Horse racing has been around for a very long time and there are many supposedly “proven” systems you can buy that will “guarantee” you to win big in the long run. While Googling, I even found suggestions that the best way to make money is to have fun! If you like the name of the horse, bet on it. If your lucky number is 4. bet on that horse. While that method may be fun, you run the risk of following some potentially hazardous ways of thinking. There is no correlation to horse number or horse name. Intuition only runs so far.
I’m sharing my system because I am able to have fun with it. Thee’s no guarantee of wining and it certainly may not hold true in the long run. I first tried this method last year in Del Mar. I had been reading some Warren Buffet and Benjamin Graham so the concept of value investing was on my mind. Reading this particular subject must have colored my thinking during my trip to the track. I saw the opening odds for the horses and then saw how “Mr Market” influenced those odds based on the bets placed. Some horses odds improved and others decreased. I decided to apply this knowledge to see what I could come up with. My primary value takeaways and applications to horse racing were these:
- If you value a stock at $50 and it’s trading at $30, you should probably buy
- Mr Market and other animal spirits will drive the odds in different ways and you must focus on the big picture
- Strong, well performing companies aren’t something you should avoid
So how do you apply these principles to horse racing?
Trading at a Discount
If a stock is trading at a discount from where you believe it should be, you should likely purchase it. If that stock is trading at $30 but you value it at $50, other information notwithstanding, you should buy. I applied that principle to the odds in horse racing. A horse that came in 10-1 but is now 20-1 is trading at a discount relative to its value. The initial odds are set by the handicapper the day of the race or the day prior to the race. This person likely knows more about the horses than any normal bettor so his odds are usually fairly accurate.
The odds change because horse betting is based on a pari-mutuel system – mutual betting. As bettors bet on the horses, the odds change based on the activity of the bettors. This can drive odds up or down for any of the horses leading up to the start.
The market drives the odds from those initially set by the handicapper. But why? Do the market participants (bettors) have some knowledge that the handicapper didn’t? The answer is likely to be no. Most are simply betting on their favorite horse name or lucky number but these bets influence the odds of other horses. We can take advantage of these shifts.
Good Horses are Like Good Companies
Well performing companies are what you look for when you aim to put stocks in your portfolio. You wouldn’t avoid them simply because they make solid, regular gains. The same is true of horses. A horse with 5-4 odds is a pretty strong candidate to perform well. The payout may be lower for him but he stands a good chance of competing well against the field.
Betting on the long shot stock often makes for a good story if it pans out well, just like in horse racing. But the reality is you are more likely to go broke, or at the very least pass on other,better candidates, as you wait for your long shot to pay off. The moral of the story is that you should incorporate the strong performers into your portfolio.
I first employed this for the final race at Del Mar one year ago. I managed to win $80 on a $8 bet. I wanted to try it again but didn’t have a shot until this year (I’m really not much of a gambler). This trip, I focused on the Exacta Box bet which requires you to pick two horses that can finish either first or second. You can apply this formula to many types of bets but this is the primary method I used .
We didn’t arrive until just before Race 4. I wanted to hurry up and put in a bet before the race began. It was the first time I employed my system and it really wasn’t in the most optimal conditions – limited horses and not much difference between the early odds and the current odds.
Result: no winners.
Race 5 was finally a good opportunity. The second-favored horse, Horse 4, had moved from 2-1 to 10-1. The favorite, Horse 2, stayed at 7-5. This was a perfect opportunity – exacta box for 2 and 4. I also liked the discount Horse 4 has so I put a Place bet on Horse 4.
Result: 1st- Horse 4, 2nd- Horse 2.
I ended up with a handsome payout on my bet. Celebratory beer!
Race 6 was not one I was feeling too confident about. There were 2 scratches and none of the horses were really trading at a discount. They were all either flat or improving. Not what I want! I still made a bet but wasn’t feeling too great about it. That is also the benefit of the system. You may not feel great about it but you have to apply it consistently in order to win in the long run. This is true of many things – investing, working out, studying – unless you apply it all the time, it isn’t a good system.
I went with an exacta box for Horse 3 and 7.
Result: Horse 3 finished 1st and Horse 7 was somewhere near the back. All losers.
This was to be our final race of the day. When I stepped up to the betting machine, I loved what I saw. The favorite was even more the favorite and there were several that were steeply discounted. I elected to go with an exacta box bet on Horse 2 and 6. Because Horse 6 and 8 were also trading at such steep discounts, I placed a bet on each to Show (finish in the Top 3).
Result: 1st – Horse 6, 2nd – Horse 2, 3rd – Horse 8.
Boom! I ended up hitting a pretty good one here.
Like stocks, there is certainly no single proven method for making money. The method I’ve outlined above is no guarantee but I feel that it gives the best probability of payout by taking advantage of the behavior of bettors. I’ve eliminated my “hunches” which is exactly what I intended to do.
Want to share some horse betting strategies? Tweet me: @keeganlarson