Basics of money management

[Datapunter]

I've promised myself that each week I would do an article, (or part of) for my site. Here's the first. I welcome any comments, suggestions, alternative points of view you might have :ok

[Datapunter]

Re: Basics of money management

Basics of money management

Why do any money management? Well actually you don't need to do any money management at all. In sports-betting money management is not required. You can just bet as much as you fancy, or have available. Sometimes you win, sometimes you lose, and along the way you'll have loads of fun. Of course you will never actually know if you are losing or winning will you? In particular if you don't keep records. So if you don't care about ending up with a profit then indeed; money management is a complete waste of time. In fact I think you should stop reading right now. The rest of this text, probably the whole site, is going to be utterly boring to you. Thanks for visiting and good luck. . . . . . . . . Hello, still with me? Well, I guess you must care about losing or winning then. Because that is the reason why you want to manage your money; you want to end up in profit. Through money management you control the result you get from your betting. Even if you end up losing, through money management it will be you who is in control, not your circumstances. So let's have a look at the key parts of money management. Setting a betting bank First thing to do is set a bank for betting. Very simple, you look at your financial situation in life and determine an amount you are willing to use for sports-betting. And at this point you apply the golden rule of sports-betting. (or any other form of betting and gambling ) Only bet with money you can afford to lose. If you are currently in debt, or if you are in a situation where at the end of the month you have no money left, you should not be doing any sports-betting. You simply don't have any money you can afford to lose. You should concentrate on improving your overall financial situation first. But I'm not here to lecture... moving on. So if you have some money you don't need for your day to day living you can use that as your betting bank. How much is a very personal matter. I think you should pick an amount you are willing to lose. Not that you are actually going to lose it. (After all the intention is to make a profit) Why an amount you are willing to lose? Well i don't want to get all psychological here but that really is what it comes down to. Imagine you lose the entire bank, just for a moment, imagine that situation. How does that feel? As it is money you can afford to lose it won't, should not, affect your day to day life. Obviously you'll be devastated for a while and then pick up your life again. But can you live with it? Can you live the knowledge that you lost the entire amount you've set? If you can live with it then that bank is right for you. If you can't then that amount is too big, you should pick an amount smaller until you get to the point you can live with losing it all. Why is this so important? It is because it will affect everything you do as a sports-bettor. It creates a state of mind; it is the source of your success or failure. Key ingredients in being successful as a sports-bettor are discipline and objectivity. If your mind is at ease you can be objective. If your mind is dealing with worries then that will affect your objectivity and that will have a negative effect on your success. This is only one way of looking at it. There are many. This one works for me. I have been fortunate in life financially. I'm not rich but I have done well. My current betting bank is quite substantial. Let's say an average European annual income. I suppose I could live off my betting yet I still have a part-time job. It's a deliberate choice that fits entirely in this approach to setting a bank. If I was to lose my entire bank I would indeed be devastated for weeks. And then pick up life again. And I would be able to live with the knowledge of having lost all that money. I played the game and I lost. I wouldn't like it, but that's a different story. And it would not affect my day to day life. The part-time job allows me to pay the rent and put food on the table. What I get from all this is a state of mind that is peaceful. I've done my homework, made my choices; I can live with the worst case scenario, now let's do some betting. And be objective and disciplined about it. Keeping records Keeping records is part of good money management. Some people use databases, others spreadsheets and then some use something as simple as a notebook. Its all fine, whatever works for you. As long as the record is kept outside your own mind. The human mind is the worst of record keepers. We tend to remember only those things we want to remember. You should give your record quite some attention. It is your most valuable tool in being successful. Your record shows you where you've been successful and where you've failed. It allows you to learn from your past and adjust your future actions. In short: your betting record is your best friend. Establishing a stake size Now that we have a bank and some method of keeping a record we can look at placing a bet. I'm not going to talk about what to bet on. Bet selection is a different subject, this is about money management. So I'm simply going to assume you have something you want to bet on. But how much money should you put on an individual bet? At the extreme you could put your entire bank on. But then you risk losing all in one go. That's not what we want; we want the bank to last, preferably forever. So you need to put only a portion of the bank on an individual bet. How big should this portion be? This is mainly a matter of managing risk. How much risk are you up for? The more you are up for the bigger the portion of the bank you can stake on a bet. To determine the actual size of the stake we need to consider 2 things: the average odds you bet with or strike rate and the amount of risk you are up for. The odds imply a percentage of winning and losing bets. This ratio is called strike rate. Simply divide the number of winning bets with the total number of bets and express that as a percentage, which is your strike rate. For example if you have 100 bets of which 60 are winners you get: 60/100 = 0.6 expressed as percentage that's 60% strike rate. Or looking at it from knowing the average odds: if you bet with average odds of for example 1.85 you can calculate the implied strike rate. Simply divide 1 by the odds: 1 / 1.85 = 0.54 again expressed as percentage the strike rate is 54%. In other words if you bet with odds of 1.85 then out of 100 bets you may expect 54 to win and 46 to lose. The strike rate is important because it gives you an idea of the distribution of winners and losers. By this I mean what you can expect in terms of consecutive winners and losers. With low odds and high strike rate you are likely to have a series of winners and then a loser. You can use a fairly high portion of your bank because the risk of losing the entire bank on a series of losers is quite small. The opposite happens when you have high odds and a low strike rate. You can expect many losers and then a winner. That means you should only stake a small portion of the bank on each bet otherwise a series of losers might wipe out the bank quite quickly. This all comes together in the risk of going bankrupt. Again expressed in a percentage the risk of going bankrupt can be determined for each combination of strike rate (or average odds) and stake size. For a given strike rate the bigger the stake the more risk there is of going bankrupt. On the flip side is that the smaller the stake, the less risk of going bankrupt, but also the less profit you can make. It is a balancing act.

At this point I could get all mathematical but as this is called "The basics of" I'll leave you with a simple table. This table was established using a computer program that simulates betting. (Monte Carlo simulation) It shows the risk of going bankrupt for a given strike rate / average odds and stake size combination. It's the best starting point I can give you. Determine your strike rate or average odds, then determine how much risk of bankruptcy you are up for and the table shows you the size of your stake for each individual bet. TABLE GOES HERE

I'm doing the program with the simulation next week. And obviously the table also. So the above may change a bit Notice here that I have said nothing about profit. That is because the approach I take is a carefull one. I manage risk and then I'll take whatever profit I can get. There is another way to determine stake size. That is if you approach things with a target. You set yourself a target of profit that you want to make. And then you take, within limits, whatever risk is necessary to achieve your target. It is not that one approach is better than the other, both are valid. In the end it comes down to personal choice. I do believe however that before you get into betting towards a target you should have a good grasp of what it means to manage risk. And that means getting some experience with the approach outlined so far. So I'll say no more on the subject, you'll come across it again in the advanced sections of the site.