Start Bank: $198,00
Mr. Kelly's Bank: $33,47
Mr.Kelly's Start Bank: $20,00
I made 5 lays yesterday for a profit of $52,92. I'm running hot lately, winning 18/22 lays, including one stretch of 10 straight! So, the sun is shining again. Ups and down...just like the weather, you hope it lasts, but you know it won't!
I've added a screen shot from yesterday, as there have been some requests to see more details. No problem, I have no secret wonder technique to hide...just patience and math! Here you are, I hope it helps. (That back bet is Mr.Kelly's only bet of the day, a loser.)
There have been some questions about staking and selections, so I thought I'd talk a bit about what I'm doing in more detail, even though I am a bit pressed for time today.
Selections
I don't think you really need much of an edge to make it pay long-term. The good news is that horseracing markets have a built-in edge for layers if you are laying over odds of 4.0. This is called the "longshot-favourite bias", which means that punters generally overvalue longshots,and this is the source of a good part of bookmakers profits over the year. I'll put up the stats again for you:
Now, remember, these are bookies prices. The betfair odds are usually 10+% higher, so you generally can't lay at Betfair SP and profit because the Betfair commission will kill you softly, as the song goes...
However, occasionally the market gets over-enthusiastic about certain runners and pushed the prices down to the bookmakers levels. So, the trick is to consistently make bets at bookmakers levels, if you can do that, you stand a fine chance of long-term profits. I mean, the bookies are still standing after all these years, aren't they? I lay in the ranges shown in this chart only.
So, I look around before the race to find such runners and I choose one. Remember if you are laying in the place market your liabilities are 2-4 times higher (2-4 horses can place)(Mr Kelly also avoids selecting many runners per race because it interferes with the compounding effect and is less efficient from a mathematical point of view). I am not trying to predict which horse will win or loses...my only goal is to grow my bank as quickly as possible over time.
Staking
Which brings me to staking. The fastest way, mathematically, to grow your bank is by compounding, or simply, re-investing you winnings. I re-adjust my stakes after each bet. The stakes go down after a loss and rise after a win.
The trick here is, how much should I increase or decrease my stakes by? And this, exactly, is what John Kelly solved for us all. It is called the Kelly Criterion.
Understanding the Kelly Criterion,pt1.
Imagine that you have a hot inside tip on a horserace. Some stableboy calls you and tells you that horse X is sure to win the race today. Great news! But now you have a problem. How much should you bet on it? The stableboy has never, ever been wrong in his tips before. It seems a damned guaranteed thing. Should I put my whole bank on it? Or, even better, rush out and borrow money to increase my bank to bet on it? That's right, sell my home, car, business..everything, and borrow as much as my banker and loanshark will lend me and throw it all on horse X? After all, the stableboy said IT WILL WIN and HE'S NEVER BEEN WRONG BEFORE.
Obviously few sane people would do this. John Kelly wondered...well, how can we then benefit from our hot tip, then? If we only bet our usual $5 on horse X, it squanders the presumed valuable advantage of the hot tip. But, in the real world,if we bet everything (and more) that we have, we may end up broke (or dead). How can we win the most money from this situation, without going broke (or sleeping with the fishes?)?
And this, my friends, is what every gambler (and investor) must ask themselves, every day, with every bet.