Monday, May 23, 2011

Playing the ponies, part 1

I don’t play the ponies because I’ve never had any interest in horse racing. But a recent post on the Daily Speculations blog sent me in search of a copy of Secrets of Professional Turf Betting by Robert L. Bacon. The book was published in 1952; I have no idea whether it is still useful to the “turf speculator.” It is, however, definitely a worthwhile read for the “financial markets speculator,” aka trader. Since there’s a lull in hot-off-the-press books, I decided to devote a brief series of posts (maybe three) to it.

Why do professionals win? They win because “they know the ‘inside’ principle of beating the races, the same principle that must be used to beat any speculative game or business from which a legal ‘take’, house percentage, or brokerage fee is extracted. That principle is: ‘COPPER’ THE PUBLIC’S IDEAS AND PLAY AT ALL TIMES!” To “copper,” by the way, is an expression that comes from the game of faro and means to bet against.

The public must be wrong because the percentage of winning post favorites at the major tracks is somewhere between 20% and 40%. When other considerations are factored in, the author claims that “as nearly as can be estimated, the public is wrong 70% of the time at major tracks.” So the public can win only about one race out of every four. And the average payoff price of the favorites is $5.58 for a $2 bet. So at best the public pays $8 to make $5.58—not exactly the kinds of results to which the professional aspires.

The bloke who uses some “senseless mechanical method, such as following the Number Six post position in every race,” does better than the player who steps into all the switches and traps. If the take is 10% and he bets eight races and a daily double at $2 each, he should come home, on average, with $16.20 of his $18 betting capital.

The professional, of course, aims to win. He sets out to win the difference between the public’s losses and the percentage of the track take. That is, after the track takes its percentage—say, 10%, the balance of what the amateurs lose is cut up among the professionals. They have coppered the public’s ideas and play.

What distinguishes the professional from the amateur? First of all, the professional has a carefully crafted plan and sticks to it (though not slavishly as we will see in the next post). Among other things, he “bets straight to win, only, because there is the least unfavorable take-and-breakage percentage against the straight position. He never bets place or show; that keeps him out of the amateur’s position switches. … Besides sticking to the win slot, the professional always makes bets of even amounts [on any given day]… [The amateur, by contrast] keeps switching [methods], amounts and positions so that he never has a worthwhile bet on a winner at a worthwhile price.” (p. 25)

The professional plan, stripped to its bare bones, is to play all the sound overlay spots. That is, play all the spots where the odds you have calculated are better than the odds at post time; if you believe the horse is 5-to-2 you don’t bet the horse if it is 8-to-5 at post time, but you do bet if the horse is 5-to-1. The professional makes one to three sound plays per day (some days no plays) at the track where he operates.

Of course, the professional has to be able to find sound overlay spots. He does this by studying past performance charts, by paying close attention to the scale of weights, and by being able to put himself in the shoes of the odds maker. He has to understand how those who calculate the odds he is trying to beat operate, which means he has to be familiar with the table of booking percentages and understand how a book (the total of all the betting percentages in a race) is tallied.

(to be continued)

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