# Taking stock in the track: horse races and brokerages

This column was inspired by an interview I did with sports reporter Mark McGuire at the Albany Times Union. His story, in anticipation of the Saratoga races, can be found here.

The late, and, yes, great philosopher David Stove opened an essay on Epistemology—that’s not the name of a horse, but a branch of philosophy—with the following words, which should be ready closely by anybody who bets on horses or “invests” in stocks:

In newspapers advertisements, systems of betting on horse-races, guaranteed to make money for anyone who adheres, to them, are always being offered for sale at a moderate price. It is therefore to be presumed that there are people silly enough to give some credence to such offers. Sensible people, however, decline to enter into the details of any offers of this kind, but reject all of them, out of hand, as fraudulent, They reason that if the advertisers did know of an infallible system for winning money on horse-races, they would not tell other people about it; but they do tell, ergo, etc.

Betting on horse races and the stock markets requires knowing about probability—which always is conditional on information. Think of the simplest bet: a coin flip. I’ll pay \$5 if a flip shows a tail and charge the same for a head. What is the probability that you win? The information you have, or think you have, is that “This coin has one head and one tail, will be flipped, and only one side will show.” Conditional on that information, the probability, as we all know, is 1/2. The odds (see the note below) are 1 to 1.

But I know how to cheat—I can make the coin show a head whenever I want. That changes the information, doesn’t it? The probability of a tail given this information is 0. A tail just won’t happen. In probability—and betting—information is everything!

Now horse racing. Eight horses are at the gate. If that is all you know, what is the probability that horse number one will win? Simple: 1 in 8, or about 13%. But you generally know more than just that there are eight horses. You might have some idea of form, the state of the track, the historical performance of the different horses and jockeys, and so on. But how to calculate a probability given this information?

The other punters are in the same position. The information is out there, but not everybody knows exactly what to do with it, but each person who bets knows what to do with a little of it. Now, the amount bet on a horse changes its posted odds: more bet on a horse means people think that that horse has a better chance of winning.

Collectively, then, the posted odds (and subsequent probability) are direct result of the information available. It’s information that makes favorites. Further, the payouts are adjusted according to the bets: favorites have very low payouts, so betting on horse with a high probability of winning will not often win you much.

To win real money, you need information that is both different and better than the information available to everybody else—just like in the coin flip example. The probability you calculate will then be different than everybody else’s. If you find a horse which everybody else has underestimated, then you might come ahead.

Finding that information is a tough job, but one that shady track touts, and the publishers of the “sure thing” systems Stove talked about, claim to have done. They’ll sell their system for only fifty bucks! Which makes them fools, because, of course, they could have used their system themselves and made a million, right?

Stock markets are no different than horse races. Information on stocks is (supposed to be) publicly available. And some people know what to do with some of it, so they bet on the stock based on what they know. As with horses, the amount “bet” on a stock changes the price of that stock. And to “win”, or make money on a stock, just like at the track, you need to find better information than anybody else. Without breaking insider trading laws, of course.

Brokers claim this ability. They’ll sell a red hot tip on a stock for fifty bucks (or more!). Which makes them fools, because, again, they could have used that tip and made themselves a million. Right?

It’s more complicated than this, of course. But consider: every couple of years somebody throws darts at a list of stocks and bets on those that are hit. This system does as well as, or even better than, professional brokers’ picks. Same thing is true in horse races. Further, everybody knows this. So why do people still bet? It’s as Dr Johnson said about second marriages: the triumph of hope over experience.

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Technical note: Probability is a number between (and including) the numbers 0 and 1. Odds give the same information as probability, and they are calculated simply using this formula: odds = p/(1-p), where p is the probability. If you want to calculate probability with known odds, then use this formula: p = odds/(1+odds), but first make the odds into a decimal number. Thus, odds = 7 to 2 becomes odds = 3.5 (or 3.5 to 1, from 7/2).

Briggs

1. Doug M says:

“To win real money, you need information that is both different and better than the information available to everybody else”

To consitantly win money, you may need information, but to just win real money, you can get by with luck, and a large bank roll.

The tiptster (at both the track and the brokerage) is frequently a hukster. However, it is possible that he has already committed as much capital as he can afford. If the tipster is also a punter, at the track with a parimutuel system, it is in the tipsters interest to spread misinformation. If more people bet on his horse it will drive down the odds. If the crowd bets on the rest of the field it will improve his odds.

In the markets, howert, the incentives are reversed. It is in the traders interest to talk up his position. The more people he can talk into buying XYZ, the quicker the price will move to his exit price.

Why do people still bet? People will accept a bet that they know is stacked against them for the thrill of the wager. And, at least at the race track you are making the assumption that gamblers are rational. There is some thought that there is an inversion in the economic concept that there is dimishing satisfaction as you get more of something. If you do not have very much money, losing a little in the lottery is not to painful, but your perception of what you could do if you hit the jackpot draws you into a game that is drasticly stacked against you.

2. Just cant stop my self to comment on your blog. Good post.

3. Jimmy Helvick says:

Actually it was Samuel Johnson who made that quip about second marriages being the triumph of hope over experience.
A better man than GBS all round.

4. Briggs says:

Jimmy,

Thank you! Quite right, both ways. Stupid mistake on my part. I have fixed it. And though it isn’t in the least relevant, my favorite marriage quote is by Groucho Marx: “Marriage is a great institution, but who wants to live in an institution?”

5. The flaw in the argument “proving” that they are hucksters (well, given my information, I’d guess it’s better than 1:1 that they are, but I’ve never bet on a horse, so what do I know?) because they’re willing to sell is also ignoring probability. And rates of return.

While the system might be everything it claims, that doesn’t necessarily make it worth implementing, due to the need to place lots of bets, or simply the effort involved in collecting the information required.

In contrast, selling this system probably requires printing a few pages and placing some ads.

6. Joy says:

No, the best quote is,
No, thatâ€™s an eternity ring, for wearing after youâ€™ve been married at least ten years.
KLUNK!

I always used to think as a little girl, I would have to be mad to walk down the isle in front of all those people. When I was mad I missed the opportunity, when I had the opportunity, I wasnâ€™t mad enough.

7. bill r says:

You are also hiring a broker to manage your money for you. He gets a commission from sales for the research and attention he pays. He makes money, you make money. Yes you could do the same thing, if you wanted to spend full time studying the market, but this is the advantage of specialization. (and yes, there are theives, as in any profession)

8. D Johnson says:

I have a sure system of winning from the state lottery!

By never buying tickets, and convincing my wife to do likewise, I don’t contribute to the net revenue received by the state, an amount which would presumably have to be raised by increasing taxes, which I can’t legally avoid paying.

I suppose it’s possible, when a pot has grown unusually large, that the expected revenue for a ticket could exceed its price, but I doubt it is frequent or signigicant enough to be concerned with.

9. Briggs says:

Matt,

Absolutely. Having a secret system to make one wealthy is contingent, and therefore not impossible. It is however, extraordinarily unlikely to be true. Much the same as the argument against psychic powers: if I could predict the future or read minds, there would be nothing stopping me from taking over the world. I certainly wouldn’t set up shop and charge \$5 bucks per reading.

Bill R,

True, Bill, true. But also possible is: he makes money, you lose it.

D Johnston-without-a-‘t’,

Amen, brother.

10. a jones says:

No doubt insider trading is a great evil but at least back then you could employ a stockbroker who did have inside information, nowadays, indeed ever since the Big Bang in London, they know nothing for all their analysts and the rest. So I buy my stocks through the bank and never trade, I just hold often for many years, seldom weeding and seeding, usually I sell when the stock is bought in a merger.

So I spend perhaps an hour or two a year on my portfolio and it has served me well.

Horseracing is quite a different matter. for over thirty years I made very handsome and steady returns year on year for little effort but then I had advantages. As a physicist and mathematician I have always adored studying games and gambling but avoided playing them for money, I have been in a casino once in my life, for curiosity, even though there is one just down the road from where I live. And I learnt all about bookmaking when I was small from a relative who was very successful one, by the time I was seven I could make a book and did, profiting shamelessly from my fellow schoolboys and later university students.

By the way did you know that the strange odds used in English horseracing come from the days of pounds, shillings and pence. Back then, and indeed still today in the ring, you went to a bookmaker who gave you odds on your choice and you laid your money and the bookie called the bet to his clerk, Nobby, all bookmakers’ clerks are Nobby, who wrote it down on his sheet and calculated the payout and put that down as well. In return you got a numbered ticket and if your horse won you went to the bookie gave him the ticket he called out the number to Nobby who called out the winnings and the bagman paid you.

But Nobby is much more important than that. An ideal book of many small bets is called round if it makes no profit irrespective of which horse wins, underround it may make a loss, depending on results, but overall time after time it wil always make a loss, but overround it will always make a profit: and typical overround is 115 percent. Now as the bets come in Nobby has to keep a close eye on the round and call the adjustments in the odds to keep up the overround. A very skilled job whih needs great agility in mental arithmetic and an ability of cast a column of figures in seconds. Hence the strange odds, they were designed to enable him to do this.

Thus odds such a 5 to 4, 33 to 1, 11 to 10 ODDS ON, and so forth. The funny thing is that these odds worked just as well after the currency had been decimalised as they did with 12 pence to the shilling and twenty shillings to the pound: so they never changed.

Now an ideal book is made of many small bets but the round can be disturbed if the money in the market, and it is a market where people wager their judgement against other’s opinions, flows towards a bookmaker who is offering better odds. To prevent this the Tick Tack man constantly signals the odds offered by his bookie to the ring and in return receives the Gen from others as to their odds which he calls out to Nobby who recalculates and calls them to the bookie, who writes the new ones up on his board.

Which is why you see in the betting reports both the odds at starting price, SP, the off, and the variation, eg. 2 to 1 but 11 to 4 in a place.

All that is fine until a bookmaker is asked to take a bet of such size it would put his book hopelessly out of round, this is not uncommon, thirty years ago at major meetings I have seen wagers of a quarter of a million pounds or more placed, perhaps a million today, and in cash. To deal with this the smaller bookie has to lay off which is done by using a runner. If he does not he is taking a bet that either the punter will be wrong and he will make an enormous profit, known as a skinner for the book, or he won’t be able to pay and be warned off Newmarket Heath so losing his business: these gambling debts cannot be enforced under English law.

All of which is great fun but the important point is that despite collecting racing statisitics for forty years and keeping the results on computer, and analyising them, I cannot predict the winner of a race: and nor can anybody else. I can of course tell you fairly accurately how much you would lose on the basis of your system for picking winners even if it supposedly adjusts for value according to the odds.

But in England the market is not true, it is distorted by licencing and taxation, and in the glory days if you knew how those distortions worked, and carefully placed bets small enough not to affect the market then you could make a lot of money. And I did.

Today changes in the law, taxation, and above all internet betting make it much harder, there are still profits to be made and I do, but they are a pale fraction of what could be made twenty years ago.

So if there are any rules they are these.

Never cock a snook at chance by playing against a wise man who owns the board, the casino, or whatever.

Never assume the game is straight, it is always weighted against you in some way or another: Oh yes the business loves a big winner but only because the treacherous promise sucks in vast numbers of new losers.

And never ever assume that being a regular winner is glamorous, it is the most boring thing I know: it is only the money at the end that makes it worthwhile.

Kindest Regards

11. These many long years ago, my brother (a mathematician) discovered a flaw in the way the odds were calculated on the quinella. There was a small but useful difference between the true odds and those calculated by the bookies. Sadly, because of the argument presented so eloquently here by Briggs, nobody would bankroll him. He was an impverished university student at the time studying for his second degree in the more (financially) useful discipline of engineering.

Someone else discovered the flaw and a syndicate of Melbourne Greeks made a killing for three weeks, or so until the bookmakers awoke to the problem and fixed it. My brother’s friends, who could have been the beneficiaries, took my brother to task for not having been persuasive enough. So it goes…

David Walsh is a local (Tasmanian) multimillionaire who made his fortune from gambling and calculating odds for gamblers (among others). He charges a lot more than \$50 for “tips”. He told me that he relies on runners to place his bets. If the bookies see him at the track, their odds change immediately. An important part of his edge is keeping information from the bookies.

I’m sticking to investing in real estate. SWMBO and I helped the Gitling sign a contract to purchase his first real estate yesterday, a one bed flat (apartment) within walking distance of his work. I’m one hell of a proud dad 🙂

12. Briggs says:

PG,

I once interviewed at a financial company that thought it had figured out that slight discrepancies existed in prices of stocks in the fraction-of-the-penny range. They were going to make bets on those and make a killing. Perhaps like your brother, the transaction costs would have — and I think eventually did — kill them.

To everybody else: the payouts at the track have transaction costs built in. The track takes a percentage off the top, which, in effect, scuttles systems that find small errors in calculations. Same thing with brokers’ fees in general.

It’s not that, as Matt Lewis reminds us, finding more and better information (legally) that others do not possess is impossible. It’s just very, very unlikely.

A Jones,

Thanks very much. I like England’s morals on betting. Here in the states we are both dreadfully afraid of it (and for rational reason; think “policy” and the mob), and greedy for it (which is why the government hordes its rights).

You have a better chance of finding an inept bookie, I think, than in finding hidden probative information.

Joy,

True?

13. JH says:

Theyâ€™ll sell a red hot tipâ€¦ because, again, they could have used that tip and made themselves a million. Right?

Riiight…if it’s too good to be true, then it probably is.

When people are winning or making money, they become convinced that they are skilled, and thus it seems senseless to stop while continuing to win. When people are losing, they say, “One more roll.â€ The luck must soon turn. (Gamblerâ€™s conceit and fallacy).

14. Briggs says:

JH! How we’ve missed you!

15. 49erDweet says:

Matt, was wondering if you’ve read the entire Vanity Fair piece on Harvard’s financial woes. Imo irresponsible and illogical wagering on many levels played a major role in their problems.  Know its not cricket to pan another institution, but I think I see some universal points about their behavior that tie into this post.  Cheers

16. a jones says:

Information, never heard any of any use. Inept bookmakers commonplace along with inept insurers and inept bankers. But you won’t get much change out of ’em: the system is too heavily weighted in their favour.

For which you pay.

Narrow arbitraging on tiny margins whether by the unknown mysteries of chartist law or the more modern computer embedded neural net software: it’s all balderdash.

As for those who claim to have made their money in the markets by their brilliance take them with a pinch of salt too especially if they want to manage your money, or invest it, or indeed persuade you to invest it in their schemes.

The same goes for successful gamblers and tipsters and their systems, only ever pay out after you have won, and then only a small percentage. If they don’t want to know you unless you put money up front you don’t want to know. Believe me.

And even less do you wish to know if they salt the mine with some small early winnings, keep your little winnings and see whether they turn nasty: if so run away.

In the UK winnings on horseracing are not taxable but the then Inland Revenue did require you to keep a betting book showing your bets, losses and returns. I kept one then and still do: and it is still inspected every year.

If you do not do this you will find your unaccounted income is taxed until you can show it is exempt. I always turn up in person for this with the books, nowadays the whole thing is perfunctory and you get a cup of tea and bickie.

But thirty years ago it was near harrassment, some junior fellow would turn up unexpectedly demanding to know what bets I had placed, how much cash I was holding and how much credit I had with the bookmakers.

And the inspection of the betting books was a grand ritual involving the Inspector of taxes, the Collector of taxes, the Customs and Excise, and all sorts even the great Panjarum from the Treasury himself.

They never asked why or how and I never told them.

Still don’t.

And I am not about to tell any of you either.

But if you want to hire me to tell you about how much you are going to lose on your new betting system naturally I will be happy to oblige. Cash up in front please and no refunds given.

Kindest Regards

But it is also grand, there is the Inspector of taxes, the Collector of Taxes, very important he, the representative of the Gaming Commission, the oh so terribly junior

I have some friends whose get-rich-quick scheme involved selling their master plan using nothing more than guessing. Here’s how the ruse works:

Send an email to 1 million people telling them you can successfully pick the outcome of stocks and you’ll prove it over the next two months. To 500k, tell them some stock A will go up. To the others, stock A will go down.

The next week, whichever side saw the *winner* you then send another stock tip — Stock B (250k up, 250k down).

You keep doing this for 7 weeks and you’ll have around 3900 people who have seen you “successfuly” predict the correct stock for 7 straight weeks. (Who wouldn’t jump on that, right?!?!?)

Sell the rest of your weekly “leads” for \$20, and with your fancy geometric sum you’ll pull over \$150k just using simple math!!!

18. Briggs says:

There is a similar scam used by horse touts: go to eight different people and tout eight different horses; after the race, find the one that “won” and then charge him for the next tip—and avoid the other seven!

A Jones,

Not taxable? I had no idea.

49erDweet,

Nope. I never seek out Vanity Fair. But thanks for the link!

19. JA says:

I know a way to make an easy \$50.00.
Send me \$50.00 and I’ll tell you all about it.

20. DAV says:

“And, at least at the race track you are making the assumption that gamblers are rational. ”

The professionals are or they would cease being professionals. The sad truth, though, is that the professionals livelihood depend upon the insane weekenders whose bets are based upon the unlikeliest things like color.

“There is some thought that there is an inversion in the economic concept that there is dimishing satisfaction as you get more of something. If you do not have very much money, losing a little in the lottery is not to painful, but your perception of what you could do if you hit the jackpot draws you into a game that is drasticly stacked against you.”

So you yourself are making the assumption that gamblers are rational? I don’t think this inversion exists — at least as a reason. If it were true, more people at the track would bet on long shots. Something which self-evidently doesn’t occur.

People do seem to perform cost/benefit analyses so a few not-so-missed-dollars might be diverted to unlikely, but possibly high return, wagers. I doubt that most derive satisfaction from such a bet.

Briggs: “The track takes a percentage off the top, which, in effect, scuttles systems that find small errors in calculations”

Yet there are those who try, In track parlance they are known as “bridge jumpers”. With enough money it’s possilbe to buy a betting pool. If the number of successful bets is large enough (same as the number of dollars) then the payout would be less than the minimum legal requirement (which is 1.05:1). The track is required to make up the difference (usually paid for by permissible rounding errors in past bet payoffs). A potential instant profit of 5%. And guaranteed IF the bet is successful. I think there are easier ways to make 5%.

In 15 years I think I saw someone try this once. The bet is usually to show. The bettor is called a ‘bridge jumper’ because that action might be preferable to explaining what happened to all of that (often borrowed) missing money when the bet goes south. Every so often. something similar happens in other pools. In the WIN and EXACTA pools the bettor is called a ‘whale’.

21. Joy says:

22. DAV says:

“There is a similar scam used by horse touts: go to eight different people and tout eight different horses; after the race, find the one that â€œwonâ€ and then charge him for the next tipâ€”and avoid the other seven!”

There was a guy on a Virginia AM radio program that charged \$20 for a winning tip. The tip came with a money-back guarantee. So, outside of any bets, the cost of the tip only applied if the tip was true. The guy made \$20*N on a lot of races. Apparently he never cheated (by reneging on the guarantee) but, as it turns out, this particular form of tout is illegal. How its really any different that the Daily Racing Form or the track’s daily picks is beyond me.

People will fall for this (and other touts) because they fail to understand that their opponent(s) in the bet are the other bettors instead of the track. The last thing a savvy track bettor wants is company.

The reverse is true at the market. The more the merrier. The real danger is that a tout might really be a “pump and dump” scheme. Who ever told you that the price of a stock was a reflection of “True Worth”? You’re probably one of those commies who stuck the pin int the dot-com bubble!

23. My neighbor used to grow hay and feed it to his cows. It was a low income strategy.

Now he grows hay and feeds it to his race horses, that he breeds and sells to deep pocket race horse stables for boocoo bucks. It is a high income strategy.

Both strategies were gambles with unknown odds, but strategy B has worked out a lot better.

24. a jones says:

Yes. Although in the UK the taxman has brought into his net groups who were previously exempt such as, as I was taught to call them, ‘ladies of the evening’, or as Pratchett delightfully describes them as ‘ladies of negotiable affection’, gambling winnings as paid out remain exempt.

Wise professional gamblers do however declare their winnings because if the taxman finds large sums unaccounted for he can cause you serious problems. With money laundering and anti terrorism laws etc. it is much more difficult today to avoid telling the taxman: for instance you can no longer buy a motor car for more than few thousand in cash without the transaction being reported. When I first started to make serious money nearly forty years ago I was probably the exception about declaring it: and I did so on the basis of some excellent advice from a then well known tax lawyer. HM Government collates and publishes this data.

So I can inform you that last year only 207 professional gamblers declared winnings in excess of a quarter of a million pounds for the year and the majority were poker players, horseracing only accounted for five. And those winnings are tax free.

I know nothing of horseracing or betting in the USA, but I know a great deal about it over here. And of all the legends about sucessful gamblers, angles and wangles, using runners to spread the bets, inside information, race fixing etc.etc. All very colourful but I don’t believe a word. The only major coup here I know of was over twenty years ago when some gentry managed to forge a horse’s passport and ran a ringer, when the coup became apparent the Jockey Club investigated and called the police and some of those, but by no means all, went to the Old Bailey and thence to Clink.

Although in the UK there is a mutual, the Totalisator, or Tote, the market still dominates, and like any other market it repays careful study. You do not need to know horse A has 3 legs or 5, but you do need to know how the market works and it’s bias and distortions.

For instance chartism for stockmarkets with its graphs and deductions is supposedly able to reflect investor sentiment. It can’t of course, you would do better with a set of Tarot cards or a Mystic medium. No matter, many investors from major institutions to private investors believe and their belief expressed as buy and sell decisions moves the market.
So you do not need to know whether stock X is a sound buy only what others think in order to decide whether it is or not.

Don’t take this as stockmarket advice by the way, in my personal opinion the margins are too small, the capital requirements too great and the variability too large for a private investor to make money at it. But hey what do I know?, maybe a few thousand day traders can prove me wrong, and I am sure there are tales of how one or another made some great gains. Whatever.

Likewise I will opine that many in the UK horseracing industry do make small but steady returns, a bit more than pocket money but less than a handsome living, by betting on National Hunt, over the fences, the sticks as they are called, because unlike horses on the flat jumpers run very consistently to form. Here the problem is of falling at a fence and as you might suppose the more experienced horses and jockeys fall less often but much depends on familiarity with the course, the state of the ground, and such like.

Here it is very much the insiders’ knowledge versus the outsiders’ punts that counts. But it is not for me, I know nothing about horses and standing round in mud in drizzly chilly winters for a tiny prospective return is not my style. I spend my winters in sunny Spain.

But just as the history of a technology is written in it’s patents so the history of the UK horseracing betting market is written in its odds. If you look at the standard odds tables, which simply allow you to calculate stakes and returns, you might note that those before the second world war devoted considerable space to Odds On bets: yet today favourites rarely run at odds on. Why?

Because the industry changed and the market with it.

Before WW2 the industry was small and very much the preserve of the wealthy who were quite well informed so on course odds were low. Off course betting was allowed but the bookmaker could not own retail premises open to all, he could only deal with individual clients and even then on credit. Many of these off course bookmakers were one man bands who made their own book according to their client’s fancy; but quite a few were considerable concerns, partners because they were not allowed to be limited companies, and many specialised in laying off for their smaller brethen earning the name equalisation houses.

Because all off course bets were struck ante post, AP, that is on fixed and agreed odds well before the off. But illegal off course bookmakers with their runners who solicited custom were rife and they took the bets at SP, the starting or final price at the off. That is very profitable, in general a book built on AP bets will be kept to an overround of between 110 and 120 percent: but at SP the overround tends to be of the order of 125 to 135 percent.

After WW2 horseracing became popular and the industry expanded hugely as courses realised the potential, prize money increased bringing smaller owners into the business, and above all off course retail gambling was made legal.

So all the illegal street bookies opened shops but took with them their habit of only paying on SP not AP.

But with legalisation came taxation originally set by a complex formula of about 6 percent of money laid off course but later amended to 8 percent and finally, before it was abolished 8 years ago in the face of internet betting, 9 percent.

No matter, from the beginning the off course retail bookies charged their customers two bob in the pound for ‘Tax’, 10 percent, and they never changed it until abolition, well it is such a handy source of extra revenue. And the punters knew no different.

However because the tax could not be reclaimed laying off became a costly business, double taxation in effect.

As importantly the volume of money placed off course increased hugely so it came to dwarf that placed on course and as the off course bookmaking business consolidated with ever bigger chains this started to cause problems so the big chains started feeding money on course to move the SP in their favour. The Jockey Club was not happy about
this and an informal agreement was reached to prevent the big chains swinging the odds even more heavily against their punters.

So by the early 1970’s a new market had appeared but one which was distorted by taxation and variations in the volume of bets as the world and his wife, encouraged by the press, took punts according to their means so on paydays, traditionally Thursday and Friday. were very busy, as was Saturday, no racing on Sunday of course, and so forth.

Now this is where good statistical analysis pays huge dividends. As we all know correlation is not causation, but if you know or suspect the causation and can predict from it then correlation, or the lack of it, will tell you whether you are right or wrong.

Of course back then it was a bit more toilsome, today with Matlab you can probably prove a correlation between almost anything you choose and then invent some plausible nonsense as causation and get your Phd and government grant. Just don’t try putting your own money on it.

Especially not against the big UK bookmaking chains, they employ statisticians too and with their records of bets placed have a unique insight into what is going on.

And they discovered the Value punter, in truth he has probably always existed. But he is, as he imagines, is the wily punter who is not seduced by long odds with improbable chances of sucess but scorns short odds favourites beause there is not enough money to be made. No the real money he opines is found in medium odds horses at 4 or 5 to 1, that is real Value for his money. And in this he is supported by the pundits and the journalists and the like.

He could not be more wrong. If we compare actual results to the odds offered over the last fifty years we find that the shorter the odds the better they reflect the outcome: that is if you consistently back short odds favourites you will lose less money than if you back those in the middle of the market: as for the long odds tail enders you will lose far, far more. In whatever event you will make a consistent loss, but in UK racing at least backing favourites will minimise your losses.

But this psychological factor has led bookmakers around the world to devise complex multiple bets and offer bonuses for five or six or more correct selections, there are many variations. Here the bookmaker is taking a punt based on psychology, he knows that few if any punters will back favourites for all the selection, in which case he would be underround and make a loss.

But he also knows that almost all punters attracted by this kind of bet will not be interested in boring low paying favourites so the advantage is his. It is not unusual by the way for the curious and mathematical to see that there is a margin to be made against the bookmaker in these multiple bets, but they usually forget to calculate, given the tiny margin, the amount of capital needed to cope with the natural variation in results.

Today the rise of Internet betting, the abolition of off course taxation, the ability to feed bets into the market using mobile technology all mean the market is changing again and one must adapt or retire. I am not quite ready for retirement yet.

And of course should our American friends care to visit in what we laughingly call the summer and would like to enjoy a day or evening out at the races to see how we do it, well drop me a line giving a little notice and I would be happy to show you.