Money Management

There are many different schools of thought regarding how best to spend your money at the track. Many of these are in direct contradiction of each other. I will help you to keep the best of these methods of dealing with your money as simple as possible and highlight the ones that I think work best.

The creation of a bankroll should be your first priority. This is a sum of money that is intended solely for use at the races. It should not consist of money you need for your mortgage or car loan. It should be money used only for wagering. Set it aside and keep track of it for your betting records.

How much to set aside is an often debated topic. Of course the answer to this depends on your situation, but you should revolve your bankroll size around the size of the bets you wish to make. If you are a $2 bettor, your bankroll is going to be smaller than a $100 bettor’s. Think of your bets in unit sizes. If your minimum bet is going to be $2, then create a bankroll so that each unit you will be betting consists of $2. A general rule of thumb is that a bankroll of 500 to 1,000 units is satisfactory for the average horse bettor.

Successful Betting Strategies

The Kelly Criterion is a popular betting method that many professional bettors and investors use. For large bankrolls, the Kelly Criterion works very well. The average bettor can predict winners 30 percent of the time. With this in mind, look at the following ten race card. For the purpose of simplicity, I have rounded down all dollar amounts.

As you can see, even with a devastating first wager, the Kelly Criterion allows us to partially recover after the horror of the first seven races. Although we have still lost money, the Kelly Criterion allows us to staunch the bleeding by reducing bet sizes as our bankroll and the odds become smaller.

There are some downfalls to the Kelly Criterion, though. If you do not have a large bankroll, the risk of ruin is very high. This is why there is usually a minimum wager that is mandated at the track. If the same scenario occurred with a $100 bankroll, by race 5, the bettor would be forced out and would not be allowed to bet since $1.30 is not an acceptable bet. Even for the best handicappers, it is not uncommon to go four winless races.

Therefore one of two things needs to happen:

• Do not gamble until you have a larger bankroll
• Find a new betting method

The first option is fairly self-explanatory. If you don’t have enough money, don’t bet. But for those who want to maximize their winnings without taking out a second mortgage, there is still hope. The Fractional Kelly Criterion works well also. As a general rule of thumb, it is always better to under-bet than it is to over-bet. Over-betting increases your risk of ruin dramatically. With the above chart in mind, assume that we had bet more than 4 percent of our bankroll on race five. Instead of $13, we had bet $100. Even with the gains from the last three races, we would have dug ourselves into a hole that would have been very difficult to get out of.

Rather than increasing our risk of ruin by over-betting, the Fractional Kelly Criterion decreases the odds of this catastrophe. One logical argument for this is that we don’t truly know the odds of one horse to win over another. True, the betting public has their notions, but they are only correct 30 percent of the time. Betting the correct amount only 30 percent of the time is not good enough if we are risking large amounts.

The Kelly Criterion only works over a large number of samples. It is not uncommon for a handicapper to go an entire day or even two without a win. If this were the case, the risk of ruin for a small bankroll would be astronomical. Again, it is better to err on the side of caution, hence the fractional strategy. Just how much to bet is up to the bettor, but a good strategy involves returning to the unit structure. Instead of betting an odd amount, like $13 on race five, round down to your nearest unit. If you are using $5 units, this would become a $10 wager.

Money management is a difficult task; I have tried to simplify it as much as possible. The methods explained in this section are some of the more prosperous systems. Our next lesson will focus on the methods that are not so profitable over the long run.