The Power of the Portfolio

Does a diverse “portfolio” of tipsters and systems really work?

In investing in general, it is a well understood principle that having a portfolio of investments helps spread your risk. Diversification means you “don’t have all your eggs in one basket”. But does it work when you are betting on sports/horses as your investment vehicle?

It can have great advantages – you are unlikely to be wiped out by one catastrophic event (losing run) and underperformers are theoretically counterbalanced by over performers.

On the other hand, some people argue that the portfolio approach means that any really spectacular winning investments are diluted by the investments that don’t perform quite as well. It’s very easy to look at your investments with hindsight and see that one investment grew in value by a factor of 10 and think “Now if only I’d had all my money in that!” (or on that particular tipster in our case)

Naturally, if we could tell with accuracy in advance what our spectacular winners were going to be we’d all be sailing around the Caribbean in a yacht made of gold enjoying all the good things that limitless funds could provide us with.  Under those circumstances we would have no need (or desire) to take a portfolio approach to our betting.

Unfortunately, there is nobody who can tell us with unerring accuracy what will win every time, so for those of us who wish to reduce our risk to an acceptable level, the portfolio approach works very well.

As an example of just how well it can work, I’ll recount the story of a close friend and betting colleague of mine who has had a portfolio of tipsters for a few years now. I’m afraid I can’t reveal his real name because his better half is not aware of the full extent of his betting and I would hate to be the one to expose him. Let’s just call him The Number Cruncher.

The Number Cruncher is a man in his late 40’s who came quite late to betting – only really getting the bug about 5 years ago. He is lucky enough to be self-employed, working from home and therefore able to quite actively manage his extensive portfolio of tipsters and systems.  He does pick some of his own bets but the vast majority of his bets are derived from his portfolio.

He started out with a bank of about £2000 and was massively over-leveraged for the first couple of years – having only about a tenth of the required banks to run the portfolio. So highly leveraged in fact that he was very  lucky not to have gone bust at some point in those first two years. In this instance however, fortune favoured the brave (would that it always did!) and he survived and managed to grow his bank to an acceptable level to allow him to start drawing down profits. He’s still leveraged but at an acceptable level for a diversified portfolio.

The active management of his portfolio is carried out in the following way:

He is brutal in his culls of under- performing  services .  A system/tipster returning 3 poor months on the bounce will see an immediate massive cut in staking levels or removal from the portfolio altogether.  It is irrelevant to him whether he still has a long subscription for that particular product outstanding. He will monitor for the remaining subscription and then let the subscription lapse if there is no upturn.  (This is something I have always struggled with – I felt that if I had paid for a service, I should be using it. The Number Cruncher’s  approach has taught me to be far more decisive in giving up on poorly performing services and writing off the subscription cost)

Conversely, when a service/system is performing well he is exceptionally aggressive in the way he increases his staking. He does this by constant analysis of a tipsters strong and weak points and applying appropriate adjustments to staking. For example, once he has a reasonable amount of back data to work with, he will carry out a detailed analysis of performance in a wide ranging set of criteria. This allows him to stake much more heavily in those areas where a tipster/system has a bigger edge. (you would be AMAZED just how many tipsters/services out there don’t carry out their own analyses like this and adjust their advice to subscribers – as an example, The Number Cruncher discovered that a particular tipster produced 90% of his profits on horses in the price range 2/1 to 5/1. It appears that the tipster themselves had no idea of this because those bets made up only about 20% of the total tips they give out.) This discovery alone allowed him to turn what was a poorly performing service into a really profitable one, increasing the ROI many times over.

The Number cruncher’s portfolio comprises anything between 8 and 25 tipsters/services/systems on a month to month basis, depending on the time of year, which services are performing well and a variety of other factors.

Taking his entire portfolio into account The Number Cruncher turns over around £1,000,000 per annum with a £20,000 bank, utilising an average of 15% of his total capital daily.

To cut a long story short, this approach REALLY works, at least for him. I spoke to him while writing this to determine just how well. He informed me that he has produced profits, in the last 12 months, of just over £44,000 and that has been true going back over a rolling 12 months for some time now.

Now that’s a pretty amazing return on capital by any measure and is a handsome salary on its own (I’m guessing it equates to a pre-tax salary of £65k?) Yet I would estimate that The Number Cruncher spends only an average of 15-20 hours a week placing bets and managing his portfolio.

Not to be sneezed at. I’m guessing that’s equivalent pro rata to the salary of a GP or other qualified professional. All for piggybacking other people’s expertise in making betting selections and applying his own expertise with the numbers.

Food for thought, I hope. I’d love to read some comments on readers experiences of the portfolio approach.

That’s all from me today. I’ll be back later in the week with more thoughts.

 

Have a great one

 

Kieran

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12 comments

  1. Very interesting Kieran, and I totally agree. A portfolio is the ‘only’ way to consistently make money from betting if you don’t have good methods of your own.

    Matt

     
  2. I’m currently testing a portfolio of nh and aw systems – 30 in all. My problem is that sometimes I get multiple selections in the same race. I know that there are two solutions – dutch or ignore that race. BUT its difficult to predict profitability using a database like the HRB one. Obviously I can keep records but it will be quite a while before I can decide whether to dutch or ignore. Any thoughts?

     
    1. Hi Mike

      It is a thorny problem when methods you are following throw up different selections in the same race.Sometimes I’ve backed them both but not dutched them to win the same amount – simply backed them both to the stakes specified by my bank. If they both have long term profitability, it will work out in the end. I’ve also just gone for one of them depending on the level of faith I have in each method. There are methods of assessing the likely ongoing profitability of a system/tipster and I’m hoping to cover them in a future post.

      All the best

      Kieran

       
  3. Fair comment Keiran but how many systems make a portfolio? All Ireally want is one backing and one Laying system how do I find them and from who?

     
    1. Hi Terry

      Thanks for your comment. I guess it depends on what you are comfortable with but certainly the greater the number of methods in your portfolio, the greater the diversification. Theoretically the more diverse your portfolio is, the more your level of risk is reduced. Which ones to use is a good question. In a future post I hope to cover the sort of questions you should be asking before buying any system/subscribing to any tipster. It will also depend on your own particular betting style. There are many, many ways of getting an edge over the bookmaker – the real art to it is finding the ones that work for you and suit your style.

      All the best

      Kieran

       
  4. Very interesting I only start betting last year had 2500 had one system then 2 then 3 didn’t have the bank to back it up so was left with 200 so the number cruncher got lucky but fair play I now have turned my 200 into 1100 with small stakes plus using bonus bagging got 3 systems now goin well. but keep adding systems and I think I’m gonna have to cut back on the systems cause u do need a proper bank barring the odd lucky person. Like ur evening value system I don’t have the bank to go with it and typical u get a 20-1 fair play. But I no u r good mayb I should b like the number cruncher and just go for it but been stung b4 by not having a proper bank, its tempting we will c wot do u think. How did u pick compton bird? Nice one wish I was on it even a £5 ah well cheers robbie

     
    1. Hi Robbie

      It’s true that the Number Cruncher did get very lucky early on when he was so highly leveraged and it is something I would never advise doing.
      That being said, I know very few successful gamblers who haven’t busted their bank several times before they get it right. I know I did.
      Slow and steady is the way to go. It is amazing how quickly a bank can grow if you keep adding tiny amounts.
      Good luck with it.

      Kieran

       
  5. to matt
    i belivue you are right over the years i have spent thousands of hard earn money on usless tipsters and systems i should have more faith in my own judgements im currentley backing 3 horses on saturday only one from each paper star sun mirror doing ok winners 7 winners 23 losers sp from 7/4 upto 20/1 also paper trading only another one about 12 bets a week since 16oct 51 points up my start 1st of dec.or 1st of jan 12 if it
    keeps going ok
    regards ron.g

     
  6. I have definitely noticed an improvement since I started betting on more than 1 source. I also believe it is important to keep detailed records and in time I hope to be able to analyse the date with a view to improving profitability. When you receive more than one selection in a race, then obviously they can’t both win, so I would probably dutch them. I enter the day’s results into a separate spreadsheets for each system and the profits or losses from each system are recorded on a general spreadsheet so that I can see how all my various sources are doing at a glance.

     
  7. Nice article Kieran,
    Its worth nothing though that many “brave” people will go bust, and that the 3 month thing, and aggressive upping of staking are maybe not things the newbie should be doing. Your guy is clearly someone who knows his numbers, and is very careful with his selection of tipsters and management of betting accounts.
    I also find it helps to keep a record of all the “culled” services. You can then look back and hopefully learn from any mistakes you made.

     
    1. Hi Paul

      Thanks for your comment.
      I agree entirely and the approach The Number Cruncher took initially is fraught with danger and is an approach I would never advise!
      I realise it is a bit brutal to cull a service after only 3 months and I was probably a bit disingenuous when I gave such a fixed time scale. He will take a view when he feels that the service has taken a significant downturn and this will obviously depend on the number of selections given. It just happens that 3 months is the general length of time he views as significant.
      he will then follow the tipster on paper of with severely reduced stakes until such time as he is sure of his conclusions (or changes his conclusion!)

      All the best

      Kieran

       

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