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Gambling myths 3: Money management
All gambling authors talk about "money management" in one form or another, and it's important to be able to distinguish the fact from the fiction.
Kelly betting
Optimal betting for card counters (beyond the scope of this website, but worth mentioning as
a valid aspect of the subject): in order to avoid going broke at some
point in his career, the card counter must avoid over-betting his bankroll. The criteria most
counters use to find the best trade-off between risk and return are known as the
"Kelly Criteria" - betting your percentage advantage as a function of your bankroll. Follow
it to the letter and you'll never go broke. However, since exact Kelly betting is impossible
(you'd need to re-size your bankroll after every win or loss and bet impossible amounts, like
$27.58) a reasonable approximation needs to found. Finding the best risk / return trade-off
ensures acceptable bankroll growth with acceptable risk and is an essential part of the
counter's arsenal. Quit points
Many gambling books advocate quit-points as a means of turning a losing gambler
into a winner. For example, you take $100 to the table with a 20% lose / 40% win quit-point.
If you lose $20, you walk. If you win $40, you also leave the table. There are two points to
make here: any system which slows down a bad gambler is beneficial insofar as it helps him to
LOSE LESS. If by following this system he doesn't gamble for another twenty-four hours when
otherwise he'd have carried straight on playing, then the system has certainly eased his losses
and helped him. HOWEVER, this will NOT turn him into a winner. All it will do his help him to
lose less. This in itself is certainly very valuable, but it has no other function. Whether he
plays his next hand immediately or the next day, the house edge remains the same. His losses
(or his winnings, if he's playing a 100%+ game) will always be his percentage return in
relation to his wagering. "Quit while you're ahead!"
Exactly the same goes for the "quit while you're ahead!!" theory.
If "quitting while you're ahead" simply means "stop playing and enjoy your winnings" then it's
good advice - again, because no gambling is usually good gambling and not because quitting while
you're ahead gives you any kind of intrinsic advantage. Many gamblers DO however believe that
these various "quit-point" theories actually do give them an advantage. The reason this is false is that the
cards themselves have no knowledge of the quitting! They just carry on regardless doing the
same thing - their job - be it five seconds later or five weeks later. Cards obey the laws of
mathematics, not "quit-points". If you have the best of it, you should NEVER quit. If you have
the worst of it, you shouldn't be playing in the first place. Win / bank / lose / quit
There are all kinds of variations on the quit-point theme; some authors recommend the
stop-loss point but encourage their readers, rather than quitting at a given win-point, to put
a certain amount of the win to one side and carry on playing to ANOTHER win point...with the
cycle repeating until the "win/loss" point is reached. The reasoning behind this particular take
is that since the player is winning and the cards are clearly hot, he should wait until they
cool down before quitting. Take a look back at the Wong analysis of "hot cards" in
the "progression fallacy"
article for proof of the invalidity of this argument. Cards have no
memory; they just carry on doing the same thing whether or not the previous hand won, lost or
pushed. Progressive betting = money management
Another angle I've come across is
to re-define the use of betting systems as "money management" - there is one well-known
gambling author who devotes approximately a third of each of his books to this subject. For
example: bet $10; if it wins,
pull back $5 to keep as winnings and bet the remaining $5; if that $5 bet wins you bet $10; if
the second bet loses just bet $5 until another
win. This is actually identical to the "win / bank / lose / quit" theory above, with a
slightly different spin on it. Everything invalid about progressions is invalid here also. "Managing" money cannot turn a loser into a winner; the cards have no knowledge of either your bet size or the fact that any particular hand they play a part in is happening ten seconds or ten days after the previous hand you played. The cards are always the same. Your results are determined by the percentage return of the game in question and by nothing else.
Useful resources on the web
Wizard Of Odds: Michael Shakleford's "Betting Systems" page.
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