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Discussion - Risk management and odds
about Ernest Dahlman - someone who has experienced amazing success at betting on horses for the past 35 years.Some of the principles that have contributed to E.D.'s success are the very same applied by top, professional traders.The following includes excerpts from a June 3, 2001 article titled THE WIZARD OF ODDS, published by the New York Times
This Wizard of Odds, "Ernest Dahlman
, may be the world's most successful horse bettor.The reason he's
so good is that he
doesn't gamble."But, according the article, "in a busy year, Dahlman
might bet as much as $18 million." Let's look at some of the main principles that contribute to Dahlman's success and see how they are transferable to trading.
specializes primarily "with races at tracks in New York and California" where he
perceives himself to have a larger edge.This way, he
can become familiar with the subtle nuances such as local trainers (in whose hands a horse can experience a "religious conversion") and track conditions.A trader will do best to concentrate on a select "stable" of markets and learn their individual personalities, than to jump into markets or individual stocks that have not been thoroughly researched.
specializes in a very specific type of bet - the exacta, his
"bread and butter."A trader will do best if he
specializes in just one style or pattern or trading methodology.Know the risk/reward characteristics of your individual technique.Dahlman
chooses what would at first glance appear to be a high risk technique, but one which offers good rewards.
pays more money to minimize his
bet by creating a box ("twice as expensive as a straight exacta" but which "lets Dahlman
have things both ways"). Successful top traders are far more interested in strategies by which to minimize risk than those that go for the big gains.Stops, protective options, or spread strategies are just some of the ways to minimize risk.
(Dahlman) says, he
earns 3 or 4 percent on his
never bets serious money on long odds.Stick with the high probability setups.Don't try to hit home runs."The point is, there's no such thing as a sure thing.Favorites win only a third of the time, an immutable racing statistic. Even successful bettors tear up more tickets than they cash.
relies in part on the work of others. The Daily Racing Form gives him a compressed description of the last dozen races run by each horse entered in a race. That merits a quick glance.The more serious numbers come from 'the sheet'" ... which analyze and quantify... "a variety of factors, ranging from track resiliency to wind
Years ago, Dahlman
began noticing something funny about horses equipped with mud calks, cleats that some trainers use for extra traction when rain turns dirt into mud.Dahlman
noted that even when rain failed to materialize, a lot of horses seemed to improve several lengths when wearing mud calks for the first time" It's also another "reason he
loves Golden Gate Fields, near San Francisco.It rains a lot there, so plenty of mediocre-seeming horses are switching to mud calks for
else! Although "Dahlman
accepts as highly accurate ... the raw speed numbers," he
rejects "other assumptions in the sheets."Others dismiss Dahlman's horseshoe theory.It does not matter who thinks your style is right or wrong ... all that matters is that you believe in it yourself and follow it consistently.
can sleep easily," Dahlman
says."I can get that back in one race."Your sleeping level may be different from anyone else's.
Here is a person who has managed to keep a balanced
Recognize that Dahlman
built up a lifetime of racing knowledge.He
relies on that experience to interpret the incredible amount of information he
gathers.For newer traders just learning to make their way in this business, recognize that, ultimately, experience is the best teacher. Every day that you trade, you gain experience.Keep the discipline, keep the faith.To repeat one last quote: