A few more bets

I’m a week in to my little experiment now and its been a busier week than I thought it would be so I’ll share with you the bets I have made so far.

Bet	Odds	Result
Specials(Dancing on ice) - Donal to not get perfect 30	1.05	Win
UFC 97 - Anderson Silva Win	1.18	Open
Politics - General Election Jan 2010 or later	1.20	Open
F1 - Lewis Hamilton to beat Jenson Button	1.57	Open
Tennis - Roger Federer beat Kevin Kim	1.02	Win
Tennis - Novak Djokovic beat Frank Dancevic	1.07	Win
Tennis - Andy Roddick beat Diego Junqueira	1.02	Win
Tennis - Elena Dementieva beat Anastasia Pivovarova	1.04	Win
Tennis - Ana Ivanovic beat Mariya Koryttseva	1.07	Win
Tennis - Dinara Safina beat Mathilde Johansson	1.04	Win
Football - Italy beat Montenegro	1.57	Open
Football - Germany beat Liechtenstein	1.02	Open
Football - Denmark beat Malta	1.14	Open

In a week I have made a profit of £0.31.  If I can keep this up I will have a total of £116.16 after a year, that’s equivalent to 16.16% AER if it was in a savings account!.  So while 31p may sound insignificant, as the saying goes, ‘take care of the pennies and the pounds look after themselves’.  But as I said at the start of this post, I have been a little bit busier than I expected to be in this first week, (I’ll explain why in my next post) so I don’t expect  to keep up this rate of return for the full year.  If nothing else, I am sure there will be a few losses at least over the year.

Next time I’ll expand on my strategy a little more and explain why I think I have already made a couple of mistakes by deviating from it.

Explaining the odds – Part 2

I hadn’t planned on splitting this in to two parts when I started it, but decided it would have been a little lengthy to put everything in to a single post.  Last time I explained how the odds are used to calculate your potential return and that for the purpose of this experiment and blog I will be using decimal odds, so let me explain why I made this choice in a little more detail.

There are two key things to remember about this experiment when considering odds, the stake and the goal.  The whole purpose of what I am doing is to try and beat the interest rates offered by banks.  Decimal odds make it very easy to compare potential returns to interest rates particularly as I am using £1 stake for all the bets. Lets take a closer look.

If I place a bet at odds of 1.20 I am getting a 20% return on my investment.  If I place a a bet at odds of 1.05 I get a return of 5% on my investment.  As you can see its very easy to see the ‘interest rate’ from the odds.  Compare this to fractional odds of 1/5 (1.20) and 1/20 (1.05) where the percentage return is less obvious.  When the odds are at evens (2.00) or higher it is perhaps not as instantly obvious what the equivalent percentage rate is but it is simple to work out using decimal to percentage conversions (i.e. 1.00=100%, 0.50=50%, 2.00=200%.)  We just need to subtract 1 from the odds and convert to a %.

Example
Odds of 3.50 = 250% return (3.50-1=2.50)
Odds of 1.25 = 25% return (1.25-1=0.25)

Finally, I would just like to explain a few phrases regarding odds that I may use later in the blog just in case any readers aren’t already familiar with them.

Short odds – These are low odds where the potential return is relatively small.  Odds moving from a higher value to a lower value are said to be ‘shortening’.

Long odds – These are high odds where the potential return is relatively large.  Odds moving from a lower value to a higher value are said to be ‘drifting’.

If you didn’t have an understanding of betting odds before, hopefully things will be a little clearer now and allow you to follow what I am doing as I go along.

Explaining the odds

Previously I talked about the bets I had placed.  Today, I will explain the odds which determine the return from each bet.

For the purpose of this experiment I will be using decimal odds, rather than the fractional odds most people are perhaps more familiar with.

Fractional Odds
For anyone who has seen horse racing on TV or been in a betting shop this is how you will most likely be familiar with odds being displayed.  Lets look at a few of examples.

2/1 – This means that for each £1 you bet, the bookmaker will give you £2 if you win plus your £1 stake. So a win here would give you £3 total return.

5/4 – For each £4 you bet, the bookmaker will give you £5 plus your stake.  A £1 bet @ 5/4 would give a total return of £2.25.

1/5 – For each £5 you bet, the book maker will give you £1 plus your stake. A £1 bet @ 1/5 would give a total return of £1.20.

Evens is the same a odds of 1/1

So what ever your odds you can calculate your total return in the following way:

Total Return = (Stake x Odds)+Stake
N.B. Odds it top number divided by bottom number, e.g. 2/1 = 2 divided by 1

Decimal Odds
This is the way odds are more commonly displayed with online bookmakers so is the method I will be using for this experiment.  It is probably easier to understand too.

Quite simply, you calculate your return by multiplying the odds by the stake.  This gives you the total return including the stake.  In decimal odds, 2 is the same as evens.  Here are the few examples.

4.2 – For a £1 bet at these odds your total return would be £4.20.

1.05 - (This was the odds for the settled bet in the last post). A £1 bet would return £1.05.

Finally, it is also worth remembering that your stake is at risk for every bet you make.  So if you stake £1 in a bet, you risking losing that £1.

First bet

As you will know from my last blog post, I have now deposited my £100 with a bookmaker and have started to place bets, but what am I betting on.

The first four bets are as follows:-

- Donal NOT to get a perfect 30 score in the final of dancing on ice.
Odds – 1.05
- Anderson Silva to win his bout at UFC 97
Odds – 1.18
- Lewis Hamilton to finish higher than Jenson Button over the 2009 F1 season.
Odds – 1.57
- The next general election to be January 2010 or later.
Odds – 1.20

Don’t worry for now if you don’t understand the odds, I will explain this in my next post.

As previously stated, all the bets were placed with a £1 stake.  Three are still open, UFC in on 19th April, the F1 season ends in November while I will have to wait to next year (assuming I win) to know the next election will be January 2010 or later.  The fourth bet has already been settled as the final of Dancing on Ice was on Sunday night and my return (including stake) is a whopping £1.05.

Now 5p profit may not seem much, but lets put it in the context of this experiment.  On my last post I detailed the interest rates available if I put the money in a savings account, the best of which was just 3.61% AER.  If the pound I had bet had been put in the savings account for a year I would have earned just 3.61p in interest.  Yet with this bet, that same £1 has earned me 5p or 5% return.  So from a gambling point of view, what would be seen as very poor odds and return has from an investment point of view produced a reasonable return.

The experiment begins

So things are underway.  I have deposited my £100 with a well known online bookmaker and am ready to get things started. (Actually I already have started, but more of that later.)

In order to set a bench mark so I know if I have beaten the banks in a years time I have looked at what savings options are open to me today through if I was to invest the money in a bank or a FTSE tracker.

Best Instant Access Savings Account
Citibank – 3.26% AER (includes 12month bonus)

Best Instant Access Savings Account (No Bonus)
Yorkshire Building Society – 2.75% AER

Best Cash ISA
Barclays – 3.61% AER (includes 1% bonus for first 12 months)

Best Cash ISA (No Bonus)
NatWest* – 3.51% AER

1 Year Fixed Rate
Nationwide – 3.14% AER

So ignoring any tax implications the best return I could get from a savings account is currently 3.61% AER from Barclays.  As I already have an ISA I couldn’t invest the £100 in this, but I enjoy a challenge so will use this as the rate to beat meaning that if the rate doesn’t change for the next year my £100 would be worth a massive £103.61. Wow! So if I can make just £3.62 from gambling I will have beaten the banks, how hard can it be.

To add another element to the challenge, I have also noted the price of the FTSE-100. 

FTSE-100 – 3842.85  (At close of play Friday 20/03/09)

If I put my £100 in a FTSE-100 tracker I would either gain or lose based on the movement of the FTSE, so if in a year the FTSE is at 4227 my £100 would have turned in to £110.  It may not work exactly like this in practice as tracker funds have management fees and I have also assumed the fund would perfectly track the index, but for the purpose of the experiment its close enough.

When I next update I will give details of some of the bets I have made or will be making.  You will also be able to track what I am doing with more regular update on Twitter.

* – requires opening of a separate account with NatWest

Sources:-
Savings account rates – moneysupermarket.com
FTSE-100 – BBC News

Strategy Basics - ‘Small bets on sure things’

So far I have told you that I am going to gamble with £100 to try and get a better return on my money than I would putting it in the bank and why I am trying to get a better return. In this blog entry I will explain the basics on the strategy I am going to use to do this.  I may talk about what I am doing as an investment, this is purely for the purpose of the experiment and it should be remembered what I am doing is gambling and it should not normally be considered a form of investing.

First, what I am doing is gambling so the risk element is high as I could lose all my money.  Two things to note, first I am only using £100 for the experiment as it is an amount of money I am prepared to lose.  This is true of many investment vehicles, for example shares, people always say don’t invest more than you are prepared to lose.  It is also an amount I have just got from selling stuff on eBay, so is extra money I didn’t count on having available to me. The second point is that I will be spreading my risk to minimise the possibility of losing all my money.

So how does the strategy work?  First I will only be placing small bets, starting at £1 so as never to risk more than 1% of my initial deposit on any single event.  This way if I lose, I have plenty of opportunity to win my money back.  Second I will only be betting on ‘sure things’.  I realise that nothing is ever certain, but bookmakers aren’t stupid.  If something has long odds there is a reason for it, it is unlikely to happen.  Likewise, the shorter the odds the more certain the event to happen.  Remember I am not looking for quick fix, this is a long term strategy.

Basically that is it, ‘small bets on sure things’.  I’ll go in to things in more detail as I progress, but that is the basic principle behind my strategy.

Why Gamble? – The background story

Perhaps before explaining my strategies for beating the banks by gambling £100 I should explain why I would want to try and do so in the first place.

For those of you reading this around the time it has been posted, I would expect you are all too aware of what has been termed by the media as the ‘credit crunch’.  But for those who have either been on another planet for the last year or so, or are reading this in the future with little or no understanding of the current economic climate, I will try to explain some of the background to what I am doing.

The whole ‘credit crunch’ thing is quite complicated, but I will attempt to explain it (as I understand it) in layman's terms and why it has lead to this experiment.  Perhaps the easiest place to start is the beginning of the 21st century.  Banks had lent to what have been termed as ‘sub-prime’ borrowers, essentially people who couldn’t afford to repay their loans and should never have been lent as much as they were lent in the first place.  Between 2004 & 2006 interest rates in the USA increased from 1% to over 5%.  This lead to people who could barely afford their mortgage payments at the low rates, defaulting on their mortgage at the higher rates, and with the property market drying up and property prices falling banks were losing money.

Fast forward to 2007, banks nervous of which banks have lost money to the sub-prime markets put up the rate at which they will lend to each other as well as making less money available.  Some banks had over relied on borrowing money from the markets in this way rather than using customers deposits to fund their lending so when the funds in these markets dry up, the serious trouble starts.  It is this that lead to the run on Northern Rock in the UK and its eventual nationalisation.  Around this time, Bank of England interest rates were 5.75%.

Northern Rock was far from alone with its problems, other banks failed or came close to collapse.  Perhaps the biggest was Lehman Brothers, while in the UK HBOS was merged with Lloyds TSB, and Bradford and Bingley was part nationalised, part sold to The Santander Group.  Governments and central banks around the world pumped money in to the financial system in the hope of stimulating lending while the Bank of England interest rate tumbled to 0.5% in March 2009.  Stock markets also suffered, with the FTSE-100 as I write this around 3800 compared to 5500-6000 about a year ago. 
If you want a bit more information on how this all unfolded, the BBC has a great article here.

So how does this all tie in with me gambling with £100 to beat the banks.  With interest rates at 0.5%, savings accounts offer very little return at the moment with the best buys being around 3% AER, and while the stock market should recover in the long term, it is just that, a long term investment and given its current volatility who knows where it will be in 12 months time.  So I have looked at other ways  of getting my money to work for me came up with the idea of gambling as a means to achieve this.

On my next blog I will give more detail of the strategy I intend to follow over the next year to try and get a better return on my £100 than I would through more traditional investment options.

Sources: -
Bank of England Interest Rates – moneyworld.com
FTSE-100 data – BBC News

First Post

First post to the blog, so what’s it all about? Well to put it simply, over the next year I will be carrying out an experiment to see if I can gamble with £100 to get a better return than by leaving the £100 in a savings account. ‘Idiot’, ‘Your mad’, ‘Insane’ and other far less complimentary words I here you cry. Well before you hit the ‘back button’ let me explain in a little more detail what I am doing.

Straight off, I will not be betting the whole £100 on a single event, I have a strategy that will minimise my liabilities and hopefully steadily grow my money.

In the next couple of posts I’ll explain my strategy a little more as well as giving some background information as to why I am doing this experiment in the first place.

Finally, I would like to make it clear that I am NOT recommending this as an alternative investment strategy it is an experiment, nothing more. This blog is to serve as a record of the experiment and maybe provide people with something to enjoy reading.