La Mer: I think Stebbo is correct - we appear to have gone a little off track on this discussion - perhaps instead of being name 'risk management', 'money management' might have been a better heading.

Anway, for my two bob's worth, whatever the benefits of Kelly’s Criterion in regard to optimizing a punter’s bank, in its truest form it fails to measure as a practical tool.

I know of people who use Kelly, but not one of them has claimed to be an adherent to the use of a full Kelly.

So where does it fail? On two out of four main points.

Barry Meadow a US pro punter and considered to be one of the smartest handicappers/money managers around offers a four point criteria for the correct use of money management:

a)keep records on all bets and expenses;
b)do not overbet in relation to your bankroll;
c)bet more when the value is greater; and
d)bet within your emotional threshold.

Clearly, for most punters, the Kelly criterion fails in regard to both b) and c) above.

As Becareful succinctly points out and as would be true of most of us, to bet(say)50 percent of your bankroll on one horse is way beyond our emotional threshold as well as totally overbetting in relation to the bankroll.

So what are some of the better methods of maximising profits (assuming a profitable set of selections)?

There are variations to the Kelly, such as the half-Kelly as well as another variation named the Super-Kelly (also known as the Hyper-Kelly). However, to operate effectively, Kelly betting requires a precise estimation of a horse’s chances and therein probably its downfall as even a small variation in a horse’s estimated chance can mean large errors in application.

I personally use a progressive level stakes milestone approach, that requires a 4 percent level stakes bet until such time a predetermined milestone level of bank is reached whereby 50 percent of the profits are withdrawn and placed into a reserve bank, betting then recommencing at 4 percent of the higher bank level, i.e.
$1000 commencing bank equals $40 bet (1000*4%)
When bank reaches $1250 - half the profits withdrawn ($125)
Recommence with new bank of $1125 equals $45 (1125*4%)
Continue in this fashion until emotional threshold reached, then go back to last milestone and recommence.

So long as the profits continue, this can go on ad infinitum, or until there is enough confidence to lift the emotional threshold.

What I mean by this it that there is little point in (say) starting at $40 with bets rising to $200 over time, if the emotional threshold is reached with $100 bets.

When the heart starts pounding, when a punter starts to regret the fact that a bet went down with such an amount on it that they say to themselves such things as ‘that was a week’s pay’, or ‘gee the amount of that bet would have bought a new TV’ then the emotional threshold has been over-reached and the punter needs to have a big rethink, remembering that they should only be prepared to lose what they can afford.






[ This Message was edited by: La Mer on 2003-10-21 15:45 ]

[ This Message was edited by: La Mer on 2003-10-21 18:48 ]