A Review of "Secrets of Professional Turf Betting", by Kedrick Brown
I recently had the privilege of reading Robert Bacon's "Secrets of Professional Turf Betting."
Thanks to the chair for recommending this outstanding book. I am impressed with the unique and engaging way in which it explains the necessity of a professional turf speculator betting only when he believes he has a positive expectation, sizing his bets properly, developing unique viewpoints (that may often fly in the face of public opinion), and actually speculating as opposed to grinding out profits. If Bacon's advice is sage for turf betting, in which the track's take can be in the neighborhood of 15% plus, how much more so for market speculation (which has a relatively lower proportion of execution costs)!
In "Secrets...", Bacon exhorts the aspiring turf speculator to only bet on individual situations in which he believes that he has a positive expectation with respect to the displayed payout ratio (or "price") for a horse at the track. A situation like this is called an "overlay", as has been mentioned several times on the list.
The displayed payout ratio for a horse on the track board is formulaically related to the probability of winning that the horse must have for a bet on the horse to have a zero expectation. A speculator that is able to make bets with consistently positive expectations will not win every bet, but can expect to be net profitable over the long run (provided that he sizes his bets sensibly).
If we state the displayed payout ratio at the track as R:1, a turf speculator's actual probability of winning must exceed [1/(R+1)] for him to have a positive expectation. For example, a 3:1 payout ratio requires a probability of winning greater than [1/(3+1)] = 25% for the speculator to have a positive expectation. So if you believed in this situation that the horse's actual probability of winning was closer to 40%, this would be an "overlay", and it would make sense to bet on that horse winning the race. Another way of looking at this is that if you believe e.g. that a horse's probability of winning a race is 40%, its payout ratio must exceed [(1/40%)-1] = 3:2 for it to be worth your while to bet.
A speculator's percentage of winning bets thus doesn't reveal a whole lot by itself. For example, did that speculator achieve a 50% win rate betting only on situations with 3:1 payout ratios? Or did he achieve a 50% win rate betting only on situations with 1:3 payout ratios? Furthermore, how did he size his bets? The answers to these questions all have vastly different implications for his profitability. Further complicating the situation is the fact that payout ratios at the track are not static during the period when bets are allowed, but shift up and down based on the public's betting behavior.
Clear overlay situations do not come along in every race, and Bacon emphasizes that exploiting them requires tremendous patience and discipline. Hard work must also be put into estimating probabilities of winning, which Bacon shows to be both art and science, and the fruit of dedicated study of track conditions.
Bacon also shows in his book that the public seems to have a tendency to overly focus on recent performance and pay little attention to a large number of other details (seasonal factors, weight allowances, etc.) that may make certain horses great bargains at particular times. The books illustrates clearly that different things work at different times, and a turf speculator must constantly be on the alert, and thinking outside of the box, to take advantage of whatever opportunities are present.
The "music" of the track (i.e. payout ratios and musical intervals):
In the spirit of fun (based on the "Music and the Markets" thread)...The fact that payout ratios at the track are rational numbers in the form a/b (i.e. where a and b are integers with b not equal to zero), brings to mind an instant parallel to music. Perfect two-note musical intervals can also be expressed in the rational form a/b, which is a ratio of the note frequencies in the interval.
For example, if your root note (e.g. Middle C) is 440Hz, the next higher C which is 1 octave higher, would be at 880 Hz, which makes the interval ratio 880/440 = 2/1. The note G can then be set at 660 Hz, which equates to a ratio of 660/440 = 3/2. If musical intervals have rational number ratios, they sound more harmonious to the ear than if they have irrational number ratios, the latter which is the case on many modern pianos (due to a relatively modern tuning convention). This is a fascinating explanation of the history of tuning.
In any case, we have the fact that musical intervals can be expressed as rational numbers, and we also have the fact that all payout ratios are expressed as rational numbers. So imagine if you will that each payout ratio at the track is continuously played as a musical interval with the same root note (perhaps on a separate instrument for each horse). Lower priced horses (i.e. those most favored to win) would tend to have tighter intervals (e.g. 9:8, 1:1, 7:8). Higher priced horses (e.g. 4:1, 5:1, 10:1) would tend to have wider spaced intervals, with the respective second interval notes at higher pitches.
As payout ratios shift up and down pre-race, so would the individual intervals played, probably resulting in a partially harmonious / partially chaotic sound similar to the tuning of an orchestra.