Saturday was not a great day. The day was filled with both bad beats and bad capping, and we apologize to anyone we led astray this past Saturday. We went 4-21 lost 36.3 units, giving back everything we earned over the first few weeks of the college football season. Our only comfort was we didn't make stupid mistakes. We didn't chase. We didn't increase our bet size. We didn't try to bail ourselves out. You do this long enough and days like Saturday happen. A day like Saturday is a great reminder of the importance of understanding variance and proper bankroll management. Without the latter, we probably wouldn't be able to wager after last weekend.
Variance:
Negative variance is the cruel reminder as to why we never can get too overconfident during a hot streak. We don't want to get to overly statistical, but we're likely to bet over 2,000 units in a year. Some days are good, some days are bad, some days are horrible, and some days are unbelievable. The idea is to win enough to provide ourselves an adequate return. Most people who do this for a living play games where you have to lay 11 to win 10, and are winning 55-60% of their wagers over a long period of time. The key being a long period of time. If anyone says they're hitting over 60% they're a) lying or b) did so over a statistically insignificant number of wagers. The point in variance is that you sometimes have big highs and sometimes you have deep lows, you can't look at it in a vacuum. The real key is not letting the short-term (i.e. Saturday) influence the long-term. It is a marathon, not a sprint. So when we say we didn't make any huge mistakes, it’s because despite the bad results, we used or same approach which we have confidence in, but at the same time are willing to slightly adjust as the market does. As miserable as bad variance can be, or as high as you can get during a good run, the key is to maintain the same focus and approach and make sure you have the bankroll to support it.
Bankroll Management:
First, one must determine how large a bankroll is necessary for the wagers you are going to make. Determine a bankroll you're comfortable with, then determine how much you’re willing to wager as a unit, AND DON'T STRAY FROM IT. If you want to increase your units based on the confidence you have in a position, that makes sense. Constantly varying how much your unit is (and the greater you vary it) the more you expose yourself to ruin. There is a great principle known as the Kelly Criterioni, which is a great guide to how much of your bankroll you should wager. There's even a convenient calculator. Our only issue is often people over estimate their statistical advantage. Some people use a Fractional Kelly Criterion (i.e. 25% of the output it produces, 50%, etc.). There are other similar ideologies out there, but this is a good basis.
If you're looking to protect a bankroll, your unit size should be 1%-2% of your bankroll. This would allow you to lose 50-100 units over a short-term period and still stay above water. It sounds crazy, but it happens. Black swans (insert links) exist. You likely shouldn't ever go above 5% of your bankroll on one single wager. This goes back to what we were talking about earlier, when we said we didn't chase. Often this can be one of the biggest mistakes bettors make. You have a bad weekend and try to earn it back on Monday Night Football. It may work now and again, but putting that much risk out there on one game is never a good idea. The only way we could recommend betting a larger amount of your bankroll is if it is something that is of disposable income, that you don't mind replenishing. For instance say your bankroll is $1,000. We recommend betting $10, $20 per unit. However, say you're willing to replenish that $1,000 as part of your disposable income each month. Then being more aggressive and using 7%-10% of your bankroll makes sense, as you have other income and ways to replenish your bankroll.
When would you vary your unit size you may ask? Some people look at it on a week by week or month by month basis. Since all of our models are tested on a seasonal basis, making a position in Week 6 the same value as one in Week 17, we tend to look at our bankroll at the end of each season. For instance we determined our unit size going into this football season as MLB wrapped up. We'll likely do this again in mid-late December as we go full force into College Basketball.
We hope that helps explain how to survive a horrible day. The bottom line is variance happens. We won't lie, it blows. It’s pretty miserable. The key is to remember it’s a marathon, not a sprint. Keep your proper approach and bankroll management and you'll be able to take advantage of the upswing as everything regresses to the mean.
Rather than our college football leans, we'll give out a few of our 2 ★ positions in the NFL this week. We put some of these out when we joined @BurningRiverSports on his radio show.
Carolina +4
Minnesota +3
Baltimore -7.5 (although we're waiting to submit int he hopes it gets down to 7).
New Orleans -4.5 (a move to 5, doesn't hurt we'll be watching this one as well).
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