What's your bet?
The second article in our bitesize series, we look at Bankroll Management & Staking, with a slightly different perspective than some theorists.
When considering how to manage your bankroll, don’t fall into the trap of viewing your bankroll in a vacuum. Your betting roll is an extension of your complete financial portfolio and should be optimised as an asset within your portfolio, and accounting for your betting goals.
Furthermore, your bankroll should not be viewed as static, but as a changing number based on your circumstance. Your staking as a % of bankroll should also differ dependent on your situation and goals. Let’s look at two opposing examples to explain:
Bettor A – 25 yrs old, employed, no kids, aspiring professional bettor
Bettor B – 40 yrs old, wife & 2 kids, professional bettor
Bettor A and Bettor B should have wildly opposing staking strategies and bankroll management. It frustrates me to read about “bankroll management” and “optimal staking” when an author does not refer to situational differences impacting the optimal approach.
Bettor A wants to build a bankroll large enough to go pro. He adds 5% to his bankroll each month from his salary, he can limit his monthly expenses to 50% of his salary if required. Dependent on his bet frequency per month, he can project forward the size of his roll to include his 5% salary deposits, and calculate any “Risk of Ruin” looking forward. If we use Kelly staking as our reference point (it is well known), Bettor A could bet size as aggressively as full Kelly, knowing that bankroll ruin does not actual mean “ruin”. He is young and won’t be able to reduce his expenses to 50% of salary forever. There is utility in betting aggressively now. The upside is unlimited and the downside is minimal because a bankroll rebuild is easy to achieve (work an extra job, save 50% of salary for 12 months).
There is a great story about Bob Voulgaris going all in on a Lakers antepost bet to build his betting career. He talks about this very concept…high risk is perfectly acceptable when the situational factors limit the downside. It is asymmetrical risk/reward in practice.
Bettor B on the other hand, is only concerned about capital preservation and incremental growth. Their optimal strategy will consider the maximum possible drawdown that can be afforded whilst remaining liquid enough to bet to the size required. Bettor B will calculate… annual turnover projection + expected margin = expected annual income. They will also have calculated the % chance of a losing year and the distribution of expected results (yes, pros can lose in each year if their bet count isn’t large enough). Their staking will likely reflect a 1/8 – 1/4 Kelly bet sizing.
Bankroll management and staking is one of the most important factors in maximising your betting profit. However, don’t make the mistake of viewing both in a vacuum. A 21 yr old enthusiast staking 1/8 Kelly because they read it in a pro betting blog, is far from optimal bankroll management, don’t fall into the same trap.