company actuaries study statistics like there is no tomorrow, knowing full well that that is true too in many cases. They get all this Government collected data and make a determination that based on "averages", a male will live for x number of years and a female for y number of years given that all things remain equal.

They are then able to put out a scale of life insurance premiums that are age and health and occupation dependent so that, overall, their respective insurance companies can make a profit each year.

Of course, they also invest these collected premiums in other money making ventures, to cover off on the number of claims they will have to pay out. That's how they work. It's why there are all sorts of exclusions in policies, like car racing, private aviation, sky diving etc etc because the actuaries know those things increase your expectancy of dying, by x% - admittedly a small margin but enough to change the percentages to make it an unacceptable risk that you will die now. It's why you pay more if you smoke cigarettes. The risk is greater that there'll be a payout this year!

It's also instructive to note that in many policies you are often excluded from a payout if your inevitable death occurs from "acts of war, civil insurrection, riots". I guess the human track record is not too bright in these areas and the risk is too great.

Stats_bannerAccording to Wikipedia: "Actuarial science includes a number of interrelating subjects, including probability, mathematics, statistics, finance, economics, financial economics and computer programming. Historically, actuarial science used deterministic models in the construction of tables and premiums."

Ah huh - you are getting the drift here! The insurance companies bet against a certainty knowing there are mitigating circumstances that happen along the way to minimise their exposure. Things like people pay and pay and pay and then, for some financial reasons, drop out because they can no longer afford the premiums so all those premiums that were paid along the way in "low risk years" were clear profit with no payout at the end. This happens more than you would believe.

So, to sum up, these insurance "punters" bet against a certainty, knowing there will most likely be a payout, but making enough along the way to offset it when it happens.

Well, do you want to write the rest of this article now or do you want me to? Anyone with half a brain would realise this is absolutely no different to the approach we should be taking with our gambling activities. No matter how good your statistical analysis is, the day will come for certain when disaster will strike. That's just the way of it.

It's why even with good strike rate betting ideas like The Grail and CounterBet, we KNOW the day will come when things just go wrong. A total wipe out will occur - AND IT DOES!. With The Grail we estimate it will happen three to five times a year - maybe less with CounterBet - but we know it will happen.

The trick then, and it's not really a trick, just actuarial common sense, is to employ a money management plan that ALLOWS for these disasters to happen without destroying the long term financial position of gain. If you have done the statistical analysis over the long term on your punting idea and really know that in the long term you will finish in front, you can bet, like the insurance companies do, that the disastrous and inevitable run of outs won't occur now but at all times make arrangements for the future for when it does.

The importance of money management can never be over emphasised enough. Be smart. Be just like the insurance companies. Gather the statistical data - it's freely available - assess the risks -make a value based financial decision but all the time be aware that you also need financial money management skills to succeed LONG TERM.

Interestingly, the motto of the UK based Institute Of Actuaries is "making financial sense of the future". If they can do it, why can't you?

This article is copyright RaceRate.com 2011 . All rights reserved. May be copied freely for personal use and yes you can put it up on your web page providing this copyright notice stays in tact.