Part 5: Derek Talks Reality
Derek: Yeah there is that idea that vulnerable favorites – I hear people say it all the time – that it is a weak favorite or over bet. So much of that is relative to your own methods and methodology. Same thing with short odds.
I have gotten into so many conversations with people where they say they cannot make money at 4-5 and then they name a price. A better response is you cannot make money [just automatically playing against those low odds horses].
I came to you asking about these negative favorites because you are better at it than I am. I do not get that [those results] on the favorites I have drawn. I wish did. People will tell you that you cannot do that, no do the testing. They have to find out on their own whether it is going to work and go from there.
Dave: Would you not agree that most people simply do not want to know how good (or bad) their handicapping is?
Derek: There is that. The thought that I pick a lot of winners people post things on my wall like having a great day, this is easy or this kind of stuff and I am glad for them, I do want to see people have fun and enjoy success in the game but ultimately it does not matter.
I go back to a conversation I had with Barry Meadow. I provided free selections for a long time for Vegas Insider and YouBet. I always did very well, and had about a 20% ROI. I remember telling Barry that and you know how you can tell from their voice that they are not the least bit impressed? That is exactly the way he responded to that.
This was a guy who was making his money at the races and he got a significantly lower ROI than that. He understood that when you start betting for profits sometimes the ROI does not matter that much. Obviously it plays a part but people ask, How can you say that?
I always go back to the lottery and define instances where there is a positive expectation to the lottery, but the odds of you winning are so low it is not really practical.
I draw on my stock experience here, too, in that the overall the stock market is a great investment. But there was a time from after the great depression until basically the Korean War which was the mid-50s it took long for the stock market to get back to those 1920 levels.
If you just happened to be investing at that time, the stock market was not a great investment for you, if you were following or hitting the market averages. There is so much of it that I think comes down to your own confidence and mindset towards it.
Like I said, I prefer consistency. It is number one to me. I do not want to have a bunch of losing months. I even hear pro players say they had a losing year. How do you do that when you have a family?
I always look at it that way, I have a family to support. I just cannot have a losing year. I cannot say, Kids, we are going to eat Cheerios this year. Dad had a really bad year at the races last year.
Dave: That of course is absolutely true. You mentioned Barry Meadow who once made a statement that anyone who says they are getting more than a 3% ROI is a liar.
I know a lot of people getting more than 3% and they have been doing it for years. Are they professional players? Absolutely.
But that being said, I get his point of view. I cannot tell you how many phone calls I have had over the years from guys who said I am getting 85% winners from my top 2 horses. Can your software do better than that? No, it can’t.
I think the key point here is that it is logical that if we can pick good non-contenders, which will be bet that improves our state. Another thing I think about it is hardly anyone will bother to do it because all they want to do is pick winners. People want to look at the positive and forget the negative. I think the negative is actually where the money is.
Derek: Actually it raises the point that it might even be more so. We talk a lot of the times about certain things in racing. You look at BRIS figures and different factors over the years and how they lose their pari-mutuel punch.
Robert Saunders Dowst consistency system: at one time profitable then lost its profitability. There is a very good likelihood that negative factor handicapping – if you use that term – will be something that will be profitable in the years to come because we are getting more and more racing fans that are all about positive.
Heaven forbid you are in my position and you write something where you say I do not think this horse is as good as everyone else thinks. You are called a hater because we have so many fans that think these horses never lose or that one race is definitive.
This horse beat our horse so their horse is better. That might be true when you are voting for awards but not the way I think you approach handicapping.
Dave: I am not a big fan of horses although I do admit once I got pass the idiocy of Chromes owner the first year, I really did becomes a huge Chrome fan. Of course Zayat’s horse, American Pharoah, I know the connection indirectly and really rooted for him.
Other than that I have conversations with people who talk about the big race on Friday and if I had only done this or that I would have caught him because that big horse came in and paid $6, I have no idea who he is talking about. When I handicap, I am in and out of a race in 4 minutes.
Derek: In my position looking over editorial content and so forth people ask me that all the time, what do I think about the big race? Someone asked me just last week what do you think about the Jim Dandy? I did not even look at it. I looked at the race before it as a weak favorite in a sprint race. I cannot even remember the name of it.
Which kind of makes the point here. I think the horse’s name was Anchor’s Away, was the morning line favorite, but did not go off as the morning line favorite. That was a terrible favorite in that race and so I tried to beat it, actually beat it and made some money.
As a handicapper a lot of times this big races will hold the field or not hold the field depending on who is in it. I had no thoughts want so ever after these recent races where you have the 4 horse field in the filly and mare race, the 6 horse field in the Haskell¦ It is just not my cup of tea.
Dave: At the end of our private conversation we started talking about spot plays versus complex factors, simple factors versus complex and so forth. I stopped being a spot player many years ago, and my entire focal point of the game has become centered on the percentage of pool that we eliminate.
You and I started talking about that, the philosophical statement that the more factors we use, whether we are weighting them or spot playing them, the harder it is for a long shot to qualify.
Derek: I hope listeners get something out of that part of the conversation because it is kind of eye opening to me. When I was really thinking about how I go about my play, the spot plays are simple, and eliminating favorites tends to be multifactored.
Obviously I used multifactors for everything, but generally there are fewer factors on the positive side than there are on the negative side. I think that is going to hold true. If you are going to eliminate a favorite you want to have lots of reasons to dislike that favorite because, frankly, this is what makes the system approach difficult anyway.
Let us say you have a favorite in a maiden 2 year old race. Is that going to be the same kind of favorite you are going to see in that big graded stakes race? No, it might be a first time starter; a horse with one start; there are all kinds of variables in that situation.
So if you are going to eliminate favorites it cannot be based on just 1 or 2 factors because you have so many different races and, it is like you said, the negative stuff only works if you are right about eliminating that favorite.
I am not saying it will be right all the time, but you have to produce a fairly significant negative ROI. If it is below what it would normally be, let us say it would be about 15% loss every time, if your elimination is giving you a 2% loss you are not doing it right and it is not going to work.
Dave: If you get 15% it is still not working because that is normal. The idea is you need to recover the takeout, so when you go from 15-40% you have a good chance of doing that. Let us stick with that 40% negative ROI.
Every player that bets the #3 horse loses 40% of his money in this race. If the horse has, let us say, 30% of the pool then you have recovered 40% of 30% or 12% so you are almost even now.
Include on top of that the other horses you have tossed and you’re at least break-even. But you have to reach the point where you have studied the horses you are tossing.
Derek: Let me ask you a question on that because so far the only studies I have done have been on specifically morning line favorites. Then I will check to see what their final odds are because I am always looking for something that I can use before the race because I am not monitoring all the races to see where the money is actually going.
Then I am looking for sole favorites because I do not want to mess around with entries because I might eliminate the poor half of the entry and think that I have actually eliminated the pool when I have not. What are you looking for in those other horses when you are not looking at the post time favorite? Is it a higher ROI, what are you looking for?
Dave: To be clear, when I speak of favorites, I am really talking about any horse that, ultimately, goes off at below 7/2.
But I think we have to leave that for another show because that is a huge topic. I think just making the statement that if you have a race where a significant percentage of the pool has been eliminated, then you have a much better chance to be profitable.
That assumes you have the pedigree to do that. In other words, you have validated your ability. If you have done that, then the positive side (amazingly) becomes almost easy.
Since you asked me that last question I am going to give you a different answer and it is something people can take home with.
We had a guy years ago, who was a semiprofessional player. He worked on Wall Street and, as he put it, “All I want to do is to buy a new Lexus every year with my winnings at the races”.
Then he lost his job on Wall Street and it became way more important. His claim to fame was that he was very good at tossing low odds horses.
What he would do – and this is the strangest thing – he would key the tossed favorite in exactas in the number 2 position because the public might also leave him out of the bottom side of the exacta!
In other words, he would still be a low price horse, but when they tossed him to win they would also toss him in the exactas.
So his specialty was to back key the tossed favorite in the number 2 position in exactas, the number 3 position in trifectas and 3,4 in superfectas. That was his profit.
Derek: Could not do it myself
Dave: Here is another one: If you study races in California where they specialize in 5 and 6 horse fields, the races there come in two different shapes, basically. There are the races where there are 3 horses at 5-2 and below and races where there are 2 horses at 5-2 and below.
Those are the only 2 flavors they have. Here is the interesting thing.
In 5/6 horse fields when there are 3 horses below 3-1, if two low-priced horses come in, the exacta pays 40% more money!
It creates a scenario – in a 3-favorite race where you can toss one of them you will get back 40% more money. This is a solidly profitable scenario.
I cannot tell you how many times I have gone in with 6-5 and 8-5 and gotten back $14 or $16 exacta. Tie this back to what the other guy did and to where I know your spot plays are. They are counter intuitive and your spot plays are the same way, like the way you are segmenting the recent horses and the lack of recency and they have to have different factors and qualify differently.
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.