Three observations today.
1. Ocean Colour Scene's 'Moseley Shoals' is a jaw-droppingly good album. In fact, if I was the sort of chap to compartmentalise everything in my life, this album would be placed in the box marked 'Ambrosia'. That's the sort of ambrosia defined in the OED as, "the food of the gods" (in ancient Greek mythology). I wouldn't be wanting to compartmentalise Moseley Shoals by putting it in a box of supermarket rice pudding. No. That would be all kinds of wrong.
My neighbours I'm sure, would have appreciated my fine musical taste as I had it blaring on the car stereo as I left for work at seven this morning. In fact I know they did. My immediate neighbour, the one with the new born baby that isn't sleeping so well yet, gave me a real stare when I arrived home tonight at the same time as he. I read that stare - there was a lot of respect in it. You could tell by the way he puffed his cheeks and shook his head slightly as if to say, "Wow. Respect.". Oh yes, I can tell these things.
2. Congestion/mucus/snot - call it what you will - is a monstrous and evil thing. I spend the first half hour of my day sneezing, coughing, blowing my nose and generally emptying my upper respiratory system of what looks like that bright green slime stuff that was all the rage about 25 years ago. This, people, would be placed in the box marked 'John Terry'. And then burnt. The box that is. Not John Terry. Although two birds, and all that...
3. A chap called Curly left an extremely good question after last night's blog post. The sort of question that IF I was prone to self-indulgence (heh, the very idea of it!!!), I could take about a week's worth of blog posts answering. So I shall place my box of chocolates to one side, tell my wife to stop peeling the grapes for me, take a last draft from my bottle of Petrus '61, and start to put down my thoughts...
Here is the question:
"Long time reader, first time commenter. Or something like that anyway.
I like the fact that you had an original plan and stuck to it. I also like that along similar lines you're fully prepared to ride out variance and give all your services a fair chance to make money over 12 months. I don't run a portfolio of tipster services, in fact I've never even paid for a tip so my experience and knowledge of the area is limited. However, it stands to reason that any long term punting strategy will inevitably suffer a significant drawdown. It also can't help that the European football seasons are still weeks away from starting, as increasing the number of selections should reduce the variance.
I was wondering a couple of things - both of which I'll understand if you don't want to get into. Firstly, how big of a drawdown does £640 represent against your combined banks? I notice that you obviously have varying banks for your services which I assume must be weighted against your projection of expected risk/reward. To that end if you were to smooth out your average expected returns where would you expect to be? I guess this links in with your expected maximum % drawdown and likely/(eventually) actual length of recovery.
Anyway, completely understand if you'd rather not answer, I'm really only curious. "
Well, first things first, Curly is dead right when he points out the fact that the lack of football betting at the moment is meaning that the porfolio is more susceptible to the kind of losing run it's currently enduring. There are fewer bets at longer prices. That equals an increased risk of suffering drawdowns. I probably won't be thinking so logically when I'm lumping on the On The Oche bets a little later in the month. Not because of a lack of trust in On The Oche, it's just that the bet size will be considerably bigger and I'll be thinking I've lost enough money already to be risking that size of stake. Psychology is a wondrous thing. But I know that Curly is dead right.
As far as the drawdown is concerned, well it's now bigger than £640. That amount is also not recognising that halfway through June I was £1k up for the month and yet finished only £300 up. So the drawdown is actually nearer £1,500 now. As a portion of the sum of my financial banks, this is about 7.5%; a not inconsiderable chunk, but far from disastrous. I do leverage the banks at a rate of 1.5, ie. 50% of the "paper" bank (the 7.5% figure is of the real financial bank, not the pre-leveraged amount). This, I believe, is a pretty high leverage figure, but I feel it is justified by the diversity in the portfolio - in other words, the fact that there are 15 services allows me to push the leverage a little. Others may have a different opinion on that, but, as I'm about to explain, I wonder how relevant this is anyway.
Before I go on to explain myself though, I shall try to answer the second query re. where I would expect to be if I smoothed out my average returns. Well this of course is all hypothetical but I shall break down my expectations. My staking of each service in terms of £/point is such that using previous staking levels as a guide, each service should have wagered on their selections about £12k per annum. Thus over the year, the total amount staked is 15 services x £12k = £180k. My target roi is between 5% and 10%. Taking the middle ground of 7.5%, on £180k turnover that would be a gambling profit of £13,500, or an average of £1,125/month, which (assuming a 30 day month) equals a daily profit of £37.50. (Doesn't sound a great return for so much work when you put it like that, does it?). Of course, I hope for an roi of 10% and maybe a little more - certainly the track record of each service would suggest that 12-13% shouldn't be out of the question, but I don't want to be greedy - and if that level can be reached, then great. The way I look at it, that £13,500 (and let's not forget that we have to deduct fees) is the equivalent of an addition to my salary of about £23k at the tax band I'm in. Put like that, the returns are a little more palatable.
So where would I have been yesterday if the returns had been averaged out? 6 days x £37.50 = £225 up, instead of £640 down.
Now that I've essentially answered the questions (I hope), some further comments. Curly's question does, if you allow it, lead to some deep philosophical thinking on the different approaches to gambling. The issue of banks and leveraging for example, can lead you in all sorts of different directions.
I believe there are two types of folk that try to run a portfolio of tipsters. There are what might be termed the stats men, or those that mathematically do everything by the (maths)book, working out expected returns and likely sizes of drawdown linked to probability, etc. That's not me. I fit more into the second category - those that look more at the human angle. It's the psychology of gambling and how to handle it, and how those that run the services handle it, that is important to me. This different approach is probably due to the fact that maths/stats/probabiities do not come easily to me. I understand why a bank needs to be of a certain size. I know that diversification reduces risk although the amount being staked is greater as a result. I know that the effects of variance must be accepted. But I do not try to deduce likely depths of drawdowns or length of recovery periods. I concentrate on living in the here and now and making sure I can cope with that.
I try and keep things very simple. I go from day to day, trying to be as methodical as I can be and I work hard at not being psychologically bullied by the ups and downs. I believe my banks are adequate and trust them more than I trust myself.
What do I mean by this? Well, I believe 100% that my bank assigned to each service is of the requisite size. I use the SBC guidance and the tried and trusted rules that dictate the appropriate size of a bank. However, say you have a total financial bank of £20k that covers all your services. And then say you embark on a lengthy and unprecedented losing run, so that real inroads are made into that £20k. How many would keep going, staking as they are, until every penny of that £20k has gone? I know I wouldn't. And that's what I mean about not trusting myself. I know, deep down, that if I lost a certain amount of the funds I have put aside for gambling, I would quit. Or if not quit, reduce staking or drop some services to reduce my outgoings. And hand on heart, how many out there wouldn't do the same?
So really, the size of the accumulated banks becomes a little irrelevant, doesn't it? It's not the maths that a gambler has to battle with. It's the game itself and what it does to the mind. And that's where I concentrate my efforts. On doing the best I can to remain detached, aloof, and ready for the next day. Yes, financial planning plays a huge part in helping gamblers do that. The larger your banks, the warmer the comfort blanket, but let's not kid ourselves that we would happily continue to lose as we got down below say 50%, or 40%, or 30% of our original bank size.
Ultimately, this is why I couldn't gamble for a living. I know there is a line marking losses, that I just couldn't bear to fall below. The only way I could do it, I think, would be over the years to plough back profits until I had no leverage. If I could run services to make a good profit over a number of years, and have banks 150% of the recommended size for each service, and not have any level of leverage at all, then I might consider going full time. I tell you something though - just at this moment in time, that prospect seems a heck of a long way away.
Right. I've fallen into the trap of rambling tonight. Let's bring this to a close.
4PA. One account bet - Mijhaar in the 2.25 at Newmarket. One basic system bet - Fulgur at 9/1. Basic system bet declined. Look up the result if you haven't guessed it already (or backed it yourself of course!).
On The Nose. The very poor start to July continues - four bets, no returns.
Northern Monkey. Found Malthouse to place to small stakes (Newmarket - 22/1) but two losers.
ProBandit. Got the winner of the first race at Newmarket (Masked Marvel - 5/2) but then a loser to minimise profit.
The Market Examiner. I've just watched the 9.05. Nice one, despite being Rule 4 effected! (Baldemar - Epsom - 7/1). Two other losers, but all of a sudden I'm in a forgiving frame of mind!
So another losing day (eight on the bounce now). Things have got to change soon, haven't they?
Northern Monkey: Staked 2.5pts, -1.562pts.
On The Nose: Staked 3pts, -3pts.
ProBandit: Staked 1.5pts, +0.25pts.
4PA: Staked 1pt, -1pt.
The Market Examiner: Staked 3pts, +3.95pts.
Thursday 7th July: Staked £240, -£74.85.
Running total: -£719.97 (roi -50.66%).