One of the most important elements of successful gambling is managing your money effectively. I know a lot of excellent handicappers who are regularly close to broke because they don't know how to handle their cash sensibly. Good money management has many parallels with trading in financial markets. The first rule is to separate your gambling cash from what you use for everyday living. You're not likely to make good decisions if you have to choose between paying rent and having $500 on a horse (or in shares of a subprime mortgage lender).
I suggest keeping a separate bank account for gambling and only dip into it at preset levels of profitability. Otherwise you could find yourself buying a new car with your winnings, only to have to sell it at a loss three weeks later to cover your wagering debts.
The second rule is to not risk too much of your bankroll on any one event. This is the mistake that most bettors make early in their career, particularly if they have a relatively small bankroll.
Let's say you are at college and you learn that yourbasketball team's players are in the hospital with food poisoning, six hours before tip off. The bookies haven't shifted their line on the game, suggesting they don't have access to theinformation you do. What percentage of your $1,000 bankroll should you risk? When I ask this question of novice bettors, the answer is usually somewhere between 40 percent and 100 percent.
While I agree that this is an exceptional circumstance, conventional bankroll management theories suggest you shouldn't risk more than 5 percent of your total bankroll.
The theory is similar to portfolio theory used in fund management, in that you should spread your risk across multiple investments to avoid being wiped out by a disaster in any one of them. In this college hoops game, you do have information that gives you an edge over the bookies, but there are risks: the rival team could see it as more of a practice game and underperform, or your team's secondary players might take it as their big chance to shine. There are different schools of thought about what percentage of your funds you should risk. One of the most popular is having a level stake on every bet. So, if your bankroll is $10,000, you should always bet 1 percent of it, or $100 per event. You then adjust this up and down every $1,000, so if you get your bankroll up to $11,000 then you bet $110 per event and if it falls to $9,000 you bet $90 per event. This is perhaps the most conservative bankroll management method and the reduction of your stake as you lose money means it takes longer to wipe out your cash, however unlucky you are.
I personally like something a little more aggressive, so Itry to stick to a rule where I assess the strength of my bets on a scale of one to five. With a bankroll of $10,000 a one point bet would be 1 percent of the bankroll, or $100, and a five point bet would be 5 percent of the bankroll, or $500. I would rarely have a five-point bet and would expect to have a two-point bet perhaps twice a week. Novice bettors tend to bet too often and have perhaps 20 bets a weekend. That means they would be risking a large percentage of their bankroll each week, probably too aggressive a model. When I am having a bad streak I reduce my stakes still further. It is hard mentally to deal with a slump and human instinct is to bet bigger to recover the losses. Chasing your losses, whether in sports betting or in financial markets, can have disastrous consequences and a far wiser strategy is to take a break or restrict the amounts you are risking until you are back in your groove.
Another way to allocate your bets, used by mathematically inclined bettors, is the Kelly criterion. A complex formula specifies what percentage of your bankroll you should risk for any given event to maximize growth in the long run. For details, I recommend William Poundstone's book,``Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street.'' Or you can search the Internet for the original paper by Bell Laboratories physicist John Larry Kelly Jr. It has transformed some gamblers' lives. If you gamble with any degree of seriousness and don't think about bankroll management then you are likely to be poorer for it. It won't make you a winning player but the discipline it instils increases your chances markedly.
(Joe Saumarez-Smith is chief executive officer of SportsGaming, a U.K. management consulting firm to the gaming industry.He also owns European online bingo companies and odds comparisonWeb sites. The opinions expressed are his own.)