Wagercapping and Value

[alydar_ David]

Well written, Ted. You've provided some gristle to chew on.

[BJennet]

Originally Posted by Houndog

Following is a post from another BBS that I thought to be thought provoking. I think these ideas would apply to RDSS and users of other Sartin programs as well. The post follows and the original article is bolded.


Following the compelling conversation on the overlay/underlay thread, I've been a big believer for a long time in the lack of understanding in the construct known as "value" and how misguided it is in popular handicapping parlance. Watching TVG one day, where the word value was uttered no less than 46 times in an hour, in what I felt was a horribly misplaced context, I decided to pen a piece discussing the pitfalls of value.

I appreciate the thoughtful handicapping and ideas of this forum and would like to share this article I wrote for Horseplayer Magazine in the JAN/FEB 2010 edition entitled "The Perception of Value". I expect plenty of disagreement here as I am not a believer in the creation and use of a value line in daily handicapping. I also am not a follower of the spot play methodology as it does not suit my personality or handicapping strengths. I have a HUGE amount of respect for those patient enough to chase positive ROI with the spot play methodology. I

In any event, despite certain differences in individual methodologies here on this forum, one thing is for certain: This group is the most thoughtful and inciteful collection of 'capping minds in cyberspace. We are all here to become better handicappers and engage it what we love and I have great admiration for the respect that is shown to others, those of all levels, herein. After all, anyone willing to think outside of the box of simple static PPs is light years ahead of the pack. Even those with a lower current level of aptitude are willing to ask questions and will be better in the long run for it, especially given the thoughtful responses.

Thanks in advance for reading and I would appreciate any and all comments.

All the best in 2011...


“The Perception of Value”
A Contrarian’s Approach to the Ever-Elusive Concept of Determining Value, and How It’s Not as Important as You Might Think

Part I: “An Alternate Theory”
George Soros is one of the most successful investors in the history of financial markets. As of May 2008, he was ranked by Forbes as the 97th richest person in the world. People as successful as Mr. Soros possess special qualities that enable them to excel in a world where so many fail. George Soros is a brilliant man. However, intellect alone isn’t responsible for his wealth. There are millions of exceptional individuals in the world that fail to capitalize on their god-given talents.

Those rare individuals reaching the apex of success have something new to offer to the common discourse. The traditional way of thinking breeds mediocrity. To truly reach a different level, throw out widely held principles and look for an alternate angle. For George Soros, a contrarian viewpoint in the form of his theory of reflexivity is precisely what enables him to gain a considerable edge on his competition.

In simple terms, reflexivity revolves around the fallibility of human beings attempting to understand the world in which they are a part. For example, Soros uses reflexivity as a counter to the widely accepted economic theory of supply and demand that dictates that markets are said to straighten themselves out at a point of equilibrium. His argument is that our own bias and fervor lead to unavoidable mistakes, the most intense of which can produce results such as the mortgage crisis.

Here is an apt quote summarizing one of the main ideas of reflexivity: “It contends that social events are fundamentally different from natural phenomena; they have thinking participants whose biased views and misconceptions introduce an element of uncertainty into the course of events”

Mr. Soros utilizes the aforementioned fundamental elements of his theory to explain his approach to investing, politics, and other social events involving human subjects. While the finer points of reflexivity are a counter to accepted economic principals of financial markets, it can easily be applied to any other facet of life involving human decision.

I believe success can take a path that strays from the norm and, perhaps more importantly, is predicated on a mindset that is often counter to the majority opinion. The great thinkers and achievers often create a new approach that moves beyond commonly accepted wisdom. The importance of a contrarian state of mind is an essential building block to long-term success as a horseplayer. You will be a profitable handicapper only at a point in which you can gauge when, and to what degree, the majority is flawed.

Part II: “Reflexivity and Pari-Mutuel Value”
The pari-mutuel foundation of the North American sport of thoroughbred racing is rooted in the mold of a typical free-market system. Patrons, whether on track, via simulcast, or through online sources, collectively set the market price for the win, place, and show payoffs, as well as all exotic wagers. The theory of reflexivity is useful in the exploration of the pari-mutuel system—especially with respect to the concept of value—and acts like any other financial market. Of course, counter to the markets, when patrons are bullish on a horse, the price drops due to the increase in the amount wagered. The inverse is true if patrons are bearish on certain animals.

Value is a favorite subject of handicapping texts. This is a subjective, often convoluted discipline that forms the backbone of handicapping theory for just about every serious horseplayer. Due to the enormous challenges of profitably handicapping the horses, an understanding of value is considered the cornerstone of beating the usurious takeout. The key facet of this tenet is to find overlays—industry parlance for horses taking less money at the windows than what the player perceives as fair odds. This core concept is entirely subjective, but nonetheless widespread and worth ample discussion.

Several top horseplayers, the most experienced and shrewd in the country, have a much better grasp on the concept of value than their competitors. That is, they are able to exploit certain market prices set by the actors in the pari-mutuel pools when they feel it is to their advantage. They make wagers only if they perceive an edge, which is measured as the difference between the actual odds and their opinion of what the odds “should be.” For example, when a horse they believe “should be” 3/1 is headed to the gate at 10/1, this spread is considered quite advantageous.

While I agree the concept of value is important, the subjective nature of it is troubling and difficult to truly assess in a meaningful way. Further, some well-respected industry handicappers claim they have an advantage when a horse goes off at even money when their opinion is that the horse “should be” 4/5. Much of this mindset is rooted in the value-line concept by which handicappers create an odds line based on their idea of the probability of each horse to win the race.

Reflexivity would contend that bias is inherent in any attempt to explain behavior, such as wagering patterns by the subjects themselves, which are, of course, the other bettors. Therefore, the pari-mutuel free market is flawed through the difference in the reality of what the odds of the #1 horse to win actually are (perhaps 2/1) and the perception of what an individual feels the price for the #1 horse “should be” (let’s say 7/2) through their own interpretation. That is, the biases in our own perception of what constitutes fair value skews the system enough to ensure there is no such presumption as the proper price for each horse.

I understand why value is an important concept, but I fundamentally disagree with how it is conceptualized. If you spend a day watching TVG or flip through the simulcast signals at your local OTB listening to pre-race analysis, you’ll hear the experts talk about value every five minutes. Popular phrases like, “If you’re looking for some value in this race, here is your horse” or, “There are a lot of value opportunities in this full field.” These statements are as common as the day is long.

I have a pretty strong theory of how to win at the races that has very little to do with value as it is commonly purveyed. I don’t care where the horse “should be” priced because I never bet on low-priced animals. As such, I analyze all appropriate angles, past performances, race replays, and utilize all other handicapping tools to determine the most logical winner. If that horse is less than double-digit odds, I will rarely, if ever, play that horse to win or use it as a key to vertical and horizontal wagers.

The perception of value—seeking overlays—is largely irrelevant, as only one finite result will occur. That is, the horse an individual is backing with the alleged inflated odds still needs to win the race to be deemed an overlay under this line of thinking. For example, let’s take a situation where a handicapper extols the virtues of a horse that “should be” 5/1 and ends up 15/1 at post time. The horse puts in a nice run at the top of the stretch before fading to a sixth-place finish. The idea that the horse “should have” been 5/1 is completely irrelevant.

Proponents of the value line mindset might argue that if this horse had won, and its fair odds “should have” been 5/1, you’ve made three times your money, which in effect, negates the takeout. This is a strong fundamental counterpoint, but the 10/1 overlay is an individual observation, not fact or knowledge. Perhaps another handicapper thought the horse “should be” 15/1.
George Soros gives another telling example of his theory in action which helps to clarify the example discussed above: “Take the stock market, for example. People buy and sell stocks in anticipation of future stock prices, but those prices are contingent on the investors’ expectations. The expectations cannot qualify as knowledge. In the absence of knowledge, participants must introduce an element of judgment or bias into their decision making. As a result, outcomes are liable to diverge from expectation”.

That proclamation can easily be applied to the pari-mutuel system. That is, people have expectations for certain race results, which are not facts or knowledge. The decision to wager on a potential outcome is rooted in biased judgment, even if that opinion is through a meticulous review of past performances, race replays, and other handicapping tools. Therefore, the actual results of the race will often differ from the punter’s projected outcome. This naturally includes unforeseen barriers such as bad trips, unanticipated pace scenarios, injury, and other physical by-products of the chaos of an event as capricious as a horse race.

The importance of discussing this theory is threefold:
1) To reinforce the notion that the collective group is often wrong.
2) Promote a counter viewpoint to the subjective process of seeking overlays.
3) Understand the role of our own inherent bias in the handicapping process.

As noted earlier, the price of a given horse, no matter where it ends up, is a result of biased information. Philosophically, given the shortcomings of humans attempting to understand our own behavior and the decisions of others, one should never play short-priced horses. Pragmatically, putting philosophy on the back burner, there is nary a horseplayer alive that can turn profits on a regular basis by betting the odds-on chalk to win. This is regardless of whether this particular favorite is deemed an overlay through a value line or other method of subjective reasoning.

Part III: “Practical Application”

This advice needs to be placed in proper context for practical use. Horizontal bettors, those individuals who prefer to play multiple race tickets in the form of wagers such as the Pick 3, Pick 4, and Pick 6, must use chalk to survive certain legs where beating the favorite is an exercise in futility. In most circumstances, my overall hatred of chalk is limited to accepting a small payout on a favorite to win, no matter what the perceived overlay might be (i.e., 2/1 at post time and “should be” 3/5, for example). It also stems from my lack of confidence in fellow human beings to correctly predict the outcome of a chaotic, isolated event with thousands of moving pieces such as a horse race, on a regular basis. There are too many collective variables at play in a horse race to ever pull the trigger on a low-priced horse to win. Attempting to grind out a small profit carefully spotting plays on overlaid chalk is not my idea of a fun hobby.

My approach to the races in general terms is to concentrate on the following:
1. Avoid low-priced animals in the win pools
2. Concentrate on the final odds of the most likely winner at post time. This approach is similar to the overlay/finding value mindset, without the pre-conditions and qualifiers. Overlay seekers tend to compare their own idea of what the line “should be” to the actual current odds. I could not care less about the “should be” and concentrate purely on the odds of the most likely winner.
3. Construct horizontal/vertical wagers based on double-digit horses
4. What I love about this game is the capacity to invest a relatively small amount of money to win a relatively large amount. I use that credo as a foundation to structure most of my wagers. For example, on Saturday of the 2008 Breeders’ Cup I singled a double digit price, Muhannak, in the Marathon ($26.80), went five deep in the contentious Turf Sprint (and was lucky enough to consider Desert Code a strong contender to win the race), and went three deep in the Dirt Mile covering Albertus Maximus. That $15 spread paid $5,261.10.

Reflexivity is an advanced concept from a brilliant man that is able to, at least in part, tell you why the collective group is often incorrect. My thoughts are the ramblings of a cynical horseplayer. The idea of reflexivity as it relates to the pari-mutuel system is a great exercise to think critically about the approach to profitability. While highly theoretical and sometimes difficult to deconstruct, the practical application is valuable.

JEROD DINKIN is an avid horse racing fan and handicapper. The 2006 Canterbury Park Handicapper of the Year is a three time qualifier to the Horse Player World Series and the NTRA/DRF National Handicapping Championship

Hi Houndog,

No offense, but I think this piece conveys the opposite of the way that Soros' intended his concepts to be used. Specifically, it's aimed at reminding his colleagues and competitors on Wall St., where people use highly sophisticated and often very effective models to predict financial performance, that their models are limited by the kind of flaws that are endemic to human judgement - reflexivity. As one of the greatest investors of our time, he's sending a message that even he makes mistakes - and thus is extremely careful and conservative in his own decision-making. Given the context, he's not saying 'the crowd is dumb, but you're smart'. He's saying, 'Realize that you're just as dumb as the rest of the crowd.' Like the brilliant Nassim Taleb, whose 'Black Swan' preaches a similar message, and might be of interest to you, he's the opposite of a motivational speaker.

Soros' point that the equilibrium model is imperfect is true, but that didn't stop William Benter from making hundereds of millions of dollars using one, nor does it hamper his proteges, or others users of databases from making huge profits today. The crucial point you seem to miss, is that one doesn't need a perfect model to win, just a better one (software of mental) than your opponents.

And as Benter pointed out, your mutuel-pool competitors may be limited as individual bettors, but as a group the 'wisdom of crowds' kicks in and makes them a very tough collective opponent. This is why 99+% of all horseplayers are losers. This is also very much Soros' point.

I agree that the term 'overlay' is basically meaningless, but the term 'value' is not, even if it's often misused. The only thing that matters, in this regard, is whether or not one is playing with a long-term edge - if not, one is never receiving value, if so, every horse is an overlay, i.e. has value.

Re practical application, you mentioning checking the final odds of the horse you guage as the most likely winner. What does this mean? If you don't care about value, what's the point of checking the odds? Why worry about how low the odds are? You contradict your whole argument.

In fact, the people who profit from this game are those who have the most precise and accurate idea of what the true odds on each horse should be, and thus know best when they have an edge, and how big that edge is. But that can only be determined through long-term research, Something you never mention.

Cheers,

B. Jennet

[Ted Craven]

B Jennet,

In your response above, by 'you', I presume you are addressing the author of the cited article (Jerod Dinkin). It sort of sounds like you are addressing Houndog, as if he was the author, or as if he subscribed in entirety to the author's thesis (which I did not read Houndog to say).

Ted

[BJennet]

Originally Posted by Ted Craven

B Jennet,

In your response above, by 'you', I presume you are addressing the author of the cited article (Jerod Dinkin). It sort of sounds like you are addressing Houndog, as if he was the author, or as if he subscribed in entirety to the author's thesis (which I did not read Houndog to say).

Ted

Hi Ted,

I stand corrected. My apologies to Houndog.

Cheers,

B Jennet

[Houndog]

Originally Posted by BJennet

Hi Ted,

I stand corrected. My apologies to Houndog.

Cheers,

B Jennet

Your response to the original post makes valid points also. I am trying to sort this out for myself and am trying to adopt some of these concepts in my handicapping.

I asked the author if he meant double digit odds or double digit mutuels in his article. He stated double digit odds or something close to that. For myself holding out for double digit odds would mean longer runouts which at this stage of my game I am not ready to do. Double digit mutuels seems more reasonable to me. Following is part of his article I would like to comment on. The bolded part is part of Jerod's original article.

I have a pretty strong theory of how to win at the races that has very little to do with value as it is commonly purveyed. I don’t care where the horse “should be” priced because I never bet on low-priced animals. As such, I analyze all appropriate angles, past performances, race replays, and utilize all other handicapping tools to determine the most logical winner. If that horse is less than double-digit odds, I will rarely, if ever, play that horse to win or use it as a key to vertical and horizontal wagers.

One thing that was pointed out me is you have to be careful about the "Too Good To Be True Syndrome" or "Why Am I The Lucky One"? If you are getting 10-1 and above after careful analysis of the PP's, and your other tools that you use to determine the most logical winner something might be amiss. My experience has been that horses going off at double digit odds are usually not the most logical winner and may have one or more apparent flaws as perceived by the betting public's perceptions. Bad last race; layoffs; etc.

All comments and suggestions are most welcome.

[BJennet]

Originally Posted by Houndog

Your response to the original post makes valid points also. I am trying to sort this out for myself and am trying to adopt some of these concepts in my handicapping.

I asked the author if he meant double digit odds or double digit mutuels in his article. He stated double digit odds or something close to that. For myself holding out for double digit odds would mean longer runouts which at this stage of my game I am not ready to do. Double digit mutuels seems more reasonable to me. Following is part of his article I would like to comment on. The bolded part is part of Jerod's original article.

I have a pretty strong theory of how to win at the races that has very little to do with value as it is commonly purveyed. I don’t care where the horse “should be” priced because I never bet on low-priced animals. As such, I analyze all appropriate angles, past performances, race replays, and utilize all other handicapping tools to determine the most logical winner. If that horse is less than double-digit odds, I will rarely, if ever, play that horse to win or use it as a key to vertical and horizontal wagers.

One thing that was pointed out me is you have to be careful about the "Too Good To Be True Syndrome" or "Why Am I The Lucky One"? If you are getting 10-1 and above after careful analysis of the PP's, and your other tools that you use to determine the most logical winner something might be amiss. My experience has been that horses going off at double digit odds are usually not the most logical winner and may have one or more apparent flaws as perceived by the betting public's perceptions. Bad last race; layoffs; etc.

All comments and suggestions are most welcome.

Hi Houndog,

The main problem with the using this article to improve your own play is that it's so vague, it's impossible to use, as far as I can tell. There is no inherent value in playing double-digit horses, and no value in playing them at all if their true probability of winning is less than their odds. This seems almost too obvious to even be worth stating, but he never does so in this article.

There is no way you can know your edge on such a bet (or any bet) unless you are either using a database, or have some relatively long-term records of your performance, or at least of the performance of the method, technique, or software that you're using.

In asking the question, 'Is this bet too good to be true', you're asking exactly the question that Soros would be asking, and demonstrating that you understand Soros better than Jerod Dinkin. Only long-term records can give you the answer to that question.

Cheers,

B Jennet

[McCarron7000]

Originally Posted by BJennet

Hi Houndog,

No offense, but I think this piece conveys the opposite of the way that Soros' intended his concepts to be used. Specifically, it's aimed at reminding his colleagues and competitors on Wall St., where people use highly sophisticated and often very effective models to predict financial performance, that their models are limited by the kind of flaws that are endemic to human judgement - reflexivity. As one of the greatest investors of our time, he's sending a message that even he makes mistakes - and thus is extremely careful and conservative in his own decision-making. Given the context, he's not saying 'the crowd is dumb, but you're smart'. He's saying, 'Realize that you're just as dumb as the rest of the crowd.' Like the brilliant Nassim Taleb, whose 'Black Swan' preaches a similar message, and might be of interest to you, he's the opposite of a motivational speaker.

Soros' point that the equilibrium model is imperfect is true, but that didn't stop William Benter from making hundereds of millions of dollars using one, nor does it hamper his proteges, or others users of databases from making huge profits today. The crucial point you seem to miss, is that one doesn't need a perfect model to win, just a better one (software of mental) than your opponents.

And as Benter pointed out, your mutuel-pool competitors may be limited as individual bettors, but as a group the 'wisdom of crowds' kicks in and makes them a very tough collective opponent. This is why 99+% of all horseplayers are losers. This is also very much Soros' point.

I agree that the term 'overlay' is basically meaningless, but the term 'value' is not, even if it's often misused. The only thing that matters, in this regard, is whether or not one is playing with a long-term edge - if not, one is never receiving value, if so, every horse is an overlay, i.e. has value.

Re practical application, you mentioning checking the final odds of the horse you guage as the most likely winner. What does this mean? If you don't care about value, what's the point of checking the odds? Why worry about how low the odds are? You contradict your whole argument.

In fact, the people who profit from this game are those who have the most precise and accurate idea of what the true odds on each horse should be, and thus know best when they have an edge, and how big that edge is. But that can only be determined through long-term research, Something you never mention.

Cheers,

B. Jennet

I'm the author of the piece in question and appreciate the comments and critcism.

To answer a few of your points, which are well taken, let me first say that the roughly 1,500 word limit doesn't allow for the type of depth necessary to adequately convey and reinforce certain concepts.

As far as the delineation between value and overlay are concerned, you have an apt point. I do believe there is a very (very) small percentage of the horseplaying world that is truly capable of creating a value line and exploiting that relationship in a meaningful way to be profitable. This is likely the result of decades of study and reserved for only the best of the best.

Please keep in mind, the article was not written for an advanced audience (say for example, members of a Sartin Methodology forum), but rather a typical horseplayer that gets force-fed terms such as value in a horribly erroneus context on a regular basis. They are rarely challenged with anything other than the same recycled concepts, many of which are utterly useless and entirely DRF and Beyer fig centric in nature. This was intended to provoke thought on a different level, whether or not the reader agrees or disagrees with the content.

My methodology as it relates to the 10:1 qualifier is based on several years of pouring over my individual results bet by bet and coming to the conclusion that is where I can optimize my play. Do I always conform to this? No. However, without setting strict guidelines based on my historical performance, I'd be much less disciplined as a horseplayer and would be much more likely to repeat past transgressions.

[BJennet]

Originally Posted by McCarron7000

I'm the author of the piece in question and appreciate the comments and critcism.

To answer a few of your points, which are well taken, let me first say that the roughly 1,500 word limit doesn't allow for the type of depth necessary to adequately convey and reinforce certain concepts.

As far as the delineation between value and overlay are concerned, you have an apt point. I do believe there is a very (very) small percentage of the horseplaying world that is truly capable of creating a value line and exploiting that relationship in a meaningful way to be profitable. This is likely the result of decades of study and reserved for only the best of the best.

Please keep in mind, the article was not written for an advanced audience (say for example, members of a Sartin Methodology forum), but rather a typical horseplayer that gets force-fed terms such as value in a horribly erroneus context on a regular basis. They are rarely challenged with anything other than the same recycled concepts, many of which are utterly useless and entirely DRF and Beyer fig centric in nature. This was intended to provoke thought on a different level, whether or not the reader agrees or disagrees with the content.

My methodology as it relates to the 10:1 qualifier is based on several years of pouring over my individual results bet by bet and coming to the conclusion that is where I can optimize my play. Do I always conform to this? No. However, without setting strict guidelines based on my historical performance, I'd be much less disciplined as a horseplayer and would be much more likely to repeat past transgressions.

Hi Mr. Dinkin (if I have the correct name)

I'm glad to see you were not offended by my comments. For me, the most important aspect of your piece was in revealing the concept of the 'overlay', as, in fact, chimerical. My basic criticism centered around the lack of practical application for the concept of 'reflexivity', and a certain vagueness about your own handicapping, although you're obviously very successful. However, you did clarify the latter with your comments about your research on your own hit rate for longshots, which I agree is essential.

But just to disagree somewhat with the notion of the impossibility of creating a value line you express here. First, it's certainly true that relatively few players have the understanding or willingness to put in the work to create an accurate line. However doing so requires only a month or so with a piece of handicapping software - not decades of research. Second, winning play doesn't require a line with this kind of mathematical precision. I have known long-term winners who simply have an instinctive sense of the true probability of their choices vs. the public line and can profit accordingly. It sounds like you may be this kind of player.

But regardless of whether one is using software to create an accurate line, or simply has an instinctive sense of one, every winning player, everyone playing with a long-term edge, must, by definition have the ability to find value.

Cheers,

lansdale

[Fastracehorse]

Hi,
New to this forum
Was a member of the old DRF community and posted selections for a few years until they closed it - but enjoying the PAIHL contest on Paceadvantage ( some real good handicappers from all over the net competing for about 4 months )
- the scorer and contest organizer is super duper

on the first day of the contest there was a 30-1 at GP that won; and i believe 10 out of the 50 teams had it, my team fluked the x

i am definitely a longshot player - how i find value is learn how to pick them

probably my best angle is an adjusted speed fig - you guys know "key-race" theory?
"key-race" tabulating is alot of work and somehow I developed a very accurate speed fig on the shoulders of key race theory - which freed up alot of work

w/ these speed figs there are alot of overlays cuz alot of published figs don't acknowledge how a horse got from point A to point B; they just measure how long it took

being a fig player i've also learned alot of their weaknesses, and alot about the Universiality of the game; it's amazing how trainers do the same things over and over, for the last 70 years!

form, not as tactile as a speed fig, but just as important

OK, so now U know I'm a value player; and I love the originator of this thread: I too have never understood the need for a value/odds line

if u see a horse is by far the best aren't you going to use him?
why do u need a value line to determine if a bet is worthy?
it makes it seem value-line betting is more about economics than handicapping - it's intelligent, but how relevant

sometimes U have to take 3-1 if it looks like all systems go

the most important aspect of value-line handicapping is the amount of work that goes into creating a line; i have so much work to do evaluating competiton i'm not really concerned w/ "i'm getting fair value" - in this game we try and find niches where we create our own value, through horizontal exotics for example

anyways, i'm sure someone will take me to task

fffastt