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SportsInsights.com Article – Money Management and a “Good
Defense”
Most of us focus
on betting systems and strategies that will be profitable.
After all, without a good betting system, we won’t make any
money, right? The same thing can be said about “money
management.” That is, if you don’t pay attention to money
management, you might not be able to take that “next” step to
becoming a “sports investor.” Good money management will reduce
the chances of extreme losses and help turn this “hobby” into a
legitimate “investment.”
In the world of finance, many professionals
use the phrase “risk management” and “money management”
interchangeably. What are we trying to do when we focus on
“money management?” In simple words, we’re trying to “manage
our money” – or “manage our risk.” Our goal is to preserve our
capital or hard-earned money. We want to minimize the chances
for loss – or in a larger sense, minimize our “risk of
ruin.”
The information on this site is for
entertainment and educational purposes only. Use of this
information in violation of any federal, state, or local laws is
prohibited.
Flat Betting
First things, first... We believe that
“flat” betting is the way to go. That is, bet the same amount
for each play. “Chasing” or increasing bet size based on your
last bet (or series of bets) is not recommended. (This is true
for most people; please see * Note * below.)
Over time, you may hear about various
systems where you increase your bet size “knowing” that you are
due to win sooner or later. In general, these systems don’t
work. Eventually, a bad streak occurs and you are betting a
recklessly large amount to re-coup losses.
In general, many of these approaches MIGHT
seem to improve short-term performance – BUT at the HUGE expense
of increasing your risk of ruin. A bad stretch could endanger
your bankroll fairly quickly. If you DO succumb to the charms
of various Martingale systems, please use some sort of
systematic risk management method. In this business of sports
investing, it pays to minimize your risk of ruin.
Professional money managers – as well as
sensible sports investors – will agree that you should minimize
the chances of “blowing out” your investment portfolio. Flat
betting will help you to “stay the course” and ride the ups and
downs of investing.
* Note *: Experienced gamblers might use
a variation of Martingale or “chase” systems – but will always
have some sort of risk control in place. This is beyond the
scope of this article but might be addressed in a future article
on money management.
Unit Size
Next, you should think about the type of
investor that you are. Are you aggressive or conservative? Are
you experienced or a novice? The answers to these questions
will help you to determine the size of your typical bet. This
is called your “unit” size.
We typically recommend that a sports
investor bet 1% - 3% of their bankroll on each bet.
Conservative sports investors (or beginners) should bet 1%-2% on
a play. Note that professionals are normally in the 1% range.
Aggressive sports investors might want to
bet 3% on a play. 2% is a good medium; it allows you to
withstand a losing streak while helping to build up your sports
investing bankroll. Very aggressive investors might bet 4% or
5% of their bankroll on a bet, but this is too risky for most
investors.
Why not 4% or 5%?
The short answer is: Streaks and the risk of ruin. If you bet
amounts that are too large, a bad streak could cut your bankroll
in half (or worse). You then might feel like you need to reduce
your bet size – just before the inevitable hot streak. Smaller
bet sizes are more prudent and allow you to stick to your
approach and stay disciplined.
“True” Bankroll and “Risk Capital”
Whenever we talk about percentages of
bankroll, most casual bettors feel that they are on the “high
end” of the ranges we discuss. This might SEEM true – but only
because the “true bankroll” for most casual bettors is higher
than what they have in their accounts. That is, many bettors
might have $X in their accounts, but are willing to add another
$Y if they draw down their account. Professionals normally
already know their “full bankroll” and need to preserve their
“capital” versus “risk of ruin.”
Investors – and in this case, sports
investors – need to understand the level of their “true
bankroll” or “risk capital (allocated to sports).” Once
investors take a serious look at their finances, they might
better understand the “true” level or amount they allocate to
sports investing. They might then realize that 1%-2% of their
“true bankroll” or “risk capital” is indeed a realistic bet
size.
Summary:
Money Management and Playing Defense
Many of our articles focus on
SportsInsights.com’s philosophies and contrarian strategies that
have proven to work over time. In this article, we focused on
money management – an area where most bettors do not pay enough
attention. In essence, good “money management” is a lot
like playing good defense. Money management will allow you to
“stay in the game” during tough times so that good handicapping
strategies (your offense) can put you ahead.
Disclaimer
We do not
guarantee that the trends and biases we’ve found will continue
to exist. It is impossible to predict the future. Any serious
academic research in the field of “market efficiencies”
recognizes that inefficiencies may disappear over time. Once
inefficiencies are discovered, it is only a matter of time
before the market corrects itself. We do not guarantee our data
is error-free. However, we’ve tried our best to make sure every
score and percentage is correct.
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