The Power of the Portfolio
Does a diverse “portfolio” of tipsters and systems really work?In investing in general, it is a well understood principle that having a portfolio of investments helps spread your risk. Diversification means you “don’t have all your eggs in one basket". But does it work when you are betting on sports/horses as your investment vehicle?
It can have great advantages – you are unlikely to be wiped out by one catastrophic event (losing run) and underperformers are theoretically counterbalanced by over performers.
On the other hand, some people argue that the portfolio approach means that any really spectacular winning investments are diluted by the investments that don’t perform quite as well. It’s very easy to look at your investments with hindsight and see that one investment grew in value by a factor of 10 and think “Now if only I’d had all my money in that!” (or on that particular tipster in our case)
Naturally, if we could tell with accuracy in advance what our spectacular winners were going to be we’d all be sailing around the Caribbean in a yacht made of gold enjoying all the good things that limitless funds could provide us with. Under those circumstances we would have no need (or desire) to take a portfolio approach to our betting.
Unfortunately, there is nobody who can tell us with unerring accuracy what will win every time, so for those of us who wish to reduce our risk to an acceptable level, the portfolio approach works very well.
As an example of just how well it can work, I’ll recount the story of a close friend and betting colleague of mine who has had a portfolio of tipsters for a few years now. I’m afraid I can’t reveal his real name because his better half is not aware of the full extent of his betting and I would hate to be the one to expose him. Let’s just call him The Number Cruncher.
The Number Cruncher is a man in his late 40’s who came quite late to betting – only really getting the bug about 5 years ago. He is lucky enough to be self-employed, working from home and therefore able to quite actively manage his extensive portfolio of tipsters and systems. He does pick some of his own bets but the vast majority of his bets are derived from his portfolio.
He started out with a bank of about £2000 and was massively over-leveraged for the first couple of years – having only about a tenth of the required banks to run the portfolio. So highly leveraged in fact that he was very lucky not to have gone bust at some point in those first two years. In this instance however, fortune favoured the brave (would that it always did!) and he survived and managed to grow his bank to an acceptable level to allow him to start drawing down profits. He’s still leveraged but at an acceptable level for a diversified portfolio.
The active management of his portfolio is carried out in the following way:
He is brutal in his culls of under- performing services . A system/tipster returning 3 poor months on the bounce will see an immediate massive cut in staking levels or removal from the portfolio altogether. It is irrelevant to him whether he still has a long subscription for that particular product outstanding. He will monitor for the remaining subscription and then let the subscription lapse if there is no upturn. (This is something I have always struggled with – I felt that if I had paid for a service, I should be using it. The Number Cruncher’s approach has taught me to be far more decisive in giving up on poorly performing services and writing off the subscription cost)
Conversely, when a service/system is performing well he is exceptionally aggressive in the way he increases his staking. He does this by constant analysis of a tipsters strong and weak points and applying appropriate adjustments to staking. For example, once he has a reasonable amount of back data to work with, he will carry out a detailed analysis of performance in a wide ranging set of criteria. This allows him to stake much more heavily in those areas where a tipster/system has a bigger edge. (you would be AMAZED just how many tipsters/services out there don’t carry out their own analyses like this and adjust their advice to subscribers – as an example, The Number Cruncher discovered that a particular tipster produced 90% of his profits on horses in the price range 2/1 to 5/1. It appears that the tipster themselves had no idea of this because those bets made up only about 20% of the total tips they give out.) This discovery alone allowed him to turn what was a poorly performing service into a really profitable one, increasing the ROI many times over.
The Number cruncher’s portfolio comprises anything between 8 and 25 tipsters/services/systems on a month to month basis, depending on the time of year, which services are performing well and a variety of other factors.
Taking his entire portfolio into account The Number Cruncher turns over around £1,000,000 per annum with a £20,000 bank, utilising an average of 15% of his total capital daily.
To cut a long story short, this approach REALLY works, at least for him. I spoke to him while writing this to determine just how well. He informed me that he has produced profits, in the last 12 months, of just over £44,000 and that has been true going back over a rolling 12 months for some time now.
Now that’s a pretty amazing return on capital by any measure and is a handsome salary on its own (I’m guessing it equates to a pre-tax salary of £65k?) Yet I would estimate that The Number Cruncher spends only an average of 15-20 hours a week placing bets and managing his portfolio.
Not to be sneezed at. I’m guessing that’s equivalent pro rata to the salary of a GP or other qualified professional. All for piggybacking other people’s expertise in making betting selections and applying his own expertise with the numbers.
Food for thought, I hope. I'd love to read some comments on readers experiences of the portfolio approach.
That’s all from me today. I’ll be back later in the week with more thoughts.
Have a great one