Chapter 1: Introduction

I HAVE READ MANY SPORTS BETTING BOOKS. TRUST ME. When I decided that I wanted to learn more about betting, I walked into a bookstore and looked for a “Sports Betting for Dummies” guide, which I did not find because it didn’t exist (maybe by now it already does). But there is absolutely no lack of betting and gambling books out there. Some of their titles will remind you of that complex multi-variable calculus class that you didn’t take in college: “The Logarithmic Approach to Gambling in Relation to the Ion Saliu's Paradox”. After reading such a title, you check and see if you didn’t accidentally walk into the “Sci-Fi” aisle of the bookstore. These books take a very mathematical and statistical approach to gambling. I tend to be fascinated by the statistics of sports, and it is heartbreaking for me to say that usually they are good to explain the past but not even slightly as good to predict the future. Other books take an alternate route. They claim that successful betting depends on “gut feeling”, on “sensing” what is about to happen. These make you check to see if you aren’t on the “Astrology and Divination” aisle.

The books that tend to dominate the “Sports Betting” aisle are the ones that employ a “beat the numbers” mentality. The premise of these books is that the secret to being successful is to approach betting by exploring bets and their odds. To explore a bet means that you are able to realize that a certain bet should be paying more or less money than it really is, and use that to your advantage. For example, you could calculate that a betting house should be paying 2.15 odds on the Chicago Bears beating the Indianapolis Colts. (If you don’t know what the 2.15 means, it is the decimal method of showing odds, and I will explain it in more detail further ahead. In this case it just means that if you bet $1 and won, the betting house would pay you $2.15). Now imagine that you realized that a betting house was actually paying 2.35 for a Bears win. You could “explore” this situation to your advantage, and many betting books would advise you to bet on the Bears. If they won, you would be getting more money than you should.

There is a fundamental fallacy with this line of logic: it makes absolutely no sense! You should never bet on the Bears under these circumstances because the Bears WILL PROBABLY LOSE! If the house is paying 2.15, it means that they are relatively big underdogs. The fact that you can explore the bet doesn’t make of it a good bet; it just makes it a bet that can be explored. If you think of sports betting as a mere “beat the numbers” exercise, you are destined to lose.

I like the Bears-Colts scenario because it is a perfect example of what happens when a mathematician or statistician assumes that everything can be predicted by a model. Sports are always changing, and new circumstances arise all the time. If you change a model every time a game happens in order to better fit it, then you don’t have a model anymore, but a group of models. Do not be fooled by anyone who claims to have a model that can predict any sort of game. Models to predict the outcomes in sports are at best as good as the guesses of an informed person.

This book wasn’t written by a mathematician or by a statistician. Some of the concepts that are going to be presented to you take into consideration statistical elements of betting, but by no means am I going to tell you to rely on a mathematical model. A better way of analyzing sports betting is to compare it to the stock market. The basics of both are fundamentally the same: an individual has to make a choice, and some choices will lead to better outcomes than others. The stock market is technically the biggest “game” played around the world.

I have a bachelor’s degree in finance. People assume that finance students are taught the answer to one of the greatest paradigms of the modern world: how to predict the performance of the stock markets. After reading all the books for all my classes and many others on my own, the only thing that I know for certain, without a doubt, is that the stock market is impossible to predict.

Just to give you a brief overview of the most current theories about the movement of stocks, the prevailing theory is called the Capital Asset Pricing Model, or CAPM. The CAPM says that the return you can expect from a certain stock is equivalent to the sum of the risk free rate for the market and the product of the market premium and the beta coefficient blah blah blah. In a nutshell, the price of a stock changes as the market changes, and the more the price of a stock changes, the riskier it is because you know less about what its price is going to be in the future. Furthermore, the risk of a certain stock can be divided into two parts: the systematic and the unsystematic risk. The systematic risk is how the stock moves in relation to the market. In other words, it is if the stock goes up or down when the market goes up and down. The unsystematic risk is independent of the market, and depends on the performance of the company that the stock represents. Up to this point, everything is pretty straightforward. This is where things get messy. The unsystematic (or company specific) risk of a stock can be eliminated through diversification. This means that if you buy different stocks, their different movements will cancel each other out and your investments will not rely on the performance of a single company. But the systematic risk can’t ever be eliminated. So when a financial advisor tells you that he is investing your money safely, he means that he is eliminating your unsystematic risk and just hoping that the systematic risk doesn’t annihilate your investments. Now you might be asking yourself: “but what percentage of the TOTAL risk is the systematic, and what percentage is unsystematic?” The answer is: no one knows. Some studies come up with conservative numbers, with the systematic risk being 30% and unsystematic 70% of total risk. Others have shown a 50-50 spread, while some have even concluded that it is actually 30% unsystematic and 70% systematic. Just think of the big picture -  all the investors around the globe, all the financial whizzes of Wall Street, can only predict with certainty, in the best case scenario, 70 % of the movement of a stock, and only 30% in the worse case. And this is assuming that they perform their jobs flawlessly, which obviously isn’t going to happen all the time.

There are two men who are considered moguls of the financial markets. Their names are Warren Buffet and Peter Lynch. Their consistent returns have earned them mythological status on Wall Street. The curious thing about both Buffet and Lynch is that their advice about investing is unnervingly simple. Lynch is known for coining the phrase “Invest in what you know”. Buffet, when asked about his rules for investing, said: “Rule number 1: Never lose money. Rule number 2: Never forget rule number 1.” I would have guessed that the two most fabled investors of all time would give us something a little bit more complex than that.

Still there are people who believe that complex mathematical models can predict the markets. They go against the teachings of Buffet and Lynch. These people are called Technical Analysts, and they create systems that take into account the most advanced fields of mathematics and computational diagrams, combining them with past stock performances to come up with predictions for the future. Technical Analysts are probably the greatest mathematical minds in the world. It is a shame that many renowned economists, such as Burton Malkiel, believe that “technical analysis is an anathema to the academic world.” Others aren’t as nice and say that technical analysis is a pseudoscience. This always cracks me up. We have some of the smartest people on earth using cutting edge software and complex mathematical theories to come up with models to predict the stock market and they are seen as pseudo scientists. Technical analysis is the modern day’s alchemy. Needless to say that until now, their results haven’t been positive, and their models are “average” at best. My point in saying all of this is that games are hard to predict, and there is no single flawless model. What we have are strategies for investment, which in the long run have shown consistent results.

When companies need to predict future trends, there are a couple of things that they do. Some involve mathematical models, just like technical analysis. But the most efficient approach has been proved to be a strategy called Delphi. The name comes from the ancient Greek archeological site, where an oracle was said to be able to read the future. Delphi strategy consists of gathering a group of experts and discussing the future. Studies show that these predictions are usually more accurate than any model.

Finally, I get to the point where I want to be. The strategy that I am going to present to you in this book is straightforward and fairly simple. It is the strategy that has allowed me to have very good results, but at the same time it is conservative and limits losses. I rely more on the psychology of sports than on statistics when I bet. This doesn’t mean that statistics aren’t taken into account, and you’ll see that they are. It only means that I believe that the outcome of a sports game is more closely related to the psychological state of the athletes than to numbers calculated outside of the field.

As an end note, Wall Street has seen a boom in the number of “alternative investments”. Investors seek new and creative ways to diversify. The trading of commodities started as an experiment, and today it is a multi-billion dollar market. Did you sincerely think that buying a stock that represents soy beans has always been normal? Other alternative investments are livestock and art, not to mention the billions spent with venture capital. Some of these investments are very risky, but they are still interesting from an investor’s standpoint precisely because they are different. If you have sheep and cows in your portfolio, the stock market could crash and the sheep and cows would continue alive and healthy. Therefore, is it really a far stretch to see sports betting as one of these alternative investments? A methodical and responsible approach to gambling, such as the one I’m going to teach, isn’t that much different from what Lynch defined as a “secure investment”, and I’m sure that Buffet would be happy to read about how my technique puts emphasis on never losing money.

Probably the most fundamental difference between this book and many other betting books is the fact that this book tells you what to do. This might sound strange, because the whole point of a sports betting book should be to tell you what a good strategy is and how to implement it. Most of the books I’ve read seem to suffer from what I like to call “On-the-fence-ness”. They tell you some incredibly interesting facts about betting. They show you statistics so captivating that you feel as if you are Christopher Columbus and you have just seen the first signs of an undiscovered land across the Atlantic. Then they conclude: “Therefore, these are the statistics that we have collected. Thank you for your time. The End.” Needless to say, just knowing a bunch of facts and statistics doesn’t make you a good gambler. It might make you a well informed quasi-gambler, but removing the “quasi” from your title is the most important step. In this book I will tell you how to bet, which games to choose, and how to bet on them.

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