Risk Analysis for Real-Life Bettors

The analogy between gambling and investing has been made so often by folks who do risk analysis that it has become trite.   But this week I heard from a guy who actually lives the analogy.

"I’m not a gambler, I’m an investor," Clay Graham protests regularly when he describes his approach to sports betting.  Clay is a consultant who specializes in quantitative analysis, and somewhere in his resume is an item that says he was doing mathematical quality control before the term "Six Sigma" was invented.  He is also the proprietor of the website BaseballWon, which exists to advise bettors on return on baseball bets.

Every day, BaseballWon provides an analysis of outcome and payoff probabilities for every major league game scheduled for the next day, along with actual results for games played the day before. The analytical engines behind the information on the site include Monte Carlo software, genetic algorithm optimization, and some proprietary statistical analysis.
No different than any other kind of investing, Clay claims.  "I take a portfolio approach, that is I allocate a certain amount of money to betting activity, and I distribute a certain proportion of those funds to a group of bets every day."
"Okay," I say, "it’s like any other kind of investing.  So how to do you determine value-at-risk?"
"Easy.  It’s whatever proportion of the betting fund you’re using.  Remember, I’m treating this as a portfolio and spreading the value-at-risk and the ROI over time. And I get good results."
"But, Clay, are they real?"
"The results?  Sure."
"Is the money real?  I mean, do you actually put your own money into this?"  
"Of course," says Clay.  "You have to put your money where your mouth is.  If you don’t , you’re just blowing smoke."
If that sounds like his parting shot, it wasn’t.  Before he signed off, Clay said, "What you have to keep in mind is that picking a winner is entirely different than placing a smart bet."

. . . . more from Clay tomorrow.


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