A pair of analogies to illustrate the concepts of VALUE and EDGE.
PROSPECTING FOR GOLD
Professional sports betting involves picking out the few elusive value bets in amongst all the bad value bets. The nuggets of gold in all the worthless rocks.
Almost every bet that a bookmaker offers you is bad value. Almost every rock lying in the bed of a river contains no gold.
Value bets are rare because bookmakers have a margin in their favour. Nuggets of gold are rare because there just ‘aint much gold in the world.
So professional sports betting is a lot like prospecting. It’s about finding the rare, precious lumps of gold. And then getting them to the bank to cash them in.
Loads of people went to the Wild West in the Gold Rush in search of their fortune. And today recreational prospecting is a popular hobby. But very few prospectors ever make a decent profit. Almost every prospector is an ‘amateur’.
The reasons that amateur prospectors don’t make a profit;
- They just do it for fun without any focus on making a profit. Their expenses exceed the income they get from banking any gold they find. But they keep doing it anyway for the chance of finding that one huge life-changing pure gold nugget. And also because it’s good fun looking. It’s a buzz to occasionally come across a little golden rock.
- They look in the same place as everybody else. If they hear that someone has found gold in a certain spot, they go there too. This is despite the self-evident fact that it’s unlikely there will be any good nuggets left by the time they get there.
- They choose places to search using their ‘heart’. Places where they feel an emotional pull – where they have a ‘good feeling’ about it. Where they think they might get lucky.
- They don’t take time to sift and examine the shiny rocks for their quality. They just scoop them up, and take them in to the bank and hope for the best. Most of the time there’s no real gold in their rocks. Profitable prospectors take their time to sift the rocks, and only take to the bank rocks they are pretty sure contain some gold.
- Some amateurs are actually good at finding the right rocks but they don’t get the full value for them at the bank. They lose them, or get robbed on the way to the bank. Or get ripped off by the bank tellers. Selling the gold to the banks is an art in itself. Many pros sub-contract the job of selling their gold, so they can concentrate on gold-finding.
Not getting paid for the gold they find – this is the thing that trips up loads of inexperienced prospectors. They don’t realise that banks have no obligation to treat their customers fairly. The banks are in the business of buying gold as cheaply as they can. They have no scruples about ripping off the unwary.
And the life is tough. It’s a harsh, unforgiving environment. Only the strongest survive and prosper. You have to be good. Not just at finding the gold, but at getting paid. Once you’ve found your gold you’ve got to make it back to town, through the heat and the dust, past the robbers and the bandits. And then you’ve got to negotiate a fair price with those unscrupulous bastards in the bank.
Every once in a while a new device comes along that its seller promises will make finding gold nuggets easier than ever before. The young and the foolish rush in to buy the device, sure that it’s the key to a fortune. Sometimes these devices are useful. But the old timers warn them that finding the nuggets is only half the battle….
‘You can go out into the country and fill a sack full to the brim with shiny lumps of pure gold. But if you die of hunger on the road back to town they’re not worth a dime. You’re just a dead guy, with a bag full of shiny rocks you can’t eat.’
ATTACKING A FORT
Another way to look at professional sports betting is that it’s like attacking a fort.
You’re an archer, and you’re standing outside the walls, looking up at the ramparts. Behind those walls you know the enemy soldiers are patrolling, but they almost always stay out of sight, their heads below the line of the wall.
Most of your colleagues fire arrows up and over the parapet, hoping that the arrow hits a crouching soldier. They all have their favourite sections of wall. They keep aiming at this section where they’ve had some success in the past, or where other archers have had success.
There are no shortage of hangers-on who mingle with the archers, offering advice on where they should aim. They claim they have inside information. They know where the enemy soldiers are hiding, they can tell you the section of the wall you should be aiming at. And they’ll sell you the information for a small share of your kill pay.
But you’re different to the other archers.
You settle down and wait, bow ready, staring up at the parapet. You scan the line at the top of the ramparts, waiting. Waiting as long as it takes. You fire far fewer arrows than all the others.
You don’t listen to the advice of the hangers-on. If they really knew where the enemy soldiers were hiding, why aren’t they making a fortune being archers themselves? You don’t have a favourite section of wall. You scan the whole line.
You’re waiting for one of the enemy soldiers to make a mistake. Waiting for him to pop his head above the parapet. You’re waiting to see that flash of ‘V’. The moment you see it, you let loose. Straight and true.
Not every arrow you fire hits its target. But over time your success rate is far greater than the other guys’. Archers all have to buy their own arrows. So while the other archers might make more total kills by firing more arrows, eventually they run out of arrows and money.
You keep your head, and stay focused. The only thing you care about is making more money from your kills, than you spend on arrows over time. It’s that simple.
And you’re always willing to wait. You don’t care if you have to sit for a whole day without firing a single arrow. Your arrows are precious, so you don’t waste them. Ever.
You sit and wait and you only fire when you see the ‘V’.