Your Betting Beta Can Be a Killer

There's a very interesting story today in the Wall Street Journal about wealth (and keeping it).

• Lee Hausner, a California-based psychologist who works with the ultrarich, has one client she calls "The Phoenix," a real-estate developer and investor who borrowed and spent heavily. He has surged and crashed twice over the past decade, reaching a net worth of $400 million, losing it, then hitting $200 million and losing it again. "He's an impulsive risk-taker," she says. "He always lays everything on the line.

It's a story on "beta", or the volatility of our net worth. Risk takers have a hugely high beta and that is never going to go away, however, there are ways to stay in the game.

Some of the tips - for those types and we regular folks - about keeping our wealth are pretty common sense. We should look at what we spend and where we spend it, sock some away that's untouched, and monitor our bankrolls to ensure we are lowering our beta, not raising it. 

This applies to us as bettors as well.

Ask any bettor who is playing with a large set bankroll, whether it be $10,000 or $100,000 - the swings (beta) can kill you. To make 40% of your bankroll in a given day is fine, but to lose it and more the next can drive you nuts - and sometimes put you on tilt.

Some folks can live with this and are good at it. They have a determination that they are winners and daily fluctuations are no big deal. They also don't have the mortgage or rent money in their betting bankroll. They concentrate on low hit rate, high potential bets. Some (because they truly can't handle the swings as well as others) even spread these hard. Most people aren't that good, or fortunate.

We've heard it all before, but it bears repeating because it's true. If you can't stand a high beta, stay away from the high beta bets. If you have a $2,000 bankroll and know this horse is a 5% bet in the win pool ($100 to win), you shouldn't be betting another $40 in exactas and $24 in supers. Those are high beta bankroll killers - the one's that drive you nuts and ruin your whole day when you get nosed out for $3k.

How often has the following been said at the track: "I loved the horse, he won, but I ended up losing money on the race". We chased the beta.

Bankroll preservation is key for us as players, and for the business, because we churn what we win.

For example, it is no secret Betfair is doing well. What they have done is taken a high beta industry (exotic wagering at huge rakes) and made it a lower beta one. If you put $5,000 in a 5% win takeout medium tomorrow, where all you do is bet to win, (with one or two easy set rules and some skill) you will probably have a bankroll in six months. That's why betfair's churn rate is 15 and racing's is around 4.

Online poker does this very well, too.

Low beta is bankroll preservation. Bankroll preservation is more fun for us as players. More fun for us as players is good for racing.

Depending on what kind of player you are, the next time you're going to "take a shot" with a huge exotic play, think of your beta and think what'll happen - not if you win, but if you lose. If the pain of that loss is too much for you to bear - bet $20 to win. You'll live to bet another race.