Speaker 1: Good afternoon. You're listening to Gambling with an Edge.
Speaker 2: Now Here are your hosts, Bob Dancer and Richard Munchkin.
Speaker 3: Good afternoon, Welcome to Gambling with an Edge on Bob
Dancer and I'm Richard Munchkin.
Speaker 2: Our guest today is poker player and sports better Dan Abrams,
who has written a new book entitled Sharp Money. Dan Abrams,
Welcome to Gambling with an Edge.
Speaker 1: Thank you, thanks for having me by training.
Speaker 2: You're an engineer. How did you get started playing poker?
Speaker 1: Well, like a lot of people in America, when the
World Series of Poker started being broadcast on ESPN in
two thousand and three. That was the year that Chris
Moneymaker won the main event, and it became a very
very big deal because he won an online satellite to
even get into the main event, and then he wound
up winning and it became really riveting television, and they
would put it on after you know, Sunday night baseball
or whatever games they had going. So I really kind
of got interested that way. I had played poker just
for fun with my friends even as young as elementary school,
but never really played it for money before. And then
you know, when when some guy wins two and a
half million dollars playing poker. It piques a lot of
people's interest.
Speaker 3: So you're really known for RAZ, and you did a
lot of teaching of RAZ, and so can you explain
sort of how that evolution happened.
Speaker 1: Yeah, So the most popular game obviously was no Limit
Hold Them, but most of the online sites would spread
other types of games, including seven Card Stud, which I
was familiar with from playing as a kid and as
a teenager. So I started playing that for a while
and I got pretty good at that, and I had
seen RAS covered on TV and I understood a little
bit about it, but I was primarily concentrating on STUD.
And then I went through a period of several days
where I couldn't even get a decent starting hand, and
if I did, you know, if I got something like
split jacks, somebody with a king would raise and then
an ace would re raise him and I'd have to fold.
And I thought, well, let me give this RAZ game
a try, because the starting hands I tend to get
seemed to be much better for RAS than they are
for STUD. And I just started at the lowest possible stakes,
really to get my feet wet, and I found out
that there weren't a whole lot of good players at
those stakes on like No Limit Hold Them, where you
could multi table so easily, that the good players would
play at the low stakes, but they would play like
twelve or sixteen tables at a time, and that's how
they would win money.
Speaker 3: And what was it about REZ that drew you to
it other than the fact that usually it's not where
all the sharpest people are when you know, kind of
go away from the mainstream.
Speaker 1: Yeah, exactly. And what you could do on the online
sites is you could keep track of players that you
had played before. You could take notes on them or
assign like a color code to them. And I found
that a lot of the players that I was going
up against in RAZ that were really bad at it,
I had notes on them as being very good No
Limit Hold Them players, And I began to realize that
it's really very much the opposite of No Limit Hold
Them in so many ways that the people who were
trying it and trying to play the same way they
played in the Limit Hold Them were really really bad.
So I really got interested that way and started to
do a little bit of studying of the game, and
there really wasn't much. There was not There was only
really one book that had was completely about Raz and
that was Sklansky on Poker by David Splansky. So I
got that and I read it and I was making
all sorts of notes, trying to study it like a textbook,
and he does like example hands at the end of
the book, and for one of them, he said, in
this situation, you should fold unless there's a lot of
money in the pot. And I thought, oh, geez, well,
I don't know how much a lot of money is
to him, right, So I tried to figure it out
on my own to see it kind of solve it backwards,
to see how much money there would need to be
in the pot to make it worth calling in that
situation rather than fold. And what I came up with
was that it was really a very small amount of
money to be in the pot at that point in
the hand. And so I was like, huh, maybe there's
there's room to investigate Raz here that' Sklansky hadn't really covered.
And that's what really got me rolling.
Speaker 2: You said you switched games because you were card dead,
which is a type of betting a trend, reasoning that
you're now strongly opposed to as an investor. Now you're
very much an expert investor now, but when you but
using that reasoning for starting RAS seem like a very
ploppy move.
Speaker 1: Is that fair? Oh yeah, it's very fair. I mean
I've made all sorts of mistakes in when I started investing,
when I started playing poker. You know, the same type
of thoughts that most people are thinking when they do that.
I just managed to analyze them a little bit and
overcome those mistakes.
Speaker 3: So how did the You obviously went from begin a
RES player to one of the top RES players out
there and became kind of a teacher at a site
that people tended to really flock to to learn more
about RES. How did that come about?
Speaker 1: Well, it's kind of a roundabout story, which I tell
in the book, is that I was looking to do
some one on one poker coaching for RAZ, specifically because
I noticed that at stakes above the level that I
was bankrolled to play, there would be a lot of
players who really didn't know what they were doing at
RAZ at all. They were just hunting away money. And
I thought, well, if I can get a few of
these guys to be interested in one on one coaching
to make a little money on the side doing that,
So I was looking for perspective students, and I had
had the occasion to be looking at the forums on
two plus two if you If you recall, two plus
two Publishing has a huge set of forums that were
very very popular back in the day, and they had
a couple of hands that were played by one of
the top no limit hold'em tournament players and they they
had they could show the hand history, and they were
they were really played badly. So I looked up the
guy's profile and he had his email address in the profile.
So I sent him an email and I said, hey, look,
I'm a RAZ specialist. I play the game almost exclusively.
I've done all this research and if you would be interested,
I would like to coach you. And I basically gave him,
like some some free example hands to take a look
at to see what he thought. It ended up he
didn't and he didn't wind up taking me on as
a coach, But later on he apparently talked to some
of his friends about it, and they were starting up
a poker training site, so they reached out to me
and said, would you be interested in making videos on RAZ?
And so that's how I got that gig.
Speaker 3: Are those videos still out there?
Speaker 1: No, actually they're not. They had a that site ended
up being bought by card Runners, which was a much
bigger site, and I eventually made some videos for card Runners.
So actually, if you look on YouTube, you can see
some of the snippets that card Runners would put out
as like, you know, five minute trailer of my videos.
There's still a few of those on YouTube if you
look them up.
Speaker 3: Can can you still find RAS games? Are there? I
assume there's a RAS tournament in the World Series.
Speaker 1: Yeah. The World Series now has two RAZ tournaments every year,
and of course they have mixed game tournaments. It's probably
about seven or eight of them each year that include RAZ.
It's part of like a horse game or an eight
game mix and that sort of thing. And they have
there's some sites online sites that will feature RAZ still,
but mostly in the US. You can only play in
certain states unless you use crypto sites. So the crypto
site called Fena that still has RAS and they get
RAZ games going occasionally.
Speaker 3: Are you still actively playing or no?
Speaker 1: Yeah? At this point, you know, just every once in
a while. I think the games are so sporadic but
I will play when they're available.
Speaker 2: Now it's it's well known that a number of very
successful poker players have lost a ton of money betting sports. Yeah,
didn't that give you pause before you went that route?
And how did you assume your journey would be different
than theirs?
Speaker 1: It gave me a lot of pause, you know. I
started playing poker probably the end of two thousand and three,
and and I didn't start betting sports until twenty twenty.
And I really never intended to bet sports at all,
because I'd heard from several people that that's the best
way for a poker player, a good poker player to
lose money, to start betting sports. But they had a
site in Pennsylvania where I lived at the time, which
was Poker Stars for Poker, But then they also had
a section for sports betting through Fox Bet, and so
they would send promotions to me all the time, saying,
you know, here's an odds boost or a free bet
or whatever to try to get me interested in sports betting.
So I reached out to my friend Eric, who I
had played poker with for years, and he had started
sports betting, and I sought out his advice and started playing.
Speaker 3: Through that, and are you still doing that?
Speaker 1: Yes, I mean Fox bet is no more they shut down,
but I'm still actively sports betting and you still doing
well with that.
Speaker 3: So one of the things that really caught my eye
in the book was your discussion about why it may
be a good thing to over bet your bankroll when
you're starting out and have a small bankroll. So you
can we talk about that.
Speaker 1: Yeah, sure, that's the sort of thing that is actually
being talked about in financial circles by a lot of
academics because, you know, they want to guide people in
how to construct the portfolio, and you know, you want
to have a certain amount of risk associated with your portfolio,
but not too much risk because you know you want
to protect it. Same thing with your bankroll. But they
realize that the amount of money you have in your
portfolio now doesn't represent the whole story. You have to
take into account how much future earnings you're going to have.
So somebody close to retirement should be a lot more
conservative with their bankroll or their portfolio then somebody in
their twenties or thirties should be. And they actually did
a lot of very complicated academic research to prove this
point and so I said, well, the same thing can
apply equally well to sports betting. I mean, when you
have when you're at a professional level and you have
a bankroll, say in the millions, are close to it,
that's very hard to replace. But if you're doing it
on the side where you're earning an income from a
job and you're using a certain amount set size as
your bankroll, if you have to, if you go bust
on that bankroll and you have to replenish it, and
say you take three or four months to replenish it,
that's not a disaster. You take a break, but you're
not out of the game. And the whole idea of
protecting your bank roll is if you lose your whole bankroll,
you're out of the game. You can't bet anymore, and
you can't take advantage of your edge anymore at that point.
So it's really and it was the sort of thing
in poker that was very, very common and probably still
is for the younger players where they would take shots
at higher levels and I did as well, you know
when I was starting out. You know, they'll they'll take
set aside, maybe twenty percent of their bank roll and say, okay,
I'm going to go up a couple of levels and
see if I can beat them. And if they can,
they stay at those levels and can earn a lot
more per hour. They don't, you know, they lose twenty
percent of their bank roll. They step back down and
they start grinding it back up, but they're at the
regular stakes.
Speaker 2: Yeah.
Speaker 3: I remember when I was starting out, I knew one
blackjack player in particular who had a ten thousand dollars
bank roll and he was out betting two hands of
five hundred and I thought he was absolutely insane. But
you know, he happened to run well, and he ran
it up to one hundred K. And and I don't know,
I mean, he didn't have a job at the time.
You know, that was what he was planning to do.
But you know, I guess in retrospect, well, yeah, if
he lost it, well he could go back and get
a job and build up a bankroll and start over.
But it was certainly more risk than I was willing
to take.
Speaker 2: Yeah, I when I talked a similar point in my
video poker classes, I would make the point that when
you're twenty five and you'd go broke, it's not a
good thing. But when you're seventy and go broke as
a disaster, And so when you're starting out you have
so many more options of ways to get the money back,
and when you're seventy, your best money making options are over.
So I did it in terms of age rather than wealth,
But it's a simil principle, I think.
Speaker 3: Well, I think also about when you're twenty five, or
when I was twenty five, my lifestyle was pretty spartan.
I would never stay in a motel better than Motel
six or whatever was the cheapest possible thing I could find.
Speaker 2: But you know, you reach.
Speaker 3: A certain point in your life where I'm not going
to stay in Motel six anymore, you know what I mean,
Like you're used to more comforts as you get older
and your bankroll grows, and so yeah, I totally agree
with you that there's a big difference going growth later.
Speaker 1: Yeah. Absolutely. And you know when I was in my twenties,
I stayed at Motel five and a half. I mean
I couldn't emplord Motel six. So I know where you're
coming from.
Speaker 2: Yeah. Now, when you were in sports betting, you developed
a theory of increasing expected growth as a better theory
then increasing expected value. So how did that work in
sports and does that go well with investing in other things?
Speaker 1: Well, in sports, really, you know your end goal is
to increase the size of your bank roll, and the
first step to doing that is finding positive expected value
opportunities that are going to lead to winning more in
the long term than you lose. But that the expected
value of a bet or a play doesn't take into
account the level of risk you have to endure. That's
why there is such a thing as the Kelly criterion.
Cally criterion says, Okay, if you have positive expected value,
here's the optimal amount to stake on that bet, maybe
one percent, three percent, five percent of your bank roll.
But why is there an optimal amount? Why isn't ten
percent of your bankroll better? A twenty percent of your
bankroll better? Well, in terms of expected value, the most
expected value you're going to get in terms of absolute
dollars is if you find a big edge, you put
one hundred percent of your bank roll on it, and
that's the most expected value you can get. And obviously
it only takes or one or two times or one
time losing with one hundred percent of your bankroll on
a play that you go bust and then you can't
take advantage of any more plus EV opportunities. So the
idea that you want to increase your expected bank roll
actually takes into account the amount of risk that you're
taking and balances it with the positive ev that you
can get based on your edge. The same I didn't
know it at the time when I first started looking
into it, but the same principle exists in investing. It
just goes by a different name called risk adjusted returns.
So you can expect to get a certain return from
like a mutual fund, a stock mutual fund, and say
it's ten percent a year is your expected return. If
that's coming from a stock mutual fund that it mostly has,
you know, very large cap stocks and it doesn't move
around very much from year to year, that may be
a very good investment to put a lot of money in.
Whereas another fund that also has ten percent expected returns
per year but uses you know, micro like penny stocks
that have huge volatility from year to year, that may
not be a very good investment because you're not getting
any more return for the risks that you have to bear.
And it's really when you do the math. The math
is identical in both situations.
Speaker 3: Yeah, I think that. You know, the thing that people
miss about Bett and Kelly is the variance part of
the equation. Right, there's a big difference between if you're
playing blackjack with a one percent edge, but your variance
is only one point one. That's a big difference than
having a one percent edge on a slot machine, where
your variance might be you know, two hundred or something.
Speaker 1: Oh absolutely, yes, that's really the key point is that
you have to account for both, and the variance is
going to hurt just about everybody. It's going there's gonna
be one person that's really lucky. You know, you find
one hundred people playing the slot machines, and one of
them is going to be really lucky and take home
a huge payday. The other ninety nine are not, And
so if you're not the luckiest of the bunch, the
variance is going to hurt you a lot more than
it helps.
Speaker 2: Well, one thing about Kelly and sports betting is if
you can if you're if your formula says you should bet,
however many dollars, you often can't get that many dollars down.
You might be limited by by either the book's that big,
or they can limit you personally to you can bet
any amount you want up to ninety nine cents.
Speaker 3: Does that get I remember when Elihu was on the
show and he said, at some point, Kelly just doesn't
matter anymore because, basically because of the limits, once your
bank roll is big enough, you you could never bet
as much as you wanted because the sports books just
won't take it.
Speaker 1: Yes, that's that's very true. And you know that most
of the recreational sports books do a pretty good job
of figuring out who's sharp and who's not and limiting
them specifically, like Bob was talking about. But even beyond that,
you know that they have limits that everybody has to
adhere to. They're just not willing to take whatever you
want to plunk down. So that is a big factor.
And when you get to the point where you have
a very large bank roll, then Kelly doesn't really come
into play because you're just not able to get down
as much as you want. But it's very interesting when
I've watched or listened to a lot of professional sports
betters talk about how they got their start and what
they do now. A lot of them get their start
by doing arbitrage betting or middling where you'll bet on
both sides of the game at different spreads, and if
the spread, if the game difference falls just right, you
win both bets. But most of the time you win one,
you lose one. That's how they got their start, and
those are much lower risk type of plays than just
betting on positive ev bets. And they built up their
bank rolls that way, and then when their bank rolls
got to be so big that they couldn't get down
as much as they wanted to anymore, the light bulb
went off and they said, Hey, why am I arbitrage
betting when I've got value on one side and I'm
losing value on the other side. Why don't I just
bet the side that only has value. Well, that's exactly
the point in time when you should make that switch,
when you can't get that as much as you want
to anymore, So you just bet the value side. You
don't have to worry about Kelly criterion because you're never
going to get that much down.
Speaker 3: Yeah.
Speaker 2: So arbing is a form of hedging your bets. Are
there in the financial markets or is it right to
headge your bets?
Speaker 1: Sometimes it certainly is, But it's a lot harder to do.
You know, back in like the sixties and the seventies,
and people like Ed Thorpe were starting with hedge funds.
That's what they did is they would find mispriced options
and they would load up on them, and then to
reduce their risk, they would either buy or short sell
the underlying stock, figuring that that was a pretty efficient market.
They might lose a tiny little bit of value on
the stock side, but they would make a ton of
value on the option side, and the risk would even out.
And that was very successful for a while until in
the nineteen seventies the Black Shoals formula got published and
then everybody could figure out how to value options correctly,
and that became much harder to do. So it's actually
a lot easier to do a true arbitrage in sports
betting than it is in investing, because in investing, you know,
when you go to buy a particular stock, there's only
one place to buy it, right it's either listed on
the New York socc Exchange or on the Nasdaq. And
in sports betting there's so many different books to choose from,
so you can can often find odds of one book
that are really good on team A. Another book, they're
really good on team B, and then you can form
an arbitrage that way.
Speaker 3: So the one thing that seemed to be not talked
about much was the whole tax implications of you know,
when you talked about rebalancing your portfolio, Well, there's a
huge cost if you're in a regular brokerage account. There's
a huge cost to rebalancing if you have a gain
on something that you now want to take your position
down to a lower amount.
Speaker 1: Yeah, you're absolutely right, And you know, I'm not a
tax professional, so I steered clear of trying to give
any sort of tax advice in the book. But you're
absolutely right, and that type of technique is going to
work much better in a tax advantage account like an
IRA or a four oh one K, as long as
you don't have any you know, high transaction costs in those.
And it's the kind of thing that could also work
in an ETF. They're they're already loads of ETFs that
are set up to do you know, two times leverage
or three times leverage of some sort of index like
the either the Nasdaq or the S and P five hundred,
or even of individual stocks and they're trading every single
day in order to reset that leverage because you know,
the as the stock or the or the index goes
up and down, the amount that they need to hold
of the underlying stocks versus the swaps that they use
to get the leverage changes every day, so they have
to reapback balance every day. Now, they're not turning over
the whole portfolio, they're only trading a little bit, but
they're doing it every day. And the type of rebalancing
that I was modeling is the same sort of thing
where you're not turning over the entire portfolio. We're trading
a little bit every day to essentially adjust the leverage
that you have based on the market conditions.
Speaker 3: Yeah. I was faced with this situation a couple of
months ago where I had, you know, a bunch of
silver which had exploded, and because some of it was
in a broker not a taxible brokerage account, you know, I,
you know, I wanted to rebalance, but I was not
willing to pay the capital gains tax to do it.
And you know, I knew that I could buy puts,
which is basically an option that is like a beat
that silver will go down, but if I do that
and I'm correct, well then I have to pay the
tax on the put, which is now a short term
capital gain, which is even worse. Right, So yeah, it's
it's it's very difficult to do those things in taxable accounts,
which so basically, you know, I followed ed Thorpe and
Wren Buffett's advice to you know, just buy the index
and let it sit there.
Speaker 1: Yeah, I mean for taxable accounts, you absolutely have to
take that into account. And and and when you're doing
it yourself like that, passive investing has a lot of advantages.
Speaker 2: Yeah, in your earlier writings on sports betting, you used
a route unit staking system.
Speaker 1: So what is that?
Speaker 2: And does that have an analog in the investing in
other things world?
Speaker 1: So that's a staking system where you decide how much
you're going to bet based on the difference in odds
from basically an even money bet, and so you take
the square root of that difference and you divide your
bet by that amount. In other words, if you're if
you're normally betting, say one hundred dollars at even money,
and then you find a bet at plus four hundred,
so it's four to one odds, you would divide your
bet size by the square root of four, which is two,
so you would bet fifty dollars on that. Conversely, if
you're going to bet at something at minus four hundred,
you would divide by the square root of one quarter,
so dividing by a half, multiplying by two, you would
bet two hundred dollars. And essentially the way it works
is that if you're in a type of market where
you have a pretty good idea of what your edge
is at even money bets, but you're not sure how
much the edge will change for bets at different odds,
if you follow this system, you're essentially mimicking what the
Kelly criteria would tell you to bet based on those odds,
because normally you'll find a bigger edge at the plus
money odds and a smaller edge for the minus money odds.
Speaker 3: You know, a mistake that I a lot of gamblers make,
or people who are even our professional gamblers, is they
do not want to lay a big price. They you know,
they really hate the idea of, you know, laying eight
to one on something because if I lose, I lose eight,
but if I win, I only win one. But what
they're forgetting is you're supposed to win seven out of
eight times when you do that, So yes, you are
losing the eight when you lose, but seven or eight
times you're winning one. So yeah, it's just interesting that
even people who are professionals who should understand these things,
it's hard to not let your emotions take over with
those decisions.
Speaker 1: Yeah, it really is, because you know, our intuition gets
built up from other experiences, and then it just feels wrong.
It feels wrong to risk that much money, even though,
like you said, you're going to win seven out of
eight times. So occasionally you will lose and it will
really hurt, but you know you're going to rebound because
you know you keep doing it. You win seven out
of eight times, and when you look at it from
the lens of expected growth or risk adjusted returns, because
those kind of vets have much lower risk, right, you're
only going to lose one out of eight times. If
you can get the same edge that you could add
for an even money bet, those kind of minus eight
hundred bets are way more valuable. You will build your
bank roll much quicker with those kind of bets, and
because of that, you usually don't see that big of
an edge when it's at minus eight hundred. As a
matter of fact, that you know, there's a certain limit
to how big the edge could possibly be, right, because
you could only you can only win one hundred percent
of the time. You can't win more than more than that.
But I actually did an article for Pinnacle a couple
of months ago talking about that exact subject, where there
was a betting service basically that kind of broke down
the profit that they made on their sharp bets by
what the odds were. They put them in certain groups,
and they found that the vast majority of their profits
came from betting these short odds bets, you know, like
the equivalent of minus four hundreds five hundred type of odds,
because they were able to find decent edges there and
the risk was so low that you know, when you
state them properly, you can make much more profit.
Speaker 3: Right. And the reason that the edge is there is
because the public all wants to take the other side
of that. They want to bet a little and win
a lot, and it forces the price in that direction
for the person taking the other side.
Speaker 1: Yeah, absolutely, I mean the book makers, you know, people
think that a bookmaker wants to make the same amount
of profit whether the favorite wins or the or the
long shot the underdog wins. But that's not really true
because they take a lot more liability on those long shots.
When the long shots come in, you know, they're putting
out an awful lot of cash because a lot of
the public is on them rather than the favorite.
Speaker 2: So if the Raiders win the Super Bowl next year,
the books are really going to take a bath.
Speaker 1: Yeah, yeah, because I'm sure and now the books are
they're not quite as dumb as they look, you know,
the even the soft.
Speaker 3: It depends on which one you're talking about.
Speaker 1: But they they build in what people call the favorite
long shot bias, so that if if the Raiders have
like azer point one percent chance of winning the Super
Bowl next year, then you know, the fair odds would
be a thousand to one, right, But they're only going
to pay you like two hundred to one if the
Raiders win, because they they they want to protect themselves
from those you know, big outlays, and that gets baked
into these these lines in a very consistent way. And
people have been noticing this phenomenon for decades and they
call it the favorite long shot bias. And one of
the things that I looked at in my first book,
which is but how Much did You Lose, is the
fact that when you look at it in terms of
expected value, it does look like a bias those bookman
because they're asking for a lot more expected value from
the better for these long shots than they are from
the favorites. But if you look at it in terms
of expected growth from the bookmaker's point of view, and
you adjust for the risk that they're taking, it actually
works out to be exactly the same for favorites and
long shots, no matter how long the long shot is.
So they're getting the same type of expected growth from
a plus four hundred long shot and a plus one
thousand long shot and a plus five thousand long shot
because they keep shortening the pay the shortening the offered
odds compared to what the true odds should be to
keep that expected growth constant. And same thing with the favorites.
They give you a smaller edge for a minus one
thousand than they would for a minus two hundred, but
the expected growth from their perspective winds up being the same.
Speaker 2: Now you've mentioned a few times that the big key
in making your bets or investments is making sure you're
the favorite, making sure you have the advantage. So the
question becomes, how do you know if you have the
advantage or not?
Speaker 1: That is a great question and sports betting, the best
way to know whether you have the advantage is if
you have closing line value, which means that when the
bet change, when the odds on that bet right before
the game starts are shorter than the odds that you
betted at, and they're shorter by enough to overcome the big,
then you can tell that, assuming that that closing line
is accurate, that you've got the edge. Now the question
is is the closing line accurate? Well, for highly liquid
markets that get bet back and forth many, many times,
there's tons of evidence to show that those closing lines
on average are accurate because people model it and say, okay,
what if I were to bet at the closing line
without any margin, you know, take out the big, but
I bet at that closing line, and I bet ten
thousand times, I should expect to make exactly zero profit
if those odds are accurate, and they run these models
and analyzes and they come out making basically zero dollars.
So in sports betting. That's a really really good indicator
in investing, Like in the stock market, there is no
indicator like that. If people could could find that kind
of indicator for a stock market or other type of
financial investing, that would be huge.
Speaker 3: Well, there is an indicator, right, I mean, over one
hundred plus years, the stock market games. Right. The only
question is if you're going to try to get on
and off the bus that's going up the hill, and
if you could do better than if you just stayed
on the bus to start with and get to the
top of the hill, right, I mean, so you have
an edge. The question is could you have a bigger
edge by somehow making specific picks or timing or things
like that.
Speaker 1: Yes, that's the key is that over the past hundred years,
you know, the market has gone up. There's no reason
to believe that over the next hundred years it won't.
But that's that means if you own the whole market,
spread out amongst thousands and thousands of stocks, like a
lot of these index passive index funds will do for you,
then you have an edge. But some people aren't satisfied
with that. They want a bigger edge, and they spend
a lot of time trying to figure out which stocks
are going to go up and which stocks are going
to go down. And maybe they're right, maybe they're wrong,
but the academic research all says that the majority of
them are wrong more than they're right, and the ones
that are right more than they're wrong change every year, right, Like,
maybe your picks will work this year, and Bob's picks
will work next year, and my picks will work the
year after that, but by then your picks have now
gone bad when my picks are going good. So and
you had fees on top of that for investment managers
who are trying these techniques, and there's really ends up
being no more edge. The edge, whatever little edge there
is gets eaten up by the fees for the managers
and does not usually make it down to the actual investors.
So that's what I mean. There's no indicator for the
whole market. Yeah, there's an indicator if you want to
pick like Microsoft and say, oh, you know, I'm confident
that Microsoft is undervalued and I'm going to buy them,
and in ten years, you know, I'll make ten percent
a year. Well maybe you will, maybe you won't, but
ten years isn't even close to long enough to figure
out whether you really did have an edge when you
bought it, because there's so much noise in the price
of these stocks over time that you know. It's like
it's like making, you know, twenty bets at the blackjack
table and saying, oh, well, I'm up one hundred dollars,
I must have an edge. Right, That's not how it works.
Speaker 2: I want to go back to when we were talking
about beating the closing line value. It sounded to me,
I'm not a sports better, but it sounded to me
like when the line closes, you're going to know whether
or not you had this edge. But assuming you make
your line, you make your bets before the line closes,
then you're not going to know if you have the
advantage or not until sometime later. So if you don't
know if you have the advantage or not until sometime later,
it seems difficult to figure out whether you should bet
or not or how much because you don't know what
you're edged.
Speaker 1: Yep, you're absolutely right. It is difficult to figure that out.
There's basically two techniques that get used commonly to figure
that out, or at least approximated as best you can.
One is called bottom up technique, where basically you handicap
the game. You take into account all the factors that
you think are going to affect the correct odds or
the correct spread, and if the odds or the spread
that the sportsbooks are offering is is better than what
you predict, you make the bet. Now, you don't know
if that stingle bet is going to have an edge
when you make it, Like you said, you don't know
until the line closes. But if you keep track of
them and over the course of six months, you know
you get closing line value on eighty to eighty five
percent of your bets, then probably what you're doing is
working and you can kind of gauge how big that
edge is based on that track record. The other way
to do it is called top down betting, where you
basically look at the market as a whole and you
monitor what kind of odds are being offered, and particularly
pay attention to the sharp sports books and when they
change their line and there's a reasonable limit that they're
offering at the time, that basically indicates that somebody sharp
has bet on that site they moved the line in
response to that, and so like if they were offering
plus one fifty on a baseball money line, and they
moved down the plus one twenty, and you look around
and some of the other sportsbooks still have plus one fifty.
That's a pretty good indication that the plus one fifty
is a good value bet and you should go bet
it there. And typically you got to do it quickly
because it's not going to last. They're going to start
taking bets at plus one fifty and then they're going
to move their line. So it's always a race when
you're doing top down betting, but it is a very
effective way to do it.
Speaker 3: But it's also a way to get your accounts limited severely,
very quickly, because they know that that's what you're doing.
The other problem, though, with the bottom up is you
know you could build a model and be making good
bets and do well this season, and next season your
edge may not may be gone and you don't know
it because things have changed, and you know, you can
end up losing a bunch of money while you're realizing that, oh,
looks like my edge is gone.
Speaker 1: Yeah, that's a big risk, and a lot of these
kind of handicappers or modelers experienced that, and you know,
if you can trust the closing line. It's going to
be a help. But even still, your your edge can
disappear and you don't know it, and that's a that's
a big problem.
Speaker 3: Anyway, Thanks Dan, this has been great enjoyed talking about it.
I hope you do well with the book. I have
one question before before we go. Favorite restaurant in Las
Vegas that's not in a casino.
Speaker 1: Gosh, I should have prepared for this. It's been to
warn you. You should have. Yeah. God, it's been a
long time since I've been in Las Vegas, but there
was a rom and place that I went to with
a friend of mine the last time I was there,
and I don't know. I'll have to get back to
you on the name.
Speaker 3: Okay, so you're not coming out for the World Series
this year?
Speaker 1: No, No, it's it's it's too much of a hurdle
to play those events, even the smaller events. They're like
a three day event, and so if you're going to
make any money at it, you've got to be prepared
to play, you know, twelve hours a day for three
days straight. Those days are behind me.
Speaker 2: And my last question before we go is who is
the intended audience for your book.
Speaker 1: Well, the first book was really meant for sharp sports
betters specifically, or people trying to become sharp sports betters,
to give them kind of guidance as to what was
important and how to accelerate their bankroll growth. The new book,
Sharp Money, is really for anybody interested in investing, and
you know their statistic to say, at least, you know,
sixty percent of Americans have some sort of retirement account
which is going to be invested in something. So you've
got to figure out what are you going to invest
it in and how are you going to evaluate whether
that's a good investment. And you know, part of the
book is about how to kind of rebalance your portfolio
to optimize it. But a lot of the subjects in
there talk about things like the correlation between different assets
and get it make sure, making sure that you get
enough return for the risks that you have to bear,
and being able to evaluate that stuff. So people don't
just you know, look at the you know, a spreadsheet
of what the expected what the trailing returns are different
investments and say, okay, well this one had did fifteen
percent last year and this one did eight percent last year,
So I'm going to put all my money in the
fifteen percent one, because that's got to be the best one,
you know. Spoiler alert, that's not necessarily the best one.
Do you plan a third book? I'm all in it over.
We'll see, we'll see how how I recovered from this one.
Speaker 2: Well, that's good. As long as you can there sell
it to sixty percent of the population, that's that's done.
Pretty good.
Speaker 1: There you go, Yes, son, audience is a much bigger.
Speaker 2: Thank you for coming. We appreciate your time. Oh wait, sorry,
there's one last thing.
Speaker 1: You scared me.
Speaker 2: When I first got your your book, I got a
review copy and it said, if you share this review
copy with anybody, you're never going to hit another royal
flush in your life. Now, I'm a video poker player,
and that was that really would hurt me to the
core to have no more royal flushes. So that scared me,
honest on your thing. So I just want to know
that you're scared at least one person.
Speaker 1: With that line. That was special for you.
Speaker 2: Bob Ah very good.
Speaker 1: I do feel special.
Speaker 2: So thank you for being here. Thank you Richard. Go
out and hit lots of royal flushes everybody. Good day.
Speaker 1: Free audio post production Biophonic dot com