Money management

Part 1 First, let me say that even if you have a better than average winning percentage you will fail to make profits if you do not use or incorporate a faulty money management system. Professional gamblers, stocks and bonds traders, arbitragers, or any similar professionals understand the necessity of valid money management systems. There are several reasons for the need of such a system. The obvious one is to decrease risk while maximizing profits. Another reason was told to me by Paul Paulson of moneykeg. com and author of Money and the Middle Man. He explains, “The reason for money management, in my opinion, is so that a bettor can comfortably utilize his edge. Notice that I did NOT say “maximize” his edge. The reason is because if you size your bets solely with the purpose of maximization, you trigger, albeit inadvertently, the biggest obstacle facing bettors – psychology. What I am trying to say is that the more you ‘optimize’ your bet size system (what I consider a money management system as opposed to a picking system where you aim to pick the “winner” game, race, etc.), the larger your potential draw downs.” By way of example, let’s say you have a bankroll of $10,000. If you ‘optimize’ your bet in a simulation using techniques like, optimum f or the Kelly criterion, then your total bankroll will fluctuate more violently than if you size your bets with a simple 1% total bankroll bet. The ‘optimized’ simulation may draw down your account over 30% in some instances while the latter will likely yield much less than that. The point is this: How will you ‘feel’ about your system after a draw down of 30%? Is it likely that you will continue using the system? Or will your “better judgment” win out as you add this picking system to the picking systems’ scrap heap? I would venture to guess that most bettors would stop betting the system if a large draw down occurred. The problem is that statistically, a system with a positive expectancy will still have large streaks of winners and losers. If you should be so unfortunate as to start utilizing your strategy just before one of those inevitable losing streaks, then you will experience significant destruction of your funds. The lesson here is to minimize your draw downs to a level where you feel comfortable. That is, use a bet size where if you experience a string of losers, (which you will) then you will still move forward and still gain that statistical advantage called ‘positive expectancy’. If you make your bet size such that each bet has no significant emotional effect, then you are practicing the proper money management. If a bettor can achieve this, then he will know what it is like to have 13 losers in a row in a good system. More importantly, he will be psychologically stable enough to weather the storm and achieve the profits he deserves for having the ability to foresee such occurrences and plan for them accordingly.” In simple terms, it is important to use a money management system that allows your bet size to be within your comfort level. Using a money management system will help your psychology withstand losing streaks. A bettor should make their bet size in relation to their bankroll small enough that there is no emotional effect on the outcome. This will enable you to stay with a system long enough to see if works. There are several valid money management systems and some schemes that are not so prudent. Many of these will be discussed in later articles. For now, we will discuss a “percentage of bankroll”. In this system, the player will risk a percentage of his current bankroll. For this discussion, we will use a 2% bankroll ratio for the bet. We like this amount because as explained above must people do not have the discipline or stomach to see large losses. As you can see in the illustration below, we start with a $10,000 bankroll so our first bet will be $200. As our bankroll increases and or decreases so will our bet size. We also make the assumption that we will have a 60% winning probability. Bull Market Sports Handicappers has an average three year winning probability of 64.65% so we will be conservative and use 60% in our illustration. This means that for every 100 bets there will be 60 winners and 40 losers. As you can see in the illustration, one can expect to net $3,493. This makes your total bankroll $13,493 at the end of 100 bets. We will now compare this to a same size bet system. We will start with the assumption that we will win 60 games with a bet size of $200. This will produce $12,000 in gross winnings. Now take the 40 losers at 220 (don’t forget the vigorish) which yields 8,800 in gross losses. The net profit will be $3,200. This is are not bad but not as good as the percentage of bankroll illustration. Some people who subscribe to the same size bet system will say it is not a fair comparison. They will say that many of the wagers in the bankroll system are greater than $200. The argument is that if you wager more than $200 you will surely show larger profits. Let’s look at this argument further. First we take the average of all bets in the illustration. Doing this will produce and average bet size of $205. If you use this bet and multiply this by the 60 winners, we get gross winning in the amount of $12,298. We then do the same for the 40 losers (again do not forget the vigorish) and we get gross losses of $9,019 for a net profit of $3,280. This is better but still falls short of the $3,485 net winnings we experience using the percentage of bankroll system. Another problem with this argument is that it is impossible to determine an average of previous bets because the bet have not yet been made. Since we do not have a crystal ball its impossible to do this. In order to make money in sports betting, you must look at it as an investment. This separates the successful gambler from the “hard luck” loser. Gambling must be thought of as investment such as the stock market. Sports betting is a grind, do not expect to make a killing overnight. People who bet large amounts either to recoup losses or to make large sums in a short period of time may have a gambling problem. If this is you and you think you may have a problem, please go to the official gamblers anonymous site and see if you are in need of help. Initial Equity 10,000 Winning Probability 60% total $ bets 20,497 Total Trials 100 Ave. bet 205 Amount of Profits + 12,452 60 win 12,298 Amount of Losses - 8,959 40 lose 9,019 Max. Runs positive 10 net 3,280 Max. Runs negative 5 Results Equity 13,493 Profit/Loss + 3,493 Nr. of Profits 60.00 65% Nr. of Losses 40.00 35% Return + 68.1% Max. Drawdown - 19.3% MAR-Ratio 3.52 Average Profit/Loss + 35 Median Profit/Loss + 181 10000 Max. Bet Size in $ Bet Size in % Trial# Profit/Loss Equity Drawdown - Return To Win / Risking of Current Equity 1 - 220 9780 - 2.2% - 2.2% 200 220 2% 2 + 196 9976 - 0.2% - 0.2% 196 215 2% 3 + 200 10176 0% + 1.8% 200 219 2% 4 - 224 9952 - 2.2% - 0.5% 204 224 2% 5 - 219 9733 - 4.4% - 2.7% 199 219 2% 6 + 195 9928 - 2.4% - 0.7% 195 214 2% 7 - 218 9710 - 4.6% - 2.9% 199 218 2% 8 - 214 9496 - 6.7% - 5.0% 194 214 2% 9 - 209 9287 - 8.7% - 7.1% 190 209 2% 10 - 204 9083 - 10.7% - 9.2% 186 204 2% 11 + 182 9265 - 9.0% - 7.4% 182 200 2% 12 - 204 9061 - 11.0% - 9.4% 185 204 2% 13 + 181 9242 - 9.2% - 7.6% 181 199 2% 14 - 203 9039 - 11.2% - 9.6% 185 203 2% 15 - 199 8840 - 13.1% - 11.6% 181 199 2% 16 - 194 8646 - 15.0% - 13.5% 177 194 2% 17 - 190 8456 - 16.9% - 15.4% 173 190 2% 18 - 186 8270 - 18.7% - 17.3% 169 186 2% 19 + 165 8435 - 17.1% - 15.7% 165 182 2% 20 + 169 8604 - 15.4% - 14.0% 169 186 2% 21 + 172 8776 - 13.8% - 12.2% 172 189 2% 22 - 193 8583 - 15.7% - 14.2% 176 193 2% 23 - 189 8394 - 17.5% - 16.1% 172 189 2% 24 - 185 8209 - 19.3% - 17.9% 168 185 2% 25 + 181 8390 - 17.6% - 16.1% 164 181 2% 26 + 185 8575 - 15.7% - 14.3% 168 185 2% 27 + 189 8764 - 13.9% - 12.4% 172 189 2% 28 - 193 8571 - 15.8% - 14.3% 175 193 2% 29 - 189 8382 - 17.6% - 16.2% 171 189 2% 30 + 168 8550 - 16.0% - 14.5% 168 184 2% 31 + 171 8721 - 14.3% - 12.8% 171 188 2% 32 + 174 8895 - 12.6% - 11.1% 174 192 2% 33 + 178 9073 - 10.8% - 9.3% 178 196 2% 34 - 200 8873 - 12.8% - 11.3% 181 200 2% 35 + 177 9050 - 11.1% - 9.5% 177 195 2% 36 - 199 8851 - 13.0% - 11.5% 181 199 2% 37 + 177 9028 - 11.3% - 9.7% 177 195 2% 38 + 181 9209 - 9.5% - 7.9% 181 199 2% 39 + 184 9393 - 7.7% - 6.1% 184 203 2% 40 + 188 9581 - 5.8% - 4.2% 188 207 2% 41 + 192 9773 - 4.0% - 2.3% 192 211 2% 42 + 195 9968 - 2.0% - 0.3% 195 215 2% 43 + 199 10167 - 0.1% + 1.7% 199 219 2% 44 + 203 10370 0% + 3.7% 203 224 2% 45 + 207 10577 0% + 5.8% 207 228 2% 46 + 212 10789 0% + 7.9% 212 233 2% 47 - 237 10552 - 2.2% + 5.5% 216 237 2% 48 - 232 10320 - 4.3% + 3.2% 211 232 2% 49 - 277 10043 - 6.9% + 0.4% 206 227 2% 50 + 201 10244 - 5.1% + 2.4% 201 221 2% 51 + 205 10449 - 3.2% + 4.5% 205 225 2% 52 - 230 10219 - 5.3% + 2.2% 209 230 2% 53 + 204 10423 - 3.4% + 4.2% 204 225 2% 54 - 229 10194 - 5.5% + 1.9% 208 229 2% 55 - 224 9970 - 7.6% - 0.3% 204 224 2% 56 + 199 10169 - 5.7% + 1.7% 199 219 2% 57 - 224 9945 - 7.8% - 0.5% 203 224 2% 58 - 219 9726 - 9.9% - 2.7% 199 219 2% 59 - 214 9512 - 11.8% - 4.9% 195 214 2% 60 + 190 9702 - 10.1% - 3.0% 190 209 2% 61 + 194 9896 - 8.3% - 1.0% 194 213 2% 62 + 198 10094 - 6.4% + 0.9% 198 218 2% 63 + 202 10296 - 4.6% + 3.0% 202 222 2% 64 - 227 10069 - 6.7% + 0.7% 206 227 2% 65 + 201 10270 - 4.8% + 2.7% 201 222 2% 66 + 205 10475 - 2.9% + 4.8% 205 226 2% 67 + 210 10685 - 1.0% + 6.9% 210 230 2% 68 + 214 10899 0% + 9.0% 214 235 2% 69 + 218 11117 0% + 11.2% 218 240 2% 70 + 222 11339 0% + 13.4% 222 245 2% 71 - 249 11090 - 2.2% + 10.9% 227 249 2% 72 - 244 10846 - 4.3% + 8.5% 222 244 2% 73 + 217 11063 - 2.4% + 10.6% 217 239 2% 74 - 243 10820 - 4.6% + 8.2% 221 243 2% 75 + 216 11036 - 2.7% + 10.4% 216 238 2% 76 + 221 11257 - 0.7% + 12.6% 221 243 2% 77 - 248 11009 - 2.9% + 10.1% 225 248 2% 78 - 242 10767 - 5.0% + 7.7% 220 242 2% 79 + 215 10982 - 3.1% + 9.8% 215 237 2% 80 + 220 11202 - 1.2% + 12.0% 220 242 2% 81 + 224 11426 0% + 14.3% 224 246 2% 82 + 229 11655 0% + 16.6% 229 251 2% 83 - 256 11399 - 2.2% + 14.0% 233 256 2% 84 + 228 11627 - 0.2% + 16.3% 228 251 2% 85 + 233 11860 0% + 18.6% 233 256 2% 86 + 237 12097 0% + 21.0% 237 261 2% 87 + 242 12339 0% + 23.4% 242 266 2% 88 + 247 12586 0% + 25.9% 247 271 2% 89 - 277 12309 - 2.2% + 23.1% 252 277 2% 90 - 271 12038 - 4.4% + 20.4% 246 271 2% 91 + 241 12279 - 2.4% + 22.8% 241 265 2% 92 + 246 12525 - 0.5% + 25.3% 246 270 2% 93 + 251 12776 0% + 27.8% 251 276 2% 94 + 256 13032 0% + 30.3% 256 281 2% 95 + 261 13293 0% + 32.9% 261 287 2% 96 - 292 13001 - 2.2% + 30.0% 266 292 2% 97 + 260 13261 - 0.2% + 32.6% 260 286 2% 98 - 292 12969 - 2.4% + 29.7% 265 292 2% 99 + 259 13228 - 0.5% + 32.3% 259 285 2% 100 + 265 13493 0% + 34.9% 265 291 2% Copyright © 2006 Bull Market Sports Handicappers Inc bmshandicappers. com - Reprints Accepted - One link must be active in the bio.