Whenever you look at all strategies, no matter how complex, there is always some simple underlying key metric that is essential to whether a strategy works or not. This is also true in the case of ‘lay the draw’.
I’ve recently been looking again at value backing. There is a little more depth behind what I am doing, but one of the key issues you face if you pursue a value strategy is deviation from mean. You may be able to identify value, but if you can’t identify enough, you run the risk that an unfavourable run of results will see you draw down a significant amount on your capital before your judgements prove correct. Most people can’t bear this unless they are very patient and have very deep pockets. Neither tend to be realistic of any but the most experienced.
One of the areas I have been looking in-depth is at the moment, is the draw on football matches. I didn’t look at a few days, weeks or months but at over 15,000 matches. Below you can see a graph of the data I collected. In theory, if the market was efficient, you wouldn’t see much variation from the centre line. However, this only tends to occur over very long time periods. You would think that 15,000 matches would be defined as a long period. But from the graph however you can see that there has been a significant variation in returns from the draw over the sample period.
Basically the graph is showing you what would happen if you backed the draw. Any variation to the downside of this graph would be a net positive variance for people who lay the draw and the opposite is true. Of course this would also apply to people trading as well. If a match ends as a draw or not, there is a demonstrable chance you would have traded it correctly dependant on that result. The blue line is what happened to level stakes. In this case using £10 you would have faced a drawdown of £4.7k, the other line is my attempt at seeking value. This drew down as well but eventually recovered to break even.
The upshot of this data is even if you had your value judgement completely wrong you could have been fooled into thinking you had stumbled on some amazing new system, or that you were the god of tipsters. But the simple fact underlying your strategy would have been that you laid rather than backed. Essentially you could have ended up over a long period of time if you had the faith to stick to your initial thought. The problem of course is that, even then, your ‘edge’ would have eventually faded to nothing.
This isn’t just applicable to the draw, most events and selections in those events can go through these huge under or over runs. This tends to lead people to the view that somehow they have stumbled on something when in fact the market is just conforming to it’s natural variation. Anybody can be a ‘god’ for a short period of time, or in this case over 15,000 matches. But doing that over many, many years is much harder. When looking for advice or somebody to look up to, longevity is a key differentiator.