Money Management Part II: Towards a Plan
November 21, 2006

In my last article, I left you with five questions; your answers would be a good guide towards a plan. From #'s 1 to 5, they tell you about:

1. Loss limits
2. Winning percentage
3. Your "Unit"
4. Diversification
5. How you'd handle Streaks

I disagree with those who think there is one money management plan. But, you definitely need a plan and it must be systematic and internally consistent. Let's throw in a few assumptions:

You can pick more winners than losers.
Have a process for doing it.
Do it for profit not fun.
Agree that luck is often a factor in the outcome.
In hindsight, have sometimes bet more and less than you should have.
Want a plan for not doing that again.

At the end of the day, if your plan is right for you, you can look in the mirror and honestly say that you made the right bets for the right amounts for you regardless of whether they won or lost and can get up tomorrow with no mental "hangover" (good or bad) and start the process all over again.

Back to the questions:

1. You need loss limits both per bet and per session. These are most easily defined psychologically, and could be either dollar or percentage of bankroll amounts. How much could you stand to lose on any single bet and on any single day without it having any effect on your mental state or tomorrow's handicapping? That will tell you your maximum Unit and your maximum Exposure.

2. You must know your long-term track record. And because it is long term you ought to be conservative about it, there is no guarantee that what was working is still working. This year, where I am monitored, the NFL leader is currently slightly above 65% and only 9 of 24 are showing a profit; for CFB its 63% and 15 of 24.

3. I do not believe in rating plays. My Unit is the same on virtually every bet. That is primarily a function of my handicapping process. To make a bet in the first place, I need value; the price on my team has to be "cheap". In addition, my team has to have an emotional edge. However, I cannot put an objective number on a subjective thing; my team either has the edge or they don't, I can't quantify how much. Rarely, their value will increase between me making my bet and game time. A 3 ½ pt dog may move to 4 ½, if I saw no justifiable reason for the move I might add to my original position. In my opinion, rating plays from 1 to 5 or 10 stars with each star representing a percentage of bankroll is ridiculous. There is no way that the probability of winning can be 5 or 10 times as great with one bet vs. another. The 1* and 2* should never be bet in the first place and rarely, if ever, am I going to risk more than 5% of my money on one game.

4. I would rather diversify than have too many eggs in too few baskets. 52.4% is Breaking Even and hoping for >60% is unrealistic. Given that, almost any bet worth making must have about a 55-60% chance of success. The more plays with positive expectations, the better; it keeps the law of averages on your side. Luck is minimized and profits are greater.

5. Streaks are primarily a function of luck. In order to bet more when you're hot and less when you're not, you need to know the when. Unless you're clairvoyant, how do you know when the "when" will end? The fact you were 5-0 or 1-4 in the day's games has about as much to do with what will happen on Sunday night as a streak of 5 heads or tails has to do with flip #6. The next game always has the same chance of being the beginning of your next losing or winning streak; bet it that way (of course we know that because your plan has loss limits, your handicapping isn't affected by your recent track record).

My plan? My Unit limit is 5% and my Exposure one-third of Bankroll. I want to make 50% profit on Breaking Even. My Edges are a long term 55-60%. I typically flat bet 4% of starting Bankroll on every bet unless I hit 50% profit or loss and then readjust my Unit. For example, on a hypothetical $10,000 Bankroll I would bet $440 every time in CFB (unless that exceeded my Exposure limit) until I reached $15,000 and then start betting $550. I lay that same amount regardless of the bet; straight, money line, teaser, parlay, you name it. How's it working for you?

Reed Hogben M.D.