I recommend a simple approach to managing your betting money: split it into equally-sized units and put a single unit on each bet. In the case of a bet that involves more than one outcome, I like to split the unit in a way that is weighted towards the odds on offer. For example, if I'm betting on both candidate A at evens (50%) and candidate B at 3/1 (25%) then I'll put two thirds of a unit on A and the rest on B.
Of course, this raises the question of what proportion of your stake you should put into every unit. On the one hand, concentrating your bankroll boosts your returns by allowing you to invest as much money as possible. It also means you won't be tempted to make bets where you don't have an edge.
However, diversification cuts the risk of being wiped out by a run of bad luck. For example, if you make five bets, each with a 25% chance of winning, then the odds of all five being losers are 23.7%. However, the chance of getting no winners from ten bets is only 5.6%.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A good compromise is to put no more than 5% of your initial bankroll into each unit. Even if each bet has only a 25% chance of paying out, the chance of losing 20 bets in a row is 0.3%. Even in a politically uneventful year, it should be easy to find at least 20 good opportunities every year.
If this sounds too risky, then a simple alternative is to bet 5% of your current bankroll (ie, excluding any unsettled bets) on each new bet. The advantage of this is that no matter how unlucky you are, you will never end up being completely wiped out since the amount you bet will decrease in line with your remaining cash.
Always remember the golden rule: never bet more than you can afford to lose. It is also a sensible idea to keep your bankroll separate from the rest of your money, which will help you resist the temptation to dip into your savings to fund bets.
