TheSnapper

Current Bank: $679,33
Start Bank: $198,00

Mr. Kelly's Bank: $26,11
Mr.Kelly's Start Bank: $20,00

Mr.Kelly took it on the chin yesterday...he's had a bad run of short-priced losers blowing up on him lately...he's lost 5/11 and nearly half of his bank. Which goes to show you how volatile full-Kelly staking can be...not for the faint-of-heart gambler, to be sure!

I also had a rough ride yesterday...losing 3 straight, finishing with only 2 wins in 5 bets and ending up -$38,60 down.(I think it is better to think in percentage terms, so thats -5% on the day.)

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Understanding the Kelly Criterion, part 2


John Kelly realized that betting on horseracing is fundamentally different than betting on games of chance like blackjack and roulette --- real "fixed odds". In the real world there are unknowable elements at play...maybe the phone line to the stableboy giving you the hot tip is bad and you can't hear very well, or the horse number is wrong, or the tipper wants to cheat you, or you write it down and later lose the paper...there are many things which can go wrong EVEN IF THE INFORMATION IS CORRECT. You can never have 100% confidence in it.

This is the starting point of the Kelly theory. Your bank must be protected AT ALL COSTS. Kelly staking is actually primarily concerned with protecting your bank first, and then growing it at a maximal rate. It is conservative in the sense that a Kelly gambler will never go bust (in theory) since he is only ever staking a percentage of his bank. Contrary to the myth, a Kelly gambler is not trying to get rich quickly, he is actually trying to avoid EVER going broke.

Getting rich as quickly as possible and never going broke. What else could you want?

Current Bank: $717,93
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.

Current Bank: $665,01
Start Bank: $198,00

Mr. Kelly's Bank: $35,53
Mr.Kelly's Start Bank: $20,00

A solid weekend of profits in the place markets. Total profits were a whopping $132,13 on stakes of $170,70 over 17 bets using half-bank, half-kelly stakes. My bank stands at a new all-time high, although still shy of my target for where I would like to be (well, you can't have everything all the time, can you?...)

For those interested, here are the runners I laid:

Runner           Stake  Odds    Liability Result
Bardolf            $8,47    3,45    $20,75    $8,47
Lucky Meadows    $14,51    1,96    $13,93    -$13,93
Patsy Finnegan    $12,83    1,99    $12,70    $12,83
Breezed Well    $9,53    2,96    $18,68    $9,53
Mahbooba    $13,96    1,99    $13,82    -$13,82
Darleys Dancer    $8,38    3,9    $24,30    $8,38
Miss Wendy    $14,33    2,04    $14,90    $13,63
Oscar Looby    $9,10    3,5    $22,75    $9,10
Buaiteoir    $15,25    1,77    $11,74    -$11,74
Amwell Pinot    $15,20    2,02    $15,50    $15,20
Tower            $14,09    2,16    $16,34    $14,09
Hobsons Bay    $12,97    2,42    $18,42    $12,97
City Of Doral    $12,85    2,64    $21,07    $12,85
Fitzgutentyte    $13,62    2,98    $26,97    $13,62
Drybrook Bedouin    $13,05    3,15    $28,06    $13,05
Teenage Idol    $13,85    3,1    $29,09    $13,85
Coppers Gold    $14,05    3,15    $30,21    $14,05

These were all over-backed runners which I laid before the off, simply by comparing the bookies odds with betfair odds. Nothing magical about it. I've now moved within $135 of my second doubling.


Mr. Kelly took it on the chin this weekend with a few short-priced favourites blowing up in his face. His bank dropped to $35. He doesn't seem too worried about it, though...

Current Bank: $532,88
Start Bank: $198,00

Mr. Kelly's Bank: $44,39
Mr.Kelly's Start Bank: $20,00

Mr. Kelly has doubled his bank! It's official. It took him 31 bets, all back bets on runners under 2.50 odds in the horseracing place markets. Well-done, big guy!




For the record here are his 31 bets and a graph of the results.



Runner                 Stake   Odds   Profit Result
Princeton Plains    $2,00    1,52    $1,04    $1,04
Lambro                    $4,24    1,21    $0,89    $0,85
Gurtacrue            $1,63    1,29    $0,47    $0,47
Jim Will Fix It    $2,46    1,43    $1,06    $1,06
Pickapocketortwo    $2,34    1,61    $1,43    $1,43
Renard Dirlande    $5,47    1,26    $1,42    $1,42
Havingotascoobydo    $2,63    1,63    $1,66    $1,66
Dare To Doubt            $6,14    1,21    $1,29    $1,29
Rattan                    $2,92    1,58    $1,69    $1,61
For Bill            $6,78    1,21    $1,42    $1,42
Lovethehigherlaw    $3,55    1,27    $0,96    $0,96
Cork All Star            $7,31    1,18    $1,32    $1,32
Time For Rupert    $3,45    1,61    $2,10    -$3,45
Bardolet            $3,40    1,30    $1,03    -$3,40
Emmaslegend            $3,04    1,29    $0,88    $0,88
Worldor            $2,86    1,50    $1,43    $1,43
Bobs Worth            $3,00    1,8    $2,40    $2,40
Caelis                    $3,24    1,85    $2,75    -$3,24
Di Kaprio            $3,21    1,48    $1,54    $1,54
Rumble of Thuner    $3,38    1,27    $0,91    $0,91
Pennek                    $3,16    1,60    $1,90    $1,90
 Over The Phone            $3,69    1,27    $1,00    $0,95
Claiomh Solais            $3,45    1,71    $2,45    $2,45
Quotica De Poyans    $4,06    1,37    $1,50    $1,50
Present A Star            $4,22    1,29    $1,22    -$4,22
Marino Prince            $3,76    1,45    $1,69    -$3,76
Beau Fighter            $3,35    1,46    $1,54    $1,54
Invisible Man            $2,56    2,34    $3,43    $3,43
Killultagh Queen    $7,79    1,21    $1,64    $1,64
Our Gar                    $2,96    2,02    $3,02    $3,02
Won More Night            $4,01    1,75    $3,01    $3,01
The Knoxs            $4,74    1,28    $1,33    $1,33
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Meanwhile, I have been looking around Florida again. I found the Lucerne Ave Resort in Fort Worth, Florida. Apparently, I can rent 2 bedrooms/bathrooms with breakfast, sauna, internet, etc..for $250 per month. So, me and Mr.Kelly can take our banks and stay for 2 months or so in the fine Florida sunshine!





Well, it seems a nice enough place, although the pool is a bit modest and the golf course doesn't appear too challenging!
I guess I keep looking...

Current Bank: $542,99
Start Bank: $198,00

Mr. Kelly's Bank: $35,39
Mr.Kelly's Start Bank: $20,00

Current Bank: $560,91
Start Bank: $198,00

Mr. Kelly's Bank: $31,96
Mr.Kelly's Start Bank: $20,00

I lost 3 out of 4 bets yesterday, which took me down $34,34. Mr. Kelly also lost 1/2 and went down $2. A run of bad luck lately...8 losses out of the past 15 runners. We'll see how it goes, I hope this bad streak ends soon and I can continue towards $800.

Current Bank: $595,25
Start Bank: $198,00

Mr. Kelly's Bank: $34,18
Mr.Kelly's Start Bank: $20,00

My 4-day winning streak came to an end yesterday with a $50,60 loss after losing 5 of 11 bets. Mr. Kelly is also off his highs after a $2,72 loss.

Current Bank: $645,85
Start Bank: $198,00

Mr. Kelly's Bank: $36,90
Mr.Kelly's Start Bank: $20,00

Well,my bank has tripled in size since I began at the end of Dec. So in about 2.5 months that's about 300% profit. It hit an all-time high of $670 on Saturday! OK. It's a small bank...but I've shown what can be done about the noise in the horseracing place markets, and  check back in in about another 2.5 months and see where I am. So, I am happy about that. I suppose in gambling, with all the downs and defeats involved, it's important to enjoy the ups as much as you can. Dwell on the positives for awhile, if you will, for so much of gambling is psychological -- it really is just you against the market...or more exactly, you against yourself.

So, here's the question. How many of you have tripled your banks in 2.5 months? How many "experts" and tipsters have done it? That's right...not many, if any. But I have, and without claiming any special knowledge of horseracing. Only the prices matter to me. Nothing else.

But notice this is a tripling of my original bank....it is not my second doubling. That will be when I hit $800. Doublings are significant levels for me because these are the compounding profits in action. I have about another $150 to go until the next doubling, then I'll break out my second bottle of champagne.

Mr. Kelly also has a smile on his face. He has reached a new all-time high of $36,90 and stands $3,10 from his first doubling. With a bit of luck he might hit that today or tomorrow! The only problem is that Mr.Kelly can't find very many bets to make each day, it really hinders his bank growth, and he has been pressing me to increase his bank. We'll see how it goes.


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I have been asked about how to control chasing. So, I'll just say a few words on that today before I go off and look at Florida real-estate...

Chasing is a common word for over-staking. That's really all it is...extreme overstaking. A frustrated gambler after a loss says,"Dammit. I've been cheated. I'm entitled to a win now. I'm going to win it all back...and right now, dammit! Enough of this. I'll show the market who's the boss!"
And we all know what soon happens next. An empty bank and the end of the road for the chaser.

Simply, chasing is fatal for a gambler, as is any form of over-staking...except it is sooner rather than later. Much sooner.

So how to avoid it? Well, that depends. I'm lucky, I suppose, that I think like an accountant. I am risk-averse ( I don't like taking risks). Indeed, Mr. Kelly has to push and nag me to bet MORE than I do. My biggest problem is that I am an over-conservative gambler,not a chaser! (I should be in the insurance business!) Chasing losses is never in the picture for me because I just don't think that way, in life or in gambling.

However, there are many people who don't think that way --- in life or in gambling. I have a friend who has done some (what I think are) crazy things -- he lent most of his money to a colleague who lost it in a pyramid scheme...he crashed 2 cars, almost died skiing and many other events...you get the picture, he is rather reckless. That's the way he is...he can't stand to be bored, and small bets over and over are boring for him. I beat him in poker, over and over! He never understands why he (almost) always loses...bad luck, he says (over and over).

So what can he do? First, he should not be gambling with MONEY HE CAN'T AFFORD TO LOSE. It is the prime directive, Captain Kirk. Why did I start this thread with $198? Because it was profit from a maturing bond. In a sense, it was free money I can lose and not care about.

Second, he should limit his available bank roll to a few stakes (3-5), in total no larger than 25% of his total bank. This means only keeping limited funds in Betfair, or a self-prevention daily limit. Sort of a built-in stop loss for a bad run of luck which usually triggers the chasing.

Third, and last, he must give up gambling if he cannot stop chasing. It is fatal. There is no hope of achieving anything with this kind of personality defect as a gambler. He is better off doing something productive and positive with his time.

Current Bank: $586,28
Start Bank: $198,00

Mr. Kelly's Bank: $29,99
Mr.Kelly's Start Bank: $20,00

Solid profits yesterday of $35,04 in the horseracing place markets. My bank pushed over $590, but closed at a new all-time high of $586,28. Mr. Kelly had only one bet and he won, so his bank is up to almost $30 again.

Since I moved to half-kelly, half-bank stakes the stats have been very good:


Bets: 53
Stake: $452,28
Profit: $132,49
Profit/Stake%: 29,2%


(In terms of points (1 fixed stake = 1 point) thats +29,48, or a whopping 55% profit.)

But, still, Mr. Kelly is not satisfied with my betting results! He points out that if I had used full-Kelly, full-bank  stakes, I would have made over $520 for the very same bets! (Dammit Jim, he's a tough man to please!)

And this is why I think Mr. Kelly will win this contest in the long-run. Look at the difference in profitability between making $520 and $132 FOR THE VERY SAME BETS! Over time, this difference compounds and compounds...I am doomed against Mr.Kelly in such a contest. Some of you are betting on me to beat Mr.Kelly to Florida, but I'd say it's a bad bet, mister!

And speaking of doom...I will talk a bit more about Shannon's Demon today...

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SHANNON'S DEMON part II - Shannon and Kelly



continued from part.1 previously...

How does Shannon's Demon work? Remember,when the market rises, you are selling. When it falls, you are buying. But that's not the key. The real "demonic" aspect is the hidden compounding. When the market rises again, you are profiting from your original stake PLUS your profits from when the market was low. In effect, you are compounding your profits. When the market rises, you begin selling, in effect, locking in your profits. You have succeeded in harvesting "noise" from the market. The market may not have moved, just gone up-and-down, and shows no overall profit to a regular investor, but you have a profit in your account, to be re-invested and compounded into ever-greater profits.

This compounding effect is the key to both Shannon's Demon and Kelly staking. They both build up your bank quickly through compounding, and they both have yet another, key, feature essential for all gamblers and investors alike: you can't go broke. No matter how bad the market, no matter how bad the string of bad luck...both Shannon's Demon and the Kelly Criterion will keep you in the game long enough to survive and return to profits in the long run...and that is the key.

Surviving and compounding. That's all you need...(except an edge, of course!)

Current Bank: $551,24
Start Bank: $198,00

Mr. Kelly's Bank: $28,56
Mr.Kelly's Start Bank: $20,00

A weak day yesterday, I lost 4 out of 11 bets using half-bank, half-kelly staking, yet I still squeeked out a $4 profit and the bank crawled forward to a new all-time high of $551. Only $49 left to go to the next doubling. I hope I can do it this week! I'll get the second bottle of champagne ready...it's been awhile since the first one!

Mr. Kelly lost 2 out of 3 bets yesterday, knocking him back from his first doubling. He still needs $12.

I'm going to look around and see what I can find in Florida for $600. I'll post what I can find tomorrow!