The Wondrous Beauty of Compounding Part 2

My sincere apologies for taking so long to re- appear with Part 2 of this post. I’ve been battling manfully with what I was convinced was double pneumonia but Mrs MYBP assures me was man flu.  It was touch and go for a while but I’ve got through the worst of it and am returning to some kind of form.

As a result I haven’t felt like doing much of anything let alone turning my mind to the myriad mysteries of staking. I’ve mostly been a level stakes man throughout my betting career and make no claims to expert status in the field of leveraging your bank for greater profits - though as the title of this post indicates, I do recognise the incredible power of compounding.

That being said, I’ll give you my ideas. Part 1 drew some thought provoking comments from a number of readers and I’m hoping that this will do the same.

Having established that the percentage used in a percentage staking plan can have an enormous effect on profits made in the long term, how can we make an informed decision on the exact percentage to choose?

We need to strike the right balance between leveraging our profits and protecting the integrity of our bank.

My usual starting point when carrying out this kind of analysis would be to calculate the longest expected losing run over 1000 bets. There is a formula for calculating this (mail me if you're interested) but I tend to use a table which makes life a lot easier. I’ve reproduced the table below (it’s accurate enough for our purposes)

Strike rate Percentage                                   Max Likely Losing Run Per 1000 bets

5%                                                                                          135

10%                                                                                        66

15%                                                                                        43

20%                                                                                        31

25%                                                                                        24

30%                                                                                        19

35%                                                                                        16

40%                                                                                        14

45%                                                                                        12

50%                                                                                        10

55%                                                                                        9

60%                                                                                        8

65%                                                                                        7

70%                                                                                        6

75%                                                                                        5

80%                                                                                        4

85%                                                                                        4

90%                                                                                        3

95%                                                                                        2

 

The important thing to remember here is that the larger the number of bets you look at, the longer the likely losing run will be. As an example with a 15% strike rate looked at over 1000 bets you are likely to hit a maximum losing run of 43 bets. However, if you were to have 10,000 bets with a similar strike rate, at some point you are likely to hit a losing run of 57 bets. That being the case, it’s useful to have a reasonable idea of the number of bets your selection method is going to throw up over a period of time. If you are looking at a method that throws up 300 bets a year then calculating your longest likely losing run over 1000 bets is ample. If you are looking at a method that throws up 10,000 bets a year, you need to dig a bit deeper than that.

Let’s assume the method we are analysing has 1000 bets a year with a strike rate of 60%. We can see from the table that we are likely to hit 8 consecutive losers at some point during year 1.

You can see that if we were to choose a 10% staking plan on such a method, we are almost certain to hit trouble and quite possibly decimate our bank at some point.

We therefore need our bank to be several times the size of our longest likely losing run - it is well within the realms of statistical possibility that we could get 2 such runs in quick succession!

For safety, I would say it is best to work with your bank broken down into a number of points that equates to 5 times your longest likely losing sequence.

Returning to the method I mentioned in Part 1 (that had a 60% strike rate) we are likely to hit a losing sequence of 8 bets in our first 1000 bets. Using the 5 times rule would give us a bank of 40 points and therefore a staking percentage (for our percentage staking plan) of 2.5%.

This would give us an anticipated maximum drawdown of 50% if were to hit a couple of consecutive maximum losing runs. Bearable for me – I’ve already indicated I would likely plump for 3% staking with this method - but probably a little on the savage side for a most people!

Conclusion – a safe percentage staking plan, for the majority of punters operating a 60% strike rate method, is 2%!

Long winded but we got there!

There are some interesting variations on the percentage staking plan which I will cover at some time in the future. These include adding a ratchet – as famously used by “Maria” to turn £3000 into £100,000 in under a year using a laying method with a strike rate of 85%. (I had hoped to include a link here to the famous EBA thread where she did it – but the thread seems to have disappeared!)

I’ll be back on Friday with more news.

Be lucky

Kieran

PS Somersby looks a bit big to me at 6/1 for the Victor Chandler on Saturday.  Looks nailed on for at least a place!