Monday, July 9, 2012

What's the deal with managing our bankrolls? 

NFL Picks Managing Your Bankroll 1
Let’s cut to the chase.  Most bettors bet too much.  They don’t have a pre-determined bankroll and don’t put much thought into how much they bet on their picks. 

A lot of handicappers will tell you this is the most important factor to betting.  Well, that’s not entirely true. The most important factor is making winning picks. Go check any handicapper’s long-term records and see how many of them actually win 52.4%.  Most casual bettors are below 50%.  They are basically coin-flipping on bad lines.

This means money management isn’t going to make you go broke. That’s what your picks will do for you if you don't have a documented edge.

Bad money management simply makes you go broke faster. 

Why?

In one word -- variance.

Simply speaking, the smaller the sample size the greater the variance.  Wins and losses can vary dramatically along the way.  In the short-term anything can happen. 

Therefore, we must be mindful of how much we are betting on each pick. If not, a sudden losing streak will put you on the fast-track to bankroll bankruptcy. 

Sportsbooks take this mistake all the way to the bank and it is one of the main reasons why they always win. 

The same principle applies for winning streaks. When we get hot, it is very tempting to raise our bets to maximize our winnings.  Yet, this can be just as damaging to our bankroll--wiping out all the good work of our previous success.

Bettors tend to attribute winning streaks to our fabulous handicapping skills, and losing streaks to bad luck.  We also tend to force extra picks or raise when we are hot (hot-hand fallacy), and pass on good opportunities when we are cold.  Lastly, overconfidence is a key reason why most handicappers over-estimate their edge.

Ok anything can happen in the short-term, but what is a reliable sample size?

In the handicapping world, it's difficult to begin to trust records until they get into the 300-500 pick range. The more picks, the lower the variance.

Let’s take my current records to see how this works...

Right now I’ve accumulated around 460 picks against the spread (ATS) with a 53.7% win percentage.

Is this a true reflection of my handicapping skills?

460 hovers around 4.5% margin of error.  This means that the true range of my skills ATS could be anywhere between 49.2% and 58.2%. 

100 picks ATS would have a margin of error of 10%...which would have a range of 43.7% or 63.7%!   After 100 picks we don't really have a clue how capable they are.

Ignoring variance in sports betting is bad money management and it can really hurt our bankrolls.

So what amount should I be betting?

NFL Picks Managing Your Bankroll 2
The first step to figuring out your bet size is to determine your overall bankroll first.  Even if you are a casual/recreational bettor do NOT bet out-of-pocket.  If you don’t set aside a pre-determined amount that you are comfortable risking then you shouldn’t be betting at all.

I recommend a “flat-betting” (same amount) approach to bet sizes.  It’s true that a lot professionals vary their bet size depending on the degree to which they like a play, but this is dangerous territory for the uninitiated. 

Some handicappers will tell you that the time to raise is when you are on a “winning streak”, but it’s not something I subscribe to.  How many times have you raised after you won a few, only to wind up losing?  

The probability of winning your next play has absolutely nothing to do with the plays before it (correlated parlays aside).  This is your classic gambler’s hot-hand fallacy since each pick is statistically independent. The probability of winning your next play is only as good as your expected edge.

It's my opinion that the only way to ensure safe, responsible, and profitable betting for the vast majority of bettors out there is to practice disciplined money management.

The industry standard is to bet 2% (2 units) of your overall bankroll on a single play. It is usually acceptable to raise up to 5% for picks, but even that is too much if you really don’t know how to calculate your edge.  I would stick within the 1-3% range until you have considerable experience (and success) under your belt.

If you start with $1000, your bets should be $20 each. That might not sound like a lot of fun if you are striving for “action”, but if you are more concerned about profit over the long-run—it’s the only way to get started.  

Locks and guarantees simply don’t exist in sports gambling. This is a golden rule I live by.  If you ever come across these terms on another site, stop reading and move on. They are simply telling you what you want to hear.

The only scenario that you should be increasing your bet is if your bankroll increases.  My personal suggestion is to set benchmarks.  If you start with $1000, don’t raise until you hit $1500.  A 2% $20 bet now increases to $25.  Or alternatively you can withdraw the $500 profit and stay with your original $1000 bankroll and $20 bets.

The same applies if your bankroll decreases. If you reach $500, your bets should go down to $10. If not, it is an almost mathematical certainty you will eventually go broke due to variance. 

For exotic bets, props, futures, consider how much you want to tie up long-term and what your edge is.  If you're playing props for "action" lower your bet.  Also if you are a volume player it is wise to reduce down to 1% or less. 

How does this affect my profits?  Don't I need to risk more to win more?

NFL Picks Managing Your Bankroll 3
I know what you’re thinking.  A 53.7% win rate doesn’t sound that impressive.

Let’s go back to my records to illustrate an example of money management in action.

Due to standard juice, a bettor needs to hit a minimum of 52.4% of his picks in order to “break even”.

Let’s say you start with a bankroll of $5000.  A standard 2 unit (2%) play will be $100.



$100 x 237 wins = +$23700
$100 x 204 losses = -$22449

Profit =  +$1251

That is a 25% increase on your original 5000$ bankroll.

As you can see, a 55% win percentage is a very profitable number if you practice proper money management and over the long-haul the profit will accumulate. It also ensures a very small chance of going broke or having to reload your account.

Don’t Stop There

If you want to take it one-step further, track your picks so you can understand your strengths and weaknesses  You might come to realize that you aren't quite as good as picking sides as you thought you were, or it could reveal that you are much better with player props than it seemed. 

This is something that the vast majority of casual bettors don’t do either because they are lazy or simply don’t want to see how much they are losing, but if profit is more important to you than “action” … then tracking your picks is essential.  SBRforum has a great customizable spreadsheet to do most of the hard work for you – and best of all it’s FREE

PS - You might also read about the Kelly Criterion system along your way.  This is a mathematical approach that requires a very thorough knowledge on your statistical advantage with your picks and calculating accurate +EV.  Most people overestimate their edge – so a “half-Kelly” approach is another adopted method. For more information read more here.

Next up: Managing your Investment