Stick to what you know

You may have noticed that the events I have been betting on have so far been limited to certain types of event and certain sports. (You can view my bets here.)  There is a reason for this, simply that these are sports I follow and enjoy.

There are two reasons for the importance of this part of my strategy for handling my investment.  The first, if they are sports/events I know and understand there is more chance of me making a well informed decision about which bets to place.  Looking at one of my football bets, Holland to beat Macedonia, I follow football and knew that this should be an easy win for the Dutch.  If you don’t follow football, despite the low odds suggesting a win for Holland is by far the most likely outcome, you will have a much higher degree of uncertainty about the result.

The second reason is if you follow a particular sport anyway, you are not really investing any additional time in order to place the bets.  Using the same football game as an example, I was looking at who was playing that night anyway.  The only extra thing I had to do was pick out any potential bets and then place them, something which took minutes.  Effectively I have found the bet by doing something I would be doing anyway, so the only investment of my time is actually placing the bet.  On the other hand if you weren’t following football you would be spending time looking for the bet (if you are trawling in general through all options it could take some time to find the ones you want), then researching if it was a good one to take or not.  Remember, we are looking to beat the bank, (it take a few minutes to open a bank account and deposit money) a return of 10% would be great but is that extra 6%-7% return worth spending hours finding the right bets?

A final word of warning, just because you are knowledgeable about and follow a particular sport, doesn’t mean you should bet on it.  The bet must fit in with the rest of the strategy too.

Quantity or quality?

Last time I finished by saying it is the quality of bets, not the quantity of bets that matters, and as an overall strategy I stand by this.  However, to try and keep this experiment as scientific as possible I feel the need to set a minimum quantity of bets.

The purpose is to try and get a better return on £100 by betting than I would get by putting it in a savings account.  If I put £100 in a savings account I would have invested the whole £100.  To try and give a fair comparison I need to make sure I invest the whole £100 in the experiment.  As such I will be making a minimum of 100 bets with a stake of £1 over the year to insure I have invested the whole £100. I say minimum as any bets over this amount will be the same as compounding interest in a savings account.

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