We are sure that Bankroll Management is the most important factor when it comes to successfully winning at gambling. That's right, it's more important than picking the winner or picking horses at the right price. The ability to stake the correct amount on any given income is the "difference that makes the difference".
As you may have read or you can certainly glean from our article on Value Betting, the true odds of an event happening and the odds you're being offered by your bookmaker have to have the right relationship for you to have a bet. A great example would have a bookmaker offering you 2-1 on the toss of a coin. That's a much better return than the true odds of evens (50/50). If you accepted the bet 10 times you are statistically likely to get 5 heads and 5 tails. If you placed a £ 10 bet on tails every time you would lose £ 50 overall when heads comes up but would return £ 150 when tails came up giving you a nice profit of £ 50.
Unfortunately, there is a big difference between what should happen statistically and what will happen. It is entirely conceivable that all ten coin tosses will return heads and you'll lose £ 100. That's obviously an awful result when you're actually statistically ahead! So what's gone wrong? Put simply, it's that statistically things work out over the long term. If you could perform this example of 1000 coin tosses it is far more likely that it will end up with 500 tails and 500 heads. So how does bankroll management help you overcome this? Put plainly, bankroll management is the process of staking a reasonable amount of the money you have available for gambling on each bet so that you will not go broke in the short term.
The first thing to realize is that you must have a bankroll to start with. That's a limited amount put to one side for gambling and you're not allowed to put the odd £ 20 in from your pocket. The bankroll is ring-fenced and separate from your daily money. It can be as big or as small as you like but it must not under any circumstances be enough to affect your everyday living.
Once you have determined your bankroll then it's time to determine how much of it you wish to risk on each bet, 50%, 25%, 1%?
This is not an easy question to answer and we really have two options that we look at.
The first may be hard to get used to but we feel it is the best option by far. You are going to bet between 1% and 4% of your bankroll on any single bet dependent on how strongly you feel about it. That means that if you have a bankroll of £ 100 you are going to be placing bets of between £ 1 and £ 4. Sounds exciting huh? Well it's not but it is sensible and it will allow you to prosper. The reason that this approach does so well is because if you only bet say 2% on each bet then you would have to lose 50 straight bets to go broke and we would suggest that if that's happening then this is not the game for you! On the flip side, because it works on a straight percentage of your bankroll then it can increase things very easily. If you started with £ 100 again and bet 2% on each bet then how much would you have after 100 bets? Well if you win every bet at 3-1, you'll win £ 6 profit on each bet and win £ 600 in total, giving a new bankroll of £ 700 – not bad at all! If however you staked 2% of your bankroll and won all 100 bets at 3-1 you've got a balance of £ 2,035.81 – that's better!
It helps the other way too, if you started to lose then you'd be staking a percentage of the bank balance rather than a fixed amount. By betting £ 2 each time you would be broke after 50 bets, by betting 2% every time then you'd effectively never go broke.
We strongly recommend this solution.
The second option and one that some professional gamblers swear by is the Kelly formula. This determines your stake determined by the odds of a specific exit when compared to the odds on offer. The basic Kelly formula is:
Bankroll percentage = ((odds offered x probability) – (1-probability)) / odds offered.
Therefore, if you were offered 6/4 on Bolton to beat Manchester United and you believed that the true probability was 50/50 then the formula would look like:
Bankroll percentage = ((2.5 x.50) – (1.50)) / 2.5
This gives a bankroll percentage of 30%.
For all of its testimonials we find two main problems with the Kelly formula, the first is that the probability is determined by the bettor and therefore is only as good as the bettors prediction and secondly, 30% we feel is far too much to bet on a single option. Many bettors adjust the Kelly by dividing the final percentage by 25% of 50% to give a smaller percentage and therefore a lower risk. We do have a bankroll solution that includes the Kelly formula but this will be discussed in further articles.
On a final note it is worth discussing the association between the amounts you stake and what that money means to you. In the previous example we staked £ 2 on our first bet and this is illegally to really matter to most people. This can lend to frivolous betting and a determined losing streak, please ensure that you give each bet, whether for £ 1 or £ 1000 the same level of due care and attention. In addition, you should do really well and your £ 100 bankroll gets up to £ 10,000 and you're now staking £ 200 per event then the money may matter a whole lot more to you. If you have always investigated every bet you place with a suitable amount of diligence then it is fair to say that bets that were worth £ 2 should now be worth £ 200. In reality however we always put a limit where we "check out". If you start with £ 100 and you get up to £ 500 then take £ 250 of it and buy yourself something you want. Take it from us, it's a lovely feeling looking at your new Guitar / Xbox / Stereo / Blu-Ray Player (delete as appropriate) and smiling to yourself knowing that your skill and knowledge got someone else to buy that for you.