The Wondrous Beauty of Compounding

Just a short post today, dear readers, but an important one I hope.

I got to thinking yesterday about the power of compounding and it’s application to our staking.

If the strike rate of a method is high enough to allow it, I’m a big fan of percentage staking plans as a means of leveraging returns.

My thoughts turned to this now in particular because of a results analysis I’ve been carrying out.

I won’t mention names or methods (mainly because I think you will be hearing all about this person in the fairly near future) but a betting colleague of mine has been sending me his selections since August of last year (they are exceptionally good by the way) and I was sitting down working out how returns could have been increased during that time.

The method has produced nearly 400 points profit in that time to level stakes at Betfair SP – pretty staggering by any measure but I thought things could be improved with a percentage staking plan.

It’s a really high strike rate method (60%+ over a lot of bets) so is ideal for a fairly aggressive percentage staking plan.

I started with a theoretical £500 bank and ran both 2% staking and 5% staking to see how they performed respectively. The staking was adjusted on a daily basis rather than from selection to selection.

The 2% staking plan was incredibly successful growing the £500 bank to £642,000 in just under 6 months. Now clearly these figures are hypothetical and this wouldn’t happen in the real world for a variety of factors (getting on with those size of bets not being the least of them)

The 5% staking was a revelation – at the end of the period the £500 bank had become….wait for it…..wait for it……£1.7 billion.

Again, these figures are hypothetical and could not be reproduced in the real world (though, using the selections and a percentage staking plan initially, would allow you to grow a small bank to one large enough to provide a full time income in a very short time).

The point I’m trying to make here is the difference between those 2 figures.

2% staking produces £642,000

5% staking produces £1.7 billion

That’s using the same selections, the same starting bank and the same period of time.

Now that’s a pretty big difference and demonstrates the potential for exponential growth when using a percentage staking plan – and getting the percentage right!

The 5% staking plan has some serious drawbacks to go along with it’s undoubted superiority in accelerating your profits. There was a 3 day period during the 6 months which would have seen your bank drop by 50% of its value – which would have been pretty unpleasant. The 2% bank only ever dropped by a maximum of 20%.

Now I don’t know about you but I would be pretty uncomfortable with losing 50% of a bank in 3 days (particularly as it could easily happen near the start of the process and probably damage your faith in the method beyond repair!) and that would indicate to me that 5% was a little too aggressive.

Losing 20% of the bank in 3 days would be easier to manage psychologically – perhaps a little too easy. For me that would indicate that maybe it’s not aggressive enough  – and therefore not realising the full potential of the selections.

I’m tempted to conclude that 3% staking would be the way to go. That gives you a 33 point bank at the start of each day and the biggest single day loss has been 8 points – that seems to strike a nice balance between aggressively leveraging profits and protecting your bank – but I would love to hear readers opinions of this as an idea. I recognise that my appetite for risk is on the higher end of the spectrum!

I’ll be producing a 2nd half to this post in the next couple of days which will help you identify the circumstances under which it’s possible/advisable to use a percentage staking plan and then how to identify the best percentage to use.

In the meantime, be lucky!

Kieran

 

 

 

 

 

 

25 comments

  1. Interesting article. Of course we’d like access to the tips firstly. 400 points in 6 month is amazingly good.
    I think a 20% drawdown is hefty enough for me, but as you say it’s down to the individual’s appetite for risk.
    I presume your 20% assumes you recalculate the amount per point at the start of each day.

    1. Hi Andrew

      Thanks for your comment

      The performance of these selections has been exceptional I have to say – one of the best performances I have ever seen. They have nothing to do with me but I’m pretty sure the originator of these will be launching them as a service in the near – ish future.

      Best

      Kieran

      Yopu are correct in your assumption that the 2% is re- calcuated at the start of every day

  2. Hi Kieran,
    Too right your appetite for risk is at the higher end of the spectrum.
    You don’t say if it is backing or laying selections. 60% Strike Rate seems too high for most backing systems and also too low for most laying systems. So it is certainly in a niche. You don’t say how many selections there are per day, but with a max daily loss of 8 points (in the 6 month period) I will assume an average of 8 – so lets say 1000 selections in total.
    A 60% strike rate means it has a 40% loss rate. Just looking at expected catastrophic consecutive losing sequences for 10 such periods (i.e. 10,000) bets you get a maximum expected consecutive loss sequence of 10. As a rule of thumb I anticipate a max drawdown withint that period to be twice as big – so at 2% of bank per stake, I am looking at a 40% drawdown.
    At 3% YOU would be looking at a 60% drawdown – too big for me to sleep well.
    But of course you would hope to have hit the limit as to how much it was possible get on at the bookies/betfair before then.

    We are all different Take care – I mean it!
    Ian

    1. Hi Ian

      Thanks for your comment.

      I don’t think the originator will mind if I reveal that these are place selections. I agree entirely with your assessment – my appetite for risk is fairly high because I like to see my money being worked to it’s fullest possible extent. When operating on percentage staking, I tend to draw down half my bank at regular intervals and put the money to work on other methods/systems/tipsters to spread my risk further. Occasionally this has back fired on me and I have seen a bank decimated – but it is more bearable when you know you have already drawn down on several occasions!

      Very perceptive comment, thank you

      Kieran

  3. I am looking forward to seeing what the product is when it comes to the market. I too would feel that 20% would be plenty enough to lose in the time frame. As Andrew has stated its up to the individual. Looking forward to part 2!

    1. Hi Alex

      Thanks for your comment.

      The product is not mine but I’m pretty sure the originator will be releasing it as some kind of service in the coming months – and I for one am pretty excited about it!

      All the best

      Kieran

  4. Hi Kieran,
    I have an automatic 3% staking calculator provided to me by Chris Castell who advocates the same you. You can change to what ever percentage you prefer but like you, he has come to the same conclusion and has done very nicely over about 6 to 8 years.

    Thing is, he advocates Laying and laying is just not my thing but of course he has set his calculator up for Backing too. He advices a 200 point start bank so 7. is the first bet and that is my quirk ! Laying a horse at 2/1 @7 and a losing run of 8 that is more than 50% of the Bank. So that is Why Laying is not for me.
    But a Back bet @ 2/1 and 8 loses is only 28.% that is why I prefer to Back. Yes in the real world 8 x 2/1 in a row, is unlikely but his longest losing run is 8, so I use that as an example. It you want the calculator, which keeps a running total and automatically adjusts to your next stake based on running balance then of course.. you have to sign up to his members area. I am happy to send his link if anyone want’s it. I think the Calculator is worth the joining fee and you have it for life.

    1. Hi Liam

      The staking calculator sounds an interesting tool – I’ll have a look over at Chris’s site

      Many thanks

      Kieran

  5. Interesting stuff Kieran.
    How about getting to a point where you have doubled your initial start bank (in this case, you would be at £1,000), then withdrawing the initial start bank to leave you back where you started (i.e. take out £500 to leave you with £500 again). From that point on, you are then just using pure profit as your bank, so you will not have suffered any long term loss & you can with draw as you wish. Of course, you could adapt that strategy to suit your wishes (e.g. wait for initial bank to reach, say, £1,250, withdraw £750 for a guaranteed overall return of 25% minimum).

    1. Hi Pete

      Definitely a good idea to withdraw your starting bank – it might impact slightly on overall growth but it feels a lot more comfortable when you know you can’t actually lose any of your original investment.

      Best

      Kieran

  6. This sounds great.

    I would be inclined to say 20% is enough draw down for me to.

    Also I would look to draw out the cost of the service even if I delayed it 3
    months, then I would be looking to draw out my original start bank
    gradually meaning I would be in for nothing.

    Yes that would hit compounding badly but is safer.

    Remember a profit is only a profit when you actually cash it out and
    spend it (As I know only too well).

    regards,

    Alex

    1. Hi Alex

      I agree. Drawing down of service costs and initial bank is always something I would advise. At least then at that point you can no longer lose money on the exercise! Interestingly with this set of results you could have drawn down the original bank after a week or so.

      Thanks for your comment

      Kieran

  7. Hi
    That was agood read. I normally stake 3% of my bank to start off with and as the bank grows I then reduce 2.9%, 2.8%, 2.7% etc untill I get down to 1% then I stick to It and then take out some profits if all is going well. Another thing that I do as well is if the bank drops down to 50% I then place mythical ammounts untill it goes over 50% and then place real bets again. I call it my insurance and if it goes tits up I still have half my original bank.

    1. Hi Bryn

      Thanks for your comment. That’s a very interesting twist on the percentage staking plan. Reducing your risk as you go along is a clever idea allowing faster growth at the start.

      Best,

      Kieran

  8. i have been using 10% compounding but with a twist, dutching each bet but with a lay at double the place bet so if no winning bet you get your money back………….turned on paper £100 into £2500 in 6 weeks………….can be done if you hold your nerve and be careful on your selection………..as a matter of interest it averaged out at on winning bets at 3.5 and lay bets that won at 3.75 i can supply full info if required

  9. Kieran,

    Sounds really good and if you’ve been trialling it already I’d be happy to take your word that it works. Obviously I’d like to see the results to check the average odds and work out losing runs etc myself too.
    2% on a ratchet, compounding staking plan that gets the sort of returns you have listed above is more than enough for me so depending on your attitude to risk, I’d say even 1% would give you a great return…it might take a little longer but the risk would be dramatically reduced. I’ll make that call when I see the results though.

    BTW, very close so far with Focail Maith, Sir Geoffrey & Divinsky!

    1. Hi Eamon

      Thanks for your comment.

      The selections have been provided by a colleague who most likely be launching them as a service in the next month or so. Watch this space because I’m hoping to be helping promote the service!
      Ratcheting is something I will be touching on in a future post and it is a wondeful tool.

      Great pity about the horses you mentioned and Pharoh Jake as well – beaten less than a length at 16/1 … ahh c’est la vie sometimes I suppose!

      Best

      Kieran

  10. i think that on those results, a 1% target would be enough,i.e.–only 10% of bank down over 3 days, and suspect it would be something that most of us could cope with more easily. Regards, John.

  11. Staking 1% of your bank is a very low %. If the average backer started with £100 bank then each bet to start with would be £1. It would take quite a while to double your bank. You would have to have 20 x 5/1 winners, with no losers. That would take some doing unless you adjusted your stake after each bet or each day. Even then, taking losers into account, it would not be easy.

    Betting with a % of your bank is a good idea but it depends on the starting prices of your bets. If you are backing favourites at 1% of your bank it would take forever to double it, taking into account the losers. So it depends on the selection system. If the system gives good priced winners then 1% is okay, but if it gives low priced winners then I would say stake at least 5% of your bank.

  12. Hi Stuart.
    I can see where you are coming from with 1% stakes. Like you said that if you start with £100, 1% would be £1. But if you started with £300 then 1% would be £3 just the same as staking 3% of a £100 bank but you would be betting well within your comfort zone.
    The other part of staking you stated that you would stake at least 5%. I think that would be reckless. Have a look at “the staking machine” and input these selections into their calculator OUCH.

  13. Hi Bryn

    I think you’re right about the 5% staking. I, personally, wouldn’t be happy at that level and think 2-3% is sufficient.

    Interesting you said input these selections. Have you seen them or are you just using Kieran’s figures on losing/winning runs etc?

    David

  14. Hi Kieran,

    fascinating stuff and, judging by the number and level of knowledge of the comments, well received!

    What I find most amazing is that increasing your risk by two and a half fold brings a two thousand-fold increased reward! Amazing.

    John

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