Monday, June 4, 2012

If you were to bet the farm on Apple's iPhone 5 and its game-changing Siri TV and iCar apps, would you be gambling, or investing your assets wisely?

It's a fair question, because one of the complaints I hear most often is that by discussing the viability of progressive betting against long-term negative expectation, I am repeatedly encouraging smart people to do something very, very dumb.

The default argument is that in stocks and bonds, and to a lesser extent in forex and commodities, the big picture promises profit as a reward for patience and foresight, whereas in gambling, the only overall winners are the folks who run casinos and/or make book.

So let's single out the world's most profitable commercial enterprise and indulge in a little harmless but hopefully relevant conjecture.

Apple's shares hit an all-time high of $626.73 on April 9 this year on the strength of the release of the iPad upgrade and booming sales of the iPhone 4S, which treated eager buyers around the world to a buggy beta version of the company's still evolving voice-command technology.

Since the spike, the world's most sought-after shares (widely expected to top $900 in a year or so) have slipped back to $564.29, knocking a $22,000-plus dent in a cautious investment of $200,000.

No cause for alarm, you might say, and I think you'd be right.

After all, the iPhone 5 is just a few months away, and not far behind that will come the real Apple TV, which will turn your living room entertainment center into a warm and friendly companion almost as responsive as the "holodeck" controller in science fiction tales of yore.

"Show me live tennis," you'll say to the skinny 55-inch gizmo on the wall, and presto, you'll be watching grunting athletes whacking a little ball back and forth with intent to kill.

"Let's try that in 3D" might be your next request, and the picture will change faster than you can fumble for those infernal glasses that will continue to be your best 3D viewing option until Apple comes out with something cooler.

"Skip the commercials!" will prompt your intellygent (sorry about that) window on the world to instantly switch to another channel where the tennis you crave hasn't yet been interrupted.

When the sales pitches end on the other network, Siri will ask you politely if you want to switch back, or stay where you are until more commercials spoil your enjoyment of your favorite spectator sport.

Siri's on-the-road cousin will (so rumor has it) kick in-car entertainment up several notches, enabling drivers to keep their hands on the wheel and their eyes on the road while vocally controlling everything from their phone and sound system to the heating and air conditioning and turn signals.

All this sounds great for Apple investors, and the odds are that April's $636 record high will soon be forgotten as the company's shares blast through new $100 markers -- $700, $800, $900 to infinity and beyooooond! -- like a rocket en route to Mars.

Beats gambling, right? I mean, nothing can stop the company that Steve Jobs turned from a floundering has-been into the most successful money-making machine since...well, since money was invented.

Maybe. Or maybe not.

I've been neglecting this blog and the Sethbets web site this past couple of months because I have been looking very closely at the wisdom of applying Target's progressive betting principles to horse-race betting.

And this comes after a three-year experiment that has resoundingly confirmed that Target applied to randomly selected pro sports bets is every bit as successful as stock market gambling, and given recent history, probably not as hazardous.

(I have been writing for years about Target and casino table games, so I will skip over that this time).

I have been an uneducated devotee of racing for as long as I can remember, but until recently assumed that there are far too many contenders in any race to make its outcome predictable within parameters that would make any betting strategy viable.

Also, I could not overlook the fact that punters far smarter than I am have been trying to beat the Sport of Kings for at least 350 years.

If anyone has come up with a solution, he or she has kept awfully quiet about it judging from the truckloads of torn-up betting slips that litter every track in the world after the last race.

And then again, 999 out of a thousand "experts" believe the casino-sponsored saw that any amount bet against a negative expectation must have a negative result in spite of how easy it is to prove otherwise.

Here's where I'm at against what seems to me to be a fair and accurate simulation of 6-deck baccarat.  I won't disclose how many hours I have devoted to this game, or speculate on how much better my time would have been spent if instead I'd read Socrates on the can.  But I will admit that the win to date averages out at about $10,000 an hour!  Doesn't prove anything, but it does suggest that an overall house edge of more than 1.25% doesn't always translate into a player loss.  The trick is to win more when you win than you lose when you lose, and the only way to do that consistently is to bet progressively. My win to date is a tiny fraction of the $106,000,000 that tops the leader board for this iPhone game, and I have no idea how the front-runner achieved that.  I do know I'm not going to try to beat him or her (my right thumb won't be able to stand much more of this!).

Long, long ago in a land far away, I spent an afternoon with a high-placed racing expert whose most memorable tip was "bet the second favorite to place" and in the years since, I have had modest success with that unexciting rule of thumb.

It's a dull, safe approach that doesn't fit in with the average punter's dream of picking a long-shot winner and going home with at least ten times the amount of dosh he took to the races.

And that's really the problem with gambling, isn't it?

Gamblers are not interested in modest gains: Their adrenalin can only get a bleep-or-bust rush from taking big risks in pursuit of even bigger rewards.

Very few of them would consider a $1,000 gain on a $10,000 bankroll to be an adequate return after a half dozen hours in a casino. But the same punters would be downright delirious if they bought ten grand's worth of stock after the opening bell and saw it appreciate 10% by the close of business that day.

Some people are just funny about money, I guess.

My latest foray into horse-race betting was prompted by a flurry of e-mails from the U.S., the U.K. and Australia from readers who bombarded me with stats such as the 33% win rate for favorites and the fact that all over the world, more than 80% of races are won by "Top 5" horses.

That means that in fields of six to 15, the winner is almost certain to be ranked among the five lowest starting prices (although anyone who hopes to find a winner among 15 sets of thundering hooves had better know how to handle disappointment!).

My Target Sports transparent trial, in which each day's picks are posted ahead of game times and the results are put up next day at the latest, has been wobbling back and forth lately, largely because of my neglect.

But in spite of a slowdown in the action since I got bitten anew by the horse-racing bug, we have seen an initial $25,000 investment grow to more than $175,000.

Along the way, after about a year of play, the bankroll plummeted by more than $100,000 before statistical expectation prevailed the way it always does, and the chart line resumed its standard, steady upward climb.

The irony is that the slump came soon after I decided that perhaps very large bets on randomly-selected long-shots were not a good idea, and started pairing each day's fattest wagers with picks at the shortest odds.

It was a very bad idea, proving perhaps that whenever a bettor has to make decisions, he's more likely to get into trouble (which is why constantly hopping from Banker to Player at baccarat, from red to black at roulette or whatever will almost always help you lose more money, faster, the way the house intended).

Second-guessing my random sports picks was a dumb move, so when I began looking into horse-race betting the Target Way, I resolved to stick strictly with the numbers.

Principal among those numbers is the reality of the "over-round book" which ensures even someone crazy enough to back every runner in a race will be out of pocket when it's all over.

The first logistical challenge I faced was that while race results are readily available all over the internet, they don't come in a format that I could easily use.

Target has relied on spreadsheets since I started using SuperCalc on a pathetically underpowered computer (the best I could afford at the time!) more than 30 years ago, and I was not about to give up the best analysis tool I know.

So, I dug out results for Santa Anita, Calif. and Aqueduct in New York from the start of the 2012 meetings at both tracks, and began keying in the data and developing a format that would enable me to get answers to my countless questions without having to keep going back to the source.

It was time-consuming and frustrating, but with three months of detailed results now available to me, I'm starting to see at least a theoretical reward for all that effort.

Along the way, one of my Australian correspondents sent me results from more that 3,300 races down under between August and November last year. Mercifully, they came in a spreadsheet!

One of the first things I wanted to look at was a concept known as dutching, which usually excludes the favorite in any race and groups three or more promising contenders together in such a way that if one of them wins, the bets on the losers will be covered, plus a decent profit.

I found a useful calculator online and learned that the ideal "dutched" bet (I still don't know where the term comes from, except that it's not Holland) offers a prospect of winning that's just above 50%.

One Australian punter who helped with my racing lessons proposed a method that bets the favorite to WIN and dutches the second and third favorites, avoiding races in which the starting price on the fave is less than, say, 2-1.

I created conditionals to test that idea, but quickly found myself drawn to the more compelling notion of mimicking the Target Sports approach and setting up five separate lines backing favorites 1 through 5 to win.

I didn't much like the idea of constantly betting against myself, but concluded that the Target progressive algorithm I had developed for up to 20 simultaneous sports bets a day would be able to even out the bumps and give me a reasonable shot at a long-term profit.

I also set up models to bet just the favorite at Santa Anita from December 26 through April 22 and, separately, Aqueduct from January 1 through April 29.

It quickly became obvious that however juicy a 33% favorites win rate might sound, there are an awful lot of long and expensive gaps between hits. And a lot of the time, the odds offered on favorites (I found one at 0.05-1!) are so short that bets directly linked to the SP (starting price) are totally unrealistic.

Given a win target of $1,000 your bet at 0.05-1 would need to be $20,000 and that's insane!  No one in real life would bet that way, but because I started out accepting all odds, I had no choice.

The solution to too-short odds and prolonged droughts was a combination of filters or screens that suspended bets after a given number of consecutive losses, and also skipped wagers on favorites at an SP below a predetermined value.

I won't detail my methodology here, but I will offer some bottom lines that I find very encouraging.

I should also say at the outset that this remains a work in progress: I chose to model bets on the favorite to win, along with the 5-line all wins concept on faves 1 through 5, and I don't doubt that better approaches will suggest themselves as time goes by.

What matters right now is that both methods are ahead of the bookies after thousands of races and more bets than the average punter makes in a year (or they would be if I had been venturing real money).

Betting just favorites at Santa Anita, $100,000 invested on the day after Christmas last year to fund bets starting at $100 would have grown to $129,886 by April 22, with an unrecovered target of $19,110 rolling over to opening day at Hollywood Park (more about that another day). The win amounted to 12.34% of total action from 301 bets, and represented a 66% return on actual exposure of about $45,000.

At Aqueduct, the same methodology would have required far greater exposure ($144,823!) but would by now have delivered a win of $133,320 equal to 16.5% of total action on 255 qualifying bets. The end-of-meeting rollover was a little more than $18,000.

Against the 3,318 Australian races I mentioned earlier, exposure would have been almost $87,000 at one point, but the overall win would have been $145,900 or 14.26% of action on a total of 2,469 qualifying wagers. Rollover was a piddly $155.

Of course these are all numbers that far exceed the average weekend punter's bankroll. But that's hardly a big surprise. I have been saying for years what anyone who gambles must eventually learn: It takes money to make money.


The question is, I guess, does applying an odds minimum and skipping bets after a certain number of losses upset the whole idea of random selection?

I would say not, since we remain uninterested in a horse's past form, its pedigree and its jockey, as well as which way the wind's blowing and whether the going is good or bloody awful.

Numbers for the five-line theoretical trials against the same results (from Santa Anita and Aqueduct, that is, because the Oz data seems to me to be too good to be true), are as follows:

Santa Anita exposure $37,155 for final win of $23,050 (7.33% of total action of $314,570 from 1,145 bets), 62% return on risk.

Aqueduct demanded an exposure of $131,620 and delivered a win to date of $32,776 (5.8% of action of $565,100 from 1,547 bets), 25% return on risk.

None of the above proves a damn thing. As I always say, the data show what's possible, not necessarily what's probable.

I ditched the Australian data for a full five-line test because the odds on all horses across the board were 40% higher than their USA equivalents, and that makes me a little nervous.

And as I understand it, punters have it really tough down under (no bets higher than $250, accounts closed by bookies if a customer "wins too much") in spite of those seemingly more generous odds.

A preliminary run-through of the Oz data showed a 5-line win of more than $400,000 on 3,617 qualifying bets averaging $84 apiece, and that just isn't credible to me.

In every one of these model iterations, the potential draw-down has been high, and in one case it went well into six figures before straightening up and flying right.

Aha!  Say those who look down their noses at gambling while shoveling their life savings into the stock market: You could lose your entire bankroll in a day or two at the races (or the sports book or the casino) but no one ever holds onto a dwindling stock long enough to lose every penny they put into it.

I guess that since the people I know who lost millions on Wall Street in the past half decade still have millions left, there's a grain of truth in that.

But plenty of victims of the latest Great Recession saw their retirement portfolio cut in half or worse, and they have no reason to hope that they will recover all their losses any time soon.

In contrast, stats demonstrate that as with Target Sports since the summer of 2010, randomly-selected underdog picks will win a profitable percentage of their games over time, and in horse racing, favorites will slip out of dominance only temporarily.

In other words, as long as you have a big bankroll behind you and the confidence to stick with the strategy, recovery in sports betting is absolutely inevitable.

In the world of high finance and on Wall Street in particular, nothing is inevitable other than the certainty that while investors may fall through thin ice in a bear cycle, the fat cats who preside over the markets will stay warm and dry...and keep on getting fatter.

So what does all this have to do with Apple?

Merely that if things go bad in Cupertino, as some bearish prognosticators say they might, the $900 price predicted for sometime next year could evaporate with the morning dew.

Let's face it, Apple has a lot of competition that's gaining ground all the time, and any day now, one of the Chinese companies building its magical products could go rogue and start ripping off its precious patents left and right.

Google and Apple have some very big guns trained on one another, and although Apple's $300m CEO Tim Cook seems reassuringly less paranoid and aggressive than his mentor, all-out war between the two companies sometimes seems inevitable.

If it happens, share values of the two giants of the digital age could head south like ducks in winter.

And then there's Samsung, looming over both of them and hell bent on increasing its share of the smart phone, smart TV and smarter still computer markets.

What was Apple thinking of when it shipped its secrets overseas to countries that don't give a toss about patents and property rights?

Greed was behind it, obviously.

And in the long run, greed works no better in business than it does in gambling, or any other field of human endeavor.

My point is that with greed kept in check, betting on sports or horses can be at least as reliably profitable as taking long-term positions in the stock market.

In either case, jumping out of the fray because of a short-term burn then jumping back in with lessons unlearned is almost always disastrous.

Casinos and bookies count on us to be underfunded and unprepared, and Wall Street and its acolytes encourage us to keep sloshing our money around, because our indecision and lack of commitment guarantees more profit for them.

A sample from, the best of many dutching calculators offered on the Net.  I haven't yet given dutching a fair shake in my models, but I plan to.  I do know that the Ubetido method (bet the favorite to win, and dutch the second and third favorites to win as a hedge) was an expensive failure, at least during three months apiece at Santa Anita and Aqueduct, betting eight to nine races a day.  I didn't apply any restrictions or limit bets in any way, and I don't think that's entirely fair (I believe Ubetido spurns favorites at less than 2-1, for example, skipping as many as three in every four races).
Numbers for most of the 2012 meeting at Aqueduct NY (more data to come).  This was where betting favorites progressively almost fell on its face, and I admit I don't have a $150,000 bankroll I'm willing to put at risk.  But what's interesting is that the strategy did manage to recover its losses.  Lose a hundred and fifty grand on Wall Street, and it could take you months to recover -- years the way things have been going lately.  Target 1F was out of the red in two or three days.

Target Sports as it stands today - patiently waiting for that last big turnaround...  The slump last summer was entirely my fault.  After proposing that random selection was a far more effective way to win steadily than relying on intuition or expertise, I out-smarted myself by guessing that the day's biggest bets would stand a better chance if I paired them with picks at the shortest odds.  Wrong!  As in any game, human decisions are prone to human error.  So now I'm back to making no decisions, other than limiting my bets to picks priced between +100 (even money) and +140 (1.4-1).  We're wobbling right now, but I'm willing to keep on betting that eventual turnaround is as inevitable as tomorrow's sunrise.  Even if it doesn't happen until the day after tomorrow (turnaround, that is!).

Target did pretty well at Santa Anita this year, using the Aqueduct betting algorithm.  The game continues at Hollywood Park, the L.A. County track that always takes over when gorgeous Santa Anita goes dark.  Watch this space: the rollover will be speedily recovered, and then the ride will continue, I guarantee.  I was going to call it a roller-coaster ride, but that's not accurate, since we always end up higher than where we started!

The same rules set did nicely down under, except that Oz odds are just too good to be true.  I'm nervous about the fact that overall odds were at least 40% higher than the numbers seen in the USA.  I'm also told that Australian bookies offer fixed odds, which as far as I know are not available here.  I haven't posted the 5-line results based on the down under data because, again, the news was just too darn good, especially when a hedge against last-minute shortening of the odds (between ticket in hand and the off, in other words) was factored in.  The draw-down was far less than the one you see above, but I feel I can't trust data that I don't fully understand.

An important reminder: The only person likely to make money out of this blog is you, Dear Reader. There's nothing to buy, ever, and your soul is safe (from me, at least). Test my ideas and use them or don't. It's up to you. One more piece of friendly advice: If you are inclined to use target betting with real money against online "casinos" such as Bodog, spend a few minutes and save a lot of money by reading this._