Archive for July, 2009

Well the curtain has drawn down on July and as it turned out to be an interesting month. I ended up doing a similar total to last year, but more notable was that my strike rate shot up into the high 80′s this month. It’s the first month that I have used the new market overview screen permanently. Coincidence, possibly, but in a long shallow declining trend this month sticks out like a sore thumb; I hope it continues into August.

My overriding memory of last year was the nightmare at York when the meeting was abandoned. Not the only races to be lost to the weather. I really hope that the same doesn’t occur this year. Fingers crossed.

I started investing with some vigour again this month and even took an up bet on the FTSE index at the start of the month. I’ve been following a long term sentiment indicator and it turned positive as we exited last month. It doesn’t send a signal out often but when it flashed last month I felt I didn’t have much to lose by following it. I’m not into market timing really, but this indicator only gives out signals years apart so I thought it made sense to pay attention. The FTSE has since risen 9% on the month! I think we have a long way to go potentially on the next leg up on the market, but I will wait for the current euphoria to die down before adding to my positions.

You may be interested to know we are currently experimenting with similar indicators in Bet Angel. There are a fair few differences between the way both markets act so I am not sure if we will find anything useful, but it’s worth a try.

Further my recent post about the rounding error, Betfair have been in touch. In fact, they gave me a response before I could raise it with them! I got a very detailed explanation that explains clearly how the error occurred.

To cut a long explanation short, the rounding down occurred because the £2000 was matched against a number of other exchange users with differing amounts at differing prices. Given the underlying way the bets were matched, on an individual basis with other users, some profits are rounded up others rounded down. I could have just as easily ended up 1p. Betfair didn’t gain the 1p it was some other exchange user.

Betfair assure me that nothing has changed from their end since the original process was launched back in 2000 and this manifestation is just a quirk of the existing system and the way bets are matched and settled.

I’d like thank Betfair for providing such a quick and comprehensive answer.

OK, the concept of trading is laying at a lower price than you back at. But if you can’t do that, then the next best thing is to scratch your trade.

If I back £2000 at 3.18 and then lay that back at 3.18 for the same amount, what is the net result?

Zero, of course. But this doesn’t appear to be the case any longer? I can’t honestly see how you could get a rounding error on this simple calculation, but one appears to be occurring. I’ve seen others report the same issue so I’ve raised this with Betfair.

The card looks rotten today. From 14:00 we have a  race every five minutes and I suspect we potentially have some clashing on the cards. With Perth now lost to the weather we could have another problem. Not an ideal scenario at all but surely one that could have been improved with some better scheduling. And the horse racing industry is wondering why the money from levy is falling?

An “interesting” start to the week. No sooner had I started my activity than my PC decided to reset itself, then it did it again, then the TV’s went, then all electricity was cut. A bit of a nightmare start. I ploughed on though, as I have back up systems and that gives me the ability to carry on in a disaster.  On the next outage though, even the local mobile mast went down! Obviously there was a serious problem with the local network so I had to stop trading for a while and tread carefully.

Once I was sure things were returning to normal I stepped up and got into the day, but it was quite tough. The thing that stood out for me yesterday was that despite using pretty average stake sizes it was taking ages to get filled on anything. We tested various orders across the book but it just seemed that the fill rate was poor. We wondered just how much “real” money was being matched at times? It’s a little concerning as with such a high profile event, sponsored by Betfair, we were expecting some fireworks. Lets hope the rest of the week picks up.

Over all I managed to drag myself up to near £1300 by the end of the day, but the highlight was the feature race. On Monday, during my course, we all looked at this race and discussed exactly how it should trade. It turned out exactly as we expected and also turned out to be one of the lowest risk trades of the day. With the large amount of volume to hand on the race, this was just perfect and I hope everybody took the opportunity that was presented. Fingers crossed for the rest of the week.

Thought you may like this video, scalping can be a bit hectic at times!

The thing that has prompted this post, is the chat I had with a whole bundle of Bet Angel users on Monday night. I offered out an open invitation to talk  about anything. Unfortunately at 11pm we ran out time, unable to answer all the 300 or so comments and questions.  I will arrange another session in the future. One question was, “Were does it end, what’s next?” There is a natural endpoint for me, its linked to my investing.

When you invest, not trade, you are looking for yield. It’s the same as putting money into a savings account, you want to earn X% interest. The wonderful thing about investing in company shares is that you can earn your ‘interest’ and see your capital grow at the same time. When I invest, I am looking for that company to re-invest profit to grow the company and return any excess cash to me, the partial owner, as a dividend each year. You and I can sell each other bits of companies till the cow comes home, trading, but at the end of the day a company is worth only what it throws off in cash over time. So that is my focus.

As an example, I bought some shares in AG Barr in late 2004, nearly five years ago. I bought them at around £6 each. In the last five years they have moved up to near £13. That’s a nice return, but I have earned more than this because of the dividend payments. Dividend payments add £1.55 to my return. 25% of my purchase price has already been returned to me in the form of dividends. Next year the dividend yield, based on my purchase price, will probably reach somewhere near 7%. With an investment yield like that per year, there seems little reason to sell them. This is why I like longer term investing so much, as opposed to trading short term on the stock market. My only decision this year will be whether I want to sell AG Barr or not. If I hold I get paid for doing so, its a net positive position, even by doing nothing. Investing can also be scaled to billions.

In contrast, while your return on capital is likely to be high if you trade on any market, your ability to scale it is limited as it always involves some form of leverage. On exchanges, that scaling is smaller given the introduction of the premium charge, data charges etc.  More importantly you will not earn anything in terms of a yield. Investing though compounds up at a brisk rate and compared to something that is limited in scale, it will over take it in double quick time. If there is excess capital to hand, investing and compounding it will soon produce an income without having to sit in front on a screen every day for hours.

Of course you need to get that excess capital in the first place, so don’t let it hold you up in anyway. It’s just another another goal to aim for. Much better to be a lender of capital than a borrower of it!

It’s funny but some of my best trading occurs when the red mist descends. After the “injustice” of the 14:20 at Bath I am actually performing really well. I think this is because I get very aggressive in my trading.

Typically I recommend to people to take a break if they feel the red mist descending as it can really force your hand and cause you to make some chronic mistakes. My actions defying my advice.

I guess you have to trust your judgement and I guess I also have to understand whether I really need to lose a bucket of money to motivate myself! Anyhow, thought I’d share that with you.

Another race failed to turn in play today, the 14:20 at Bath. This time, excuse the pun, I took  a bath on my P&L.

I think I speak for a very large number of users, not just Bet Angel customers, when I say that Betfair really need to sort our their suspension and inplay process. The whole process, across a number of sports, seems to be in freefall. So many football matches and horse races in the last month have never been turned in play. It’s very frustrating and very costly to users who are relying on the inplay markets, as advertised. One or two glitches here and there can be forgiven, even expected, now and again but the size and scale of the recent problems obviously point to more serious issues.

I don’t know how people can confidently commit capital to markets that are, at best, becoming very erratic. I for one will scale back activity that relies on in-play markets until such time that I have some confidence that the problem is fixed. Part of that confidence will come from knowing what the issue is.

Explaining to customers what is going wrong will help them come to terms with the issues and may be a useful piece of PR. Explaining the issue, one that occurs with such regularity it seems, with the words, ‘Technical issue’ really isn’t good enough in my opinion. So please Betfair, instill some confidence and help us understand what keeps going wrong.

I’ve crossed paths with John Kay on a number of occasions, I guess this is because we often have approached things in a similar manner. I don’t know him as such, but have followed his work , attended some of his lectures and spoken to him. I thought this piece I read in a weekend FT recently was a decent thought provoking peice. It tells you a lot about the way people approach risk. It sums up quite nicely how I think and how I look at risk and how people are often fooled into the wrong decision.

http://www.ft.com/cms/s/2/0632d418-67fc-11de-848a-00144feabdc0.html

It reminded me of a converstaion I had recently with a friend I met in the rush hour in London. “Shall we catch a cab?” he asked. To which I responded: -

“If we go on the Jubilee line theres a 70% chance we will probably have to wait for two trains I guess, or we could go south on the Bakerloo and its 90% certain to be clear, catch the Northern Line north and walk. If we took the Taxi it will cost extra but we can be sure of getting their on time. We’ll catch the taxi”. He laughed and said, “That’s you all over!” I think he was looking for a yes or no.

After many years in the market it’s not often I get to feel great about a day but that’s how I feel after today’s session. I was in dialogue with a Bet Angel user at the start of the session and got off to a dodgy start. He reminded me that it would end up ok and that’s exactly what happened.

I was enjoying it so much I just blitzed through the card, including the Irish races, and managed to trade 47 markets on the day. I ended up with only two losers, one of them outside of my control. It was a very satisfying day!

This run and turn of events reminded me of something that somebody recently asked me. They asked if they should stop at a pre-set profit or loss for the day. I can’t imagine why you would do this? If you stop at a loss you will miss potential profitability later on, and limiting your profit is never a road to riches. I can’t imagine why anybody would adopt this sort of strategy.

At the end of the day it’s a numbers game and to make it work and tip things in your favour, you need to keep working those numbers. No amount of limiting losses or profits will help that, it’s what you do on each individual moment that matters.

I’m looking forward to the Ashes and if the markets are anything like the last time the Ashes were held in the UK, we could be in for a treat. I remember visiting Betfair’s offices just after the last test finished. It had turnover of £32m or something similar. There was a lot excitement and activity last time around.

I must admit to not having done much Cricket trading. It still remains a relatively untouched area for me. I have carefully modelled horse racing, soccer and tennis but cricket is still on the edge of my agenda.

I know it’s something I would like to get into and I know some excellent cricket traders, but unfortunately there are only 24 hours in the day. There are some good blogs out there so if you are interested in getting involved have a nose around them. I’ll see if I can get a list up at some point. For this series I may have a dabble but until I know what I am doing it will remain just that.

The only hint I can offer at the moment is that it seems the weather can be an important contributor to odds movement as well as the underlying score.

Last week we had a meeting abandoned because they couldn’t get enough water on course. This week we appear to have too much. Uttoxeter has been abandoned this evening in another embarrassment for the racing industry. I’d understand the odd one but these ‘freak events’ do seem to occur with amazing regularity!

It’s been a really disjointed start to the week, I hope it gets better from here.

http://www.racingpost.com/news/horse-racing/waterlogged-uttoxeter-abandons-evening-card/605914/

Thank you for reading this blog. I trust you get something out of reading it and based on the tons of emails I receive, a lot of you do. That’s pleasing to know.

You should always welcome opinion and whether you agree with it or not, its important if it provokes thought or debate. Asking “why?” is a great human gift. However, if opinion isn’t voiced for constructive debate, it serves nobody. Let me tell you where my opinions are sourced.

I draw next to nothing from the commercial side of my activity in the market. I prefer to re-invest that money into future projects. For me, actually using exchanges has always been central to everything I do, in fact, its a passion. If it wasn’t a passion I wouldn’t sit here playing with odds models shoveling millions a week through the markets. In fact, if I had no other interests and didn’t earn a penny from it, or anything else, I would probably still be sat here probing the market. That’s how Bet Angel came to life. Back when it was created there was nothing with the features I needed, nobody was convinced they were needed, so I had to design  the concepts myself. A lot of features you see in the market, even some of those introduced by Betfair first appeared on Bet Angel.

Having successfully navigated the markets since they were formed nearly ten years ago, I’m bound to voice what I think. My opinion comes from actually being here and doing it, and that is what drives my thought processes and comments, nothing else.