Photo: The Kentucky Derby
The 137th Kentucky Derby on May 5, 2012, brings out all the rank amateur bettors in the nation. I have a friend who places her bets at the last minute, after she’s seen which horses have pooped before getting into the gate, for instance. Another acquaintance never bets on grey horses. “grey don’t pay!” is her motto.This is no way to bet on horses.
I, however, have a surefire horse-betting system that takes the guesswork out of it — and this year I will share it with you.
- Download my Kentucky Derby spreadsheet here.
I went to Columbia Business School and while there was forced to learn how to use Excel spreadsheets. While everyone else used them to calculate bond prices and model cashflows, I found it was much more fun to apply them to horse racing.
The caveat here is that I know nothing about horses. But I do know that horse racing is really boring unless you have money riding on it. So I decided to approach the Kentucky Derby as if it were a probability problem that I could solve with Excel.
Here’s how I did it.
There are 20 horses in the running tomorrow (My Adonis scratched). So at the outset, you have a 1 in 20 chance of picking the winner. Those are not good odds.
Some horses have better chances than others than winning — they might not like longer races, for instance — and bookmakers adjust the odds on each horse in order to reduce their losses if the favourite wins, and to attract money to the outsiders with very long odds.
But the bottom line is that the derby is a crowded race, random things happen, and in theory any horse can win.
So a sensible investor approaching the derby as if it were a portfolio with different risk levels in it might want to ask, how many horses can I bet on and still come out ahead if any one horse wins? Put another way, can I spread my bets among as many horses as possible and still come out ahead?
The good thing about the derby is that there are a lot of horses running at very long odds. The formulas in my spreadsheet ask, for a $10 bet on each horse, how many horses can I bet on and be able to win more than the total amount of money I’ve wagered?
This year, you can bet on 10 of the 20 horses at the current odds, and if any of them win you’ll come out ahead. That reduces your overall odds to something as good as a coin flip: 50/50. (Of course, your portfolio will contain none of the favourites.)
The horses you must bet on are Daddy Long Legs, Optimizer, Rousing Sermon, Trinniberg, Alpha, Prospective, El Padrino, Done Talking, Sabercat and Liaison. A $10 bet on each one to win will cost you $100 and if any of them come first you will win at least $270 and as much as $680. (I’ve built in a margin to give the betting a purpose — there’s no point in betting $100 to win $110, for instance.)
The other disclosure here is that I’ve used the current odds as of 2.30pm on Friday, not the Morning Line. Odds change up to post time, so this is for fun only.
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