Transcript of the Gambler’s Ruin Problem Podcast, Part 4
Dave talks about the Gambler’s Ruin Problem, Part 4. It is a real equation for those who do not know. Not only is he recommending the book from which he first learned of the Gambler’s Ruin Problem but he’s sharing his experience and teaching on it!
The point is, that is where the juice comes from. The pleasure of playing comes from winning. I am not addressing the guy who says I want to be a professional player here. I am talking about a guy who is playing the game for the enjoyment of the game and is trying to get lucky.
I just thought of an analogy. It is how you define a win. Imagine this guy who is a three-handicap golfer and goes out on the course with a goal to count how many holes he birdies. He wants a good score and he is going to consistently shoot that seventy five, seventy six over 18 holes.
Perhaps he will shoot par, maybe even break par once in a while. That is very exciting for him, but most of the time he is going to be shooting in the mid-70s, which means that he is playing to his handicap.
I do not really understand golf handicaps, but i assume a three handicap means you are expecting to shoot a seventy five. Imagine that there are other ways to make the game pleasurable. For example, you can count how many birdies you have. On the other hand, if you had six birdies and shot ninety three, you would probably still not feel very good about it.
But for the handicapper, the analogy I am drawing is as follows: you went to the track with your $200 and you hit a $47 horse and came back with only $240. You are going to count that as a winning day, a successful day. The important thing to note is to connect up in reality whether or not you are really going to win in the long term. Do not delude yourself.
If you look at a session of, let us say, three hundred horse by horse bets, you should pretty much be able to beat the game. If you are not beating the game in that three hundred bet period, you are certainly going to go up and down.
I mean if you are getting demolished and you have to completely refill your account every single month in order to play then you may need a different strategy. Perhaps you need to improve your handicapping or your money management. The fact is that it probably does start with handicapping.
I cannot tell you how many guys I have known that have a negative expectancy in horse racing, but claim the only thing wrong with their game is that they do not bet well. My 26th anniversary (in this business) will be in April and I know this: if your approach works, it should produce profit.
I am going to end this here. I would expect to get both positive and negative feedback on this. I am a realist. I want people to understand that there is reality and we can pretend it is different, but reality is reality.
On the topic of improvement, this is a new year. I sent a newsletter out to everyone on my mailing list. In that newsletter, I mentioned that this is the New Year, a time when everyone makes New Years resolutions.
The question is, what are you going to do to improve things this year? Of course, you know where I am going to go first. I am going to say keep score because that gives you a benchmark. There has got to be some way, even if you are a casual player, to improve yourself. You have to know if something is working. You need a benchmark.
The logical benchmark is to take the dollars won divided by the dollars bet or something to that effect. You can also look at some of your largest bets. In other words, perhaps you are playing very poorly or very well on your large bets.
Are you taking a position in the right scenarios? Are there kinds of races you are just not doing very well at? I remember Dale and Marilyn, long time users of mine that decided to ruin it all by getting wealthy buying and selling homes.
They were a team and they played the races together. They used to play one by one by one pick threes in southern California and they were doing very well, to the point where they doubled their bankroll three or four times.
Then, all of a sudden, in the middle of the summer, June or July, they got cold and could not win a pick three. I looked at their betting record and it was very easy to see that they were not very good in races with first-time starters.
They had been doing so well for so many months and now, playing pick threes, the occasional race with the first time starter was ruining their bets. I remember now that they played two by two by two and their hit rate per race was like 53% 54% on the two horses. Whatever it was, I think they were hitting 11% of their pick threes. All of a sudden they dropped to 8.5% and it was because there was a kind of race that was beating them in pick threes.
In southern California, traditionally in those days, the fourth and sixth races were maiden races. During the summer, they would have a lot of first-time starters. Imagine that in those two races how many pick threes it would take you out of on the day.
For many of you, the above example could be one of the first places to look at the kinds of races you are winning and losing. This could be a very courageous move because I understand people who are making lots of deposits and very few withdrawals do not want to keep score.
You do not need to show the score to anyone. Just keep it and look at how, if you are losing money, just how fast it is happening. It’s equivalent to stopping the bleeding”. In fact, if you can slow down the flow of blood, you are improving.
I want to give you something that you can really use. One of the new features of our show is that every week I want to provide a handicapping angle for you to think about, something that might be able to help you in your game, information that is primarily aimed at the casual player.
When I give you these angles, I am not suggesting that you are going to take this little system and make a living with it. That is not within the realm of possibilities. In 1982, William L. Scott wrote a book called Investing at the Racetrack in which he introduced the concept of the double advantage horse.
This is from memory because I have not picked up the book in fifteen years. But, as I recall, he talked about looking at speed ratings. I think he wrote that if the last speed rating was higher than everyone else’s and the next to last was also higher, by I think two points or something like that, those horses were better by two lengths.
I want to introduce you to a slightly different kind of double advantage horse. Perhaps I should call it the triple advantage horse. Imagine that in each horse’s past performances you look at the best of last two speed ratings in sprint races and the best two of last three in route races.
The best of the last two means you look at speed ratings and you pick the better of those speed ratings in sprint races and in route races you look at the last three and you take the best two of those three and average them together. I am ignoring distance switches because all I am talking about is speed ratings.
I know someone will ask if it is okay to use the Beyer numbers. My answer is sure, why not? Can you use the BRIS numbers? Again why not?
Every horse in the race will get a speed rating, a number. If it is a sprint race, it will be a number derived from best of last two and if it is a route race, the result will come from best two of last three that has been turned into one number averaged from the three races taken together. The second thing I want you to do is take the average of the last three speed ratings.
Finally, you need to look at each horse’s best speed rating in the last ten races. You will end up with three speed ratings for each horse. What you will find in the first column is stats for best of last two races; then average of the best two of last three races in the second column; and finally, the best race ever in the third column.
You will find horses in column number three that have the best speed rating or are within one point of the best speed rating in the race for all the horses that qualify. You will also find horses that are within a point of those that do not qualify as being in the top two for either of the other two categories. In both cases, when these horses win, they pay a significant price.
Take a look at this and see if it does not intrigue you.
This concludes the Gambler’s Ruin Problem! Series – We hope you enjoyed the articles and the original podcast.