Monday, 4 April 2011

Risk vs Reward, taking an interest, and March review #1

Last week Mark (of The Patient Speculation blog) who is getting his Portfolio Lite up and running, asked the following question:

"What should be more important to the portfolio investor: staking so as to maximise profits or to defend our banks?"


Well Mark, the answer to this - and this is not a cop out, I promise - is that if you get your staking right then it should automatically lead to both the protection of your bank and it should give you the best chance possible of maximising your profits.

I have already discussed the factors to take into account when determining the appropriate size of your bank, and by setting it up in this way (ie. roughly twice the size of the relevant service's lengthiest historical drawdown) you should have an adequate buffer against the worst that the gambling fates can throw at you. Hence the 'Protection' box is ticked.

Following on from this, the 'Maximising of returns' box should be ticked quite naturally. If the service you are following has a long-term edge, then the idea is to simply ensure that you stay in the game. AT ALL COSTS. If you stay in the game, then when the edge that your service enjoys manifests itself in tangible profits, you will be benefiting from it. Assuming you worked out the projected returns based on historical roi achieved prior to subscribing, and you therefore know that when this level has been hit you will be clearing a profit acceptable after the deduction of fees (if it doesn't, then why were you subscribing in the first place?), then by staying in the game, you will ultimately maximise your profits simply by ensuring that you are in there when you should be. If your bank is too small, and you go bust, you won't be in a position to rake in the profits when they eventually arrive.


Mark was obviously drinking deeply from the well of curiosity last week. Not content with asking just the one question, he followed up with another...

"My next question is: what level of knowledge do you have to have about a sport before adding a tipster from that sport to your portfolio?"


To answer this one, I can only turn to Andy, who in response to this sent in an answer that sums up my own feelings to a tee and makes the relevant points in such a succinct way it can't be bettered. So I shan't try.

Andy said:

"I feel this is down to an each individuals comfort levels again.

To me, as long as i know what the area/sport is and the basic nature of the sport, it doesn't bother me how much or little i know about the area/sport.

The reason for this is because the tipster has to have a proven record for providing profitable tips. To me it is an investment at the end of the day and not an interest. If it was purely for interest i would treat it as a hobby (which i don't).

Some people though, may only be comfortable staking on sports that they know about. I knew nothing of darts players last year, but i know the sport (if you can call it that) and the basics of it, yet i subscribed to a well thought of and proven tipster because it had great potential to make me money.

To me, if its a well run tipster service and shows good results over the long term i am happy to subscribe."


Spot on, Andy.


There seems to be a lot to talk about at the moment, so I'm going to do my March review bit by bit, looking at two or three services each day. In any month when I make a trading profit of £1k or more (before fees), then I can't complain. At £1,098 for March (roi of 7.74%) then I would describe the performance as average. Not great, but not too shabby either. Certainly an improvement on what had preceded it in 2011.

ProBandit: Staked 23.275pts, +3.829pts, roi 15.08% (2011: staked 84.125pts, +0.678pts, roi 0.8%)

A much better month for ProBandit. Call me clairvoyant, but my comments in the February review for ProBandit included this statement: "perhaps Paul is beginning to rediscover his mojo...I have high hopes for ProBandit in March". And so it proved. Not a spectacular month for Paul, but solid and consistent, just as I like it. The service starts March more or less level for 2011 so far, so let's hope that this is really the start of it's year and that more consistent profits are just around the corner.

Winning Racing Tips: Staked 13.8pts, +7.578pts, roi 54.91% (2011: staked 47pts, +7.337pts, roi 15.61%).

WRT was the most profitable and best performing (judged on roi achieved) racing service in March, hitting an astounding 55% roi. This is the sort of service where real patience is required. The last six months or so had really been a case of standing still, but as I mentioned in last month's review, sometimes standing still is a good thing. It can put you in a position where you can really reap the benefits of the good times, and a good run is certainly something WRT enjoyed in March.

Chasemaster: Staked 12.125pts, +4.459pts, roi 36.78% (2011: staked 36pts, +7.679pts, roi 36.78%).

You know I've really enjoyed Chasemaster this last month. With the exception of one bet (which placed and produced a small return) they steered clear of the madness and mayhem that is Cheltenham, and simply got on with what they are good at...and they were very good at it in March. I have got used to the service now and have settled into a nice rhythm with them. The only thing that remains is for me to get the staking right as I feel I may just be understaking them a tadge. I'm not making any adjustments just yet, but it is something that I have my eye on. A small rise may be necessary, we'll see.


Today's Action

An underwhelming day today. Five racing services in action with none bombing out but four of them each contributing small losses which added up to equal an unpleasant loss at the end.

The only successful service was Northern Monkey whose only tip finished third (Ajjaadd - Windsor - 11/2) and thus produced a very small profit.

ProBandit did actually find a winner (Ya Hafed - Folkestone - 9/2) but with other results ended with a small loss.

Winning Racing Tips gained a return on an each way double, but also had one finish out of the frame so another small loss there.

Firing blanks this afternoon were On The Nose with two small win bets and Chasemaster with one small each way selection.

Northern Monkey: Staked 0.75pts, +0.14pts.
ProBandit: Staked 1.75pts, -0.375pts.
Chasemaster: Staked 0.25pts, -0.25pts.
On The Nose: Staked 1pt, -1pt.
Winning Racing Tips: Staked 1pt, -0.448pts.
Total financial loss on the racing of £74.07.

Monday 4th April: Staked £180, -£74.07.
Week to date: Staked £180, -£74.07.
Month to date: Staked £2,803, -£878.99, roi -31.35%.


Right then. Likely to be fairly late posting over the next couple of days. Will be hooked to the Champions League footie.

3 comments:

  1. Hi Rowan

    Once again you (and Andy) have exceeded my expectations.

    With regards to my risk v’s reward question, I can see exactly where you are coming from when referring to getting the staking right to protect our banks, I suppose it is all down to the individuals own attitude to risk, what may be an acceptable level of risk for one person, may be far to an uncomfortable level for another.

    I like your idea of having a buffer that is the equivalent to twice the maximum drawdown that a service has experienced, but I don’t know how comfortable I would be with my bank for one of the services that I am following drawing down by up to 50%. I suppose it all depends how much experience you have with handling that kind of situation and also how big a part of your portfolio the service represents.

    With regards to my question regarding what level of knowledge we need to have about a sport before adding a tipster from that sport to my portfolio; I think that Andy’s Question was spot on if all you are doing is treating running your portfolio as just a vehicle to make money.

    However from my point of view, I have two equally important reasons for running my portfolio lite:

    The first reason is as an investment vehicle and in that regard there is no real need for any prior knowledge of the sport that the tipster operates in. However I did write that I have two equally important reasons for running the portfolio and the second reason is that I want to use the portfolio (by that I mean the tipsters within it) to learn how to become a better sports speculator in my own write by watching and learning from how the tipsters operate within their niche, in fact I would go as far as saying that my ultimate goal would be that I want to become totally independent in regards to developing my skills so that I could become sufficiently profitable in my own right. So for me learning as much about the sports involved is a main priority.

    Thanks again for the great advice.

    Oh yes, I nearly forgot, I have a new question that I have been pondering this week: The question is when looking at tipsters to follow how much importance to you put into looking at the timing and delivery of the tips from potential tipsters? What I mean is if you found a tipster that ticked all of your box’s with regards to profitability, but the times the tips were sent out were not very convenient, how much effort would you be prepared to make to fit the service into the portfolio.

    Thanks again
    Mark

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  2. Hi Mark,

    I'd love to take credit for the idea of determining the size of the bank required for a service by looking at the deepest historical drawdown, but in the interests of fairness, I have to attribute that to the SBC; that's where I got it from.

    Naturally, you would feel uncomfortable with a 50% drawdown on a service. Looking at 2011 figures, PJA NH has had a drawdown of more than 50% of the bank and Football Elite wouldn't be far away. What would be a much bigger test though is if your entire bank was at 50%. I'm currently just above being level for 2011 (before fees are deducted) despite the severe underperformance by these two services. That is the advantage of the portfolio approach - by diversifying you are spreading the risk. Yes it is possible that all services underperform at the same time, but statistically it is much less likely to happen. If an investor doesn't want to face this level of risk, then no matter how big their bank was for each service, I would question whether the portfolio approach is the right one for them at all. Just to show that this is not just brave words, I resubscribed to PJA the day before yesterday.

    I'm afraid that I could not and can not give you an answer about the level of knowledge someone needs in a sport to be able to absorb knowledge and develop an edge for themselves. I'm simply not qualified to and have no experience in this at all, so I can't comment. My methodology is fundamentally different - it involves identifying which service has a discernible edge at something and then trying to take advantage of it. When The Form Analyst was operating, the write ups on each selection were incredibly detailed. Yes, I learnt about horse racing by reading it, but did I learn the skill involved in race reading? No. Why not? Because running a portfolio properly, for me, is all consuming, particularly as it grows, and it needed all my attention.

    Practicality of a service? Good blog post in there, I feel. :)

    All the best, Mark.

    Rowan

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  3. Yeah good stuff once again Rowan. SBC have to take the credit for the 50% drawdown method. Though i have a little part i'd like to add to this.

    Having a double bank of the worst losing run is an excellent way of protecting your bank from a worst case scenario. What i want to mention is how much risk-potential profit.

    The SBC had an article a while ago about compounding stakes. This is increasing/decreasing stakes in accordance with your bank going up/down. For example your start with £1000 and 100pt bank. A 1pt bet would be £10. So say you bet a horse to win at 5/1 and your bank increases to £1050. Your next 1pt stake would be £10.50.

    This is a great strategy to increase your winnings but also makes you more susceptible to losing greater amounts on a losing run.

    My personal method is to compound every time my bank takes a new high. You may wander if this too risky? I don't think so, because i already have my safety barrier in doubling the worst losing run. Another losing run of greater effect could happen but a minimal chance at that.

    It does all depend on the odds the tipster averages at. A service that produces tips mainly around evens will have shorter losing runs and a more accurate idea of those runs, whereas a golf tipster who averages 50/1 shots can have a very different set of losing runs and could take many years to figure out what a very worst run could look like.

    I hope this all makes sense and my personal view has come across. As long as i have a suitable safety barrier, i don't need any more. I would say i was a medium risk sports bettor. I think by being low risk i would miss out on too much opportunity. My view may well change in a few years when i have a lot more capital to work with.

    Andy

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