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