Compound
Gambling Staking Plan
So if I was able to give
you a $100 starting bank and send you off for the day to the races
would you be able to win ONE dollar?
Bear in mind that would be a losing proposition
on both our parts for a couple of reasons. It would probably cost
you $10 in transport costs, $8.00 in the gate, $10 for high priced
over rated and generally over cooked food, $7 for two cups of coffee
- so it would be a losing proposition, wouldn't it?. You'd be seeking
to make 1% profit ($1) and incurring 35% ($35) fixed costs so it wouldn't
make much sense would it? Duh - I wonder why so many people don't
go to the races these days?
So say you stay in the warmth and comfort
of your own home, could you sit at your computer betting online and
make me one dollar if I staked you $100?
I'd be amazed if any of you reading this
said no. Pffff - a dollar? Of course I could. Why ask stupid questions?
Because asking stupid questions often leads to discovering sensible
answers.
So working on the premise that you can
win me a dollar, let's look at all this slightly differently. Let's
forget the term dollar and substitute one percent - because that's
what it is - and let's accept that the reason you think you can do
that standing on your head is because it is such a miserable return.
Now the reason it IS such a miserable
interest rate return is because the perceived risk
in your mind is so low.
So hold that thought in your mind and
let's just jump sideways and think about compound interest. It's something
that Albert Einstein once described as the "eighth wonder of
the world". Here's a simple example of how it works:
If, in 1498, the King of England
had put ONE cent in an interest bearing account in the Bank Of England
that paid 6% a year interest and forgot about it and LEFT IT THERE,
that account today would be in credit to amount of $95,919,936,112
- that's over 95 billion dollars after 513 years.
Wow. Now it wouldn't make any difference
to King Edward IV who is long since gone but you can bet the current
Buckingham Palace mob would be eternally grateful. So there's the
answer - slip on down to Westpac today, stick one cent in a 6% interest
bearing account, make sure the tax office don't discover it and sit
back and wait. In the year 2523 you'll be rich. Oh - I see the problem!
You're going to be dead. So will I. The passing of time is the absolute
villain. We don't have that much time so we need to make some shortcuts
to enjoy the money ourselves.
The
Power of Rule 72
If all this is
getting a little far out for you as far as horse racing and punting
to win a dollar or two is concerned, please stick with it because
it will eventually make sense and the light will shine!
Rule
72 simply is this: If you divide 72 by the interest rate, it will
tell you how long it takes for your money to double.
For example -
if you win one per cent of your hopefully increasing bank every day,
and then stop, it will take you 72 days to double your bank. If you
are trying to win 2% of your bank every day before stopping, it will
take you 36 days to double your bank. Here's the table that tells
the tale:
%
Target |
Days
to Double Bank |
1% |
72
days |
2% |
36
days |
| 3% |
24
days |
4% |
18
days |
5% |
14
days |
6% |
12
days |
7% |
10
days |
8% |
9
days |
9% |
8
days |
10% |
7
days |
12% |
6
days |
15% |
5
days (approx) |
Let's stop there
because anything else is way too unrealistic and living in fantasy
land. Bear in mind that the Rule of 72 is just a guideline. Clearly,
in the real world of gambling on horse racing you’ll almost
never have a constant interest rate return because of pesky things
like minimum bets etc etc. but we are in the land of hypothetical
here so stick with it......
So say you'd
been doing this successfully since January 1 this year. It was your
New Year's resolution to be in control and moving forward financially
and you realistically set yourself the 1% a day target
(and stopping when achieved) where would your $100 be today? (I
am writing this on October 8 - 280 days into your betting expedition).
Your mythical
$100 would now be $1605.70
Bear in mind,
this is with that fixed target of just 1% - you know, the 1% target
you scoffed at after reading the first sentence of this article. Remember
that one?
If you'd had $1000
as a starting bank you'd be up to over $16000 or about $1666 a month
better off than when you started the year. So why aren't you doing
it? Ah - I see. Is it because you realise you would have to put the
money there and LEAVE it there to accumulate and that's a problem?
If that's the case I have NO solution for you because there is NO
OTHER solution.
If you think this
too slow and boring ask yourself this: how long does it "seem"
since New Years Day this year? If you are getting on in years like
me, it seems like about two weeks.
Naturally, as
you can see from the table above, the more risk you are prepared to
accept, the shorter the time you have to invest for so what is the
maximum risk you are happy to accept?
From our "stating
the bleeding obvious department": As you will by NECESSITY be
adopting an increasing staking approach to cover past losses to achieve
that % target, you have to have some idea of what the average winner's
price will be BEFORE you start or the progressions will get too big
before you achieve the % return goal so it goes without saying that
the lower % risk the better.
This is
important to understand: the lower the % target risk the better and
the more chance of long term success.
So being a punter
too, let me read your mind at this point. You're thinking "well
this is all very well and good but how boring would it be at the start
of the progression winning just 1% of what I have got to put in to
it?"
Yes, you're right.
Go back to what you've been doing for the last x number of years.
Continue on. Enjoy the journey. What's that? You've been mostly losing
for the last x number of years apart from a few really good wins?
Oh. I see.
So let's again
go hypothetical. What if instead of "days" we use the term
"winners"? So using a 1% return rate (because it is sensible
and mostly achievable) we don't stop after winning 1% each
winner and just continue on on a rolling basis where there is never
a day or a last race but a continuing offering of choice on a never
ending conveyer belt of bets.
Your target resets
to 1% after each winner. Your bank should double every 72 winning
bets (straight out or place) or increase 16 fold every 280 winning
bets. This all depends of course on your capacity to select winners
on a reasonably frequent basis so that the progression doesn't get
too big and you can bet race to race to compensate for previous losing
amounts on non winners.
Here are some
more hypothetical figures concerning that mythical $100 bank: (at
a 1% target)
After 280 winning
bets: 1605.70
After 300 winning bets: 1959.25
After 325 winning bets: 2512.61
After 350 winning bets: 3222.25
After 375 winning bets: 4132.32
After 400 winning bets: 5299.42
After 425 winning bets: 6796.14
After 450 winning bets: 8715.59
After 475 winning bets: 11177.15
After 500 winning bets: 14333.94
Compound gambling
can be very rewarding. With a lack of discipline and self control
it is also extremely risky. The higher your % interest target, the
higher the risk on an exponentially frightening (and potentially financially
disastrous) basis. If you are in a hurry to "win big", good
luck. You'll need it.
Naturally if your
target was one half of one percent, your return would be halved BUT
your inevitable progression staking escalation would seem infinitesimally
small and not so psychologically damaging to your belief in your selection
methodology. At 2% target the amounts in the progression chain will
seem to start rising steeply after a relatively short period
of time.....which is why our target % varies between 0.1 and 0.33%
It all comes down
to time. As does everything in life I guess. But be very aware of
this. You HAVE to leave the bank in place for a seemingly long period
of time to achieve anything worthwhile so make sure your starting
bank isn't needed for anything else and you can comfortably afford
to lose the lot - as that may happen as well!
I don't believe
you can do it once your target rate exceeds 5% - the progressions
simply get too big to comfortably handle both in fiscal and psychological
terms.
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