Part 3: Negative Spot Plays
Derek: I have stated for the longest time and I still believe it to be true that, while I can spot negative scenarios, I have done a horrendous job at capitalizing from them. I am glad I asked you what you look for in a negative scenario. I did not even know what that was in terms of what the statistics should look like.
You told me you need to look at favorites that produce a 40% negative ROI or worse. That was very illuminating to me because I have some angles that do that, and some that do not quite reach that point.
But we both agree that when you find those situations you effectively reduce the track take and that is what you are always looking for.
Even if you have a bad angle or an angle that does not produce a profit overall if you apply it to those situations where you find a negative favorite it may become a positive. I have not done a lot of that but the little testing that I did after that conversation has been tremendously positive.
Dave: I love the concept. For me, finding low odds horses that are legitimate minus 40-percenters has become the secret to winning. Not necessarily finding low odds horses that you can throw out, but throwing out a substantial part of the pool.
Just to be clear, by the way I do not use spot plays. You know that I am a comprehensive handicapper. The interesting thing is it is easier to find low odds throw outs with comprehensive handicapping than it is with spot plays because spot plays can be so narrow.
In my own experience I am literally finding 1 race in 3 where there is a low odds horse that I can throw out! When I say ‘he’s a throw out,’ he has got to be able lose 40 cents per wagered dollar.
Let us just look at what that looks like, let us say you have a horse going off at 2-1 and he has about probably 27% of the pool on him. The expectation would be he is going to win something like 27% of the time.
If we look at this horse that is 2-1 and is going to pay $6.00, and I am saying he is going to lose 40%, then that means out of 100 bets of $2 each he is going to win enough to return $120.
So, if he is going to return $120, divided by $6 (the payoff) means we are talking about a horse that is winning 20%. It is not all that substantial a drop but 20%, instead of 27% (or 33% to break even). When I say throw out, I am not saying the horse cannot win. When I throw him out I am saying that if you bet on that horse you are paying back my takeout and then some.
Derek: You brought up a couple interesting things in that. First of all you mentioned it is not a substantial drop, nothing in this game is. People are always looking for these locks or the sure thing, but it is not.
If you bet on a 25-1 shot and you think you are going to hit that 80% of the time you are absolutely delusional and I think you know a guy like that, 50% of winners at 10/1 average odds. Good luck with that because that is not happening in the real world.
That is something I think people need to realign their thinking to, that we are not looking for major changes. Look at sports bettors. You are basically looking for 55-56% to make a decent profit and to break even it is around 53%. Given that if you flip a coin it is 50/50, you are not improving that much and these are experts that are hitting at 56%.
The second thing is looking at those negative factors. You brought something up and it hit me in terms of how people go about their handicapping and how sometimes it can put you into a box because I am so used to looking at single factors and expounding upon them.
You are absolutely right. When I am looking for negative favorites I am using many factors. I have not found a single factor that is going to get that negative ROI, you have to string together factors to get those negative scenarios.
Maybe that is one of the things I need to do more of: basically throw the kitchen sink at these things because that is how you can really find those negative situations; find a horse that does not qualify in anything you are looking for.
About Derek Simon:
I love numbers and analysis and have been able to parlay that into an exciting career writing about two of my greatest passions business and sports.
In addition to working as a freelance financial writer for Newsmax, The Motley Fool, Investopedia/Forbes, Beacon Equity Research and Investor Concepts (among others), I was also the editor of Small Cap Insider, a monthly newsletter highlighting investment opportunities in the small cap sector.
Currently, I am the editorial director for US Racing where I contribute written, audio and video content and oversee a team of talented and passionate writers.