The average cryptocurrency investor is relatively comfortable taking risks. After all, the crypto market is widely unpredictable, with major peaks and troughs. So-called ‘HODL’ investors have committed to riding out the inevitable storms associated with the digital currency market.
However, there is something to be said for generating a steady profit. While you may find the idea of generating a steady 5% ROI per annum exceedingly boring, it is a worthwhile mindset to get into. Crypto investors often dream big, and perhaps one day, you will join the growing number of people who have become rich off Bitcoin or another digital coin.
Yet, one must remain realistic AND responsible when investing. Unfortunately, investment avenues for anyone with a low to moderate income are limited. Much-hyped hedge funds, for example, usually restrict entry with stipulations such as having a minimum net worth (often $1 million or more) or a minimum annual income (usually $200,000+) for at least two years with a reasonable expectation of similar earnings in the forthcoming year.
As you can imagine, not many people fall into either category. However, betting is potentially a replacement investment when used sensibly. Unfortunately, most bettors like to take chances on wagers at medium to long odds. They say ‘no’ to short odds, not realizing they’re making a big mistake.
Here we’ll discuss why short odds betting can be a lucrative tactic, analyzing strike rates, losing runs, and likely profitability using return on investment (ROI) and return on capital (ROC) metrics.
There is much debate about what constitutes ‘average’ and ‘good’ investment returns. An ROI of 10% is considered the benchmark for a worthwhile investment in investing.
The Standard and Poor 500 (S&P 500) is a stock market index that tracks the performance of 500 major companies listed on American stock exchanges. Financial experts often point towards this index as a measure of what one can expect when investing. Indeed, it is the S&P 500 that investors are referring to when they talk about “the market.”
Robert Shiller, a Novel Prize-winning economist, found that since 1971, the S&P 500 has delivered an annualized return of 7.58%. However, the ‘headline’ rate is 10.51% in that timeframe. That’s the ROI one would earn had they reinvested their dividends each year.
It is important to remember that the stock market doesn’t provide a return of around 10% yearly. Indeed, between 1926 and 2022, stock market returns were only in the 8% to 12% range seven times! Overall, though, the market produces an annual profit of about 70% of the time.
Generally, investors can expect to lose up to 3% in purchasing power each year due to inflation. However, in recent times, it is getting close to double digits. According to Statista, prices increased 8.2% between September 2021 and September 2022 in the United States. Meanwhile, a Eurostat report found that the inflation rate in the Euro area was 9.1% in August 2022.
Also, bank savings rates have declined to nothing, meaning there are few investment options capable of beating inflation. According to Bankrate, bonds offer an annual return of 1.6%, international stocks 5.8%, and American real estate 8.8%.
Your short-term returns aren’t great even if you achieve the much-vaunted 10% ROI. Suppose you invest $5,000 in this scenario. Your annual profit is $500, and you must pay tax on your investment earnings! Of course, investors in the market point out that it is a long-term process. With an average ROI of 10%, your $5,000 would double to $10,000 in 7.2 years, minus tax and any fund fees.
This equates to a 100% return on capital in 7.2 years. However, this depends on how the market performs. S&P 500 investments have doubled ten times since 1949, doubling every seven years or so.
Yet, if inflation remains rampant for more than a couple of years, market investors will just about cover the rising cost of living.
While standard S&P 500 style investing should remain part of a person’s portfolio, it is wise to try adding a few strings to your bow. Treating betting as an investment vehicle is an unconventional yet intriguing proposition, but it requires you to set aside preconceptions and any risk-taking propensity you have.
In sports betting, an ROI of 5% is considered very good, and 10% is exceptional. “That’s worse than the S&P 500!” is what many readers are probably thinking. In pure ROI terms, that’s true, but in betting, you can turn over a relatively small bankroll several times. The result is a ROC figure that blows practically any other investment out of the water.
Suppose you begin your betting journey with a bankroll of $5,000. Please remember that you must be prepared to risk all of it, so ensure you only use a sum of money you can afford to lose. You must also be comfortable with losing it psychologically.
Let’s say you bet an average of $100 daily for a full year. This equates to an annual investment of $36,500 (365 x 100), which is 7.3 times your bankroll! Imagine your overall ROI is 5%. Therefore, your profit is $1,825 (36500 x 0.05).
Your ROC, on the other hand, is a remarkable 36.5%:
1825 x 100
Rather than being fixated on the 5% ROI, you should pay attention to a ROC that is over triple the stock market average.
Things get even better if you follow the stock market principle of reinvesting your dividends. In year 2, you bet $136.50 per day on average, an increase of 36.5% on the year 1 figure. Here is what things look like after five years with an average ROI of 5% when you reinvest each year, meaning your betting volume increases according to your returns. Remember, you began with $5,000.
In five years, your profit stands at $18,692. Of course, you have the option to withdraw your initial $5,000 at any time to eliminate your risk. This will lower returns but provide peace of mind for the risk-averse investor.
So, why should you focus on short betting odds? Statistically speaking, short-priced wagers come with a high likelihood of winning. For example, if Liverpool’s odds of beating West Ham in the English Premier League is 1.33, the bookmaker suggests that Liverpool’s chances of winning are 75% (100 / 1.33). Even assuming the bookie has the price right and is taking a few percent of an edge, you’re more likely to win than lose.
Here are four advantages of sticking with short odds, at least some of the time.
You may see systems with 30% ROI, but they are often based on prices you can’t get. This is especially the case with tennis, horse racing, and basketball tipsters who work off systems. Many of these systems, especially in horse racing, revolve around long-odds winners, meaning large downturns.
Low win percentages mean long-losing streaks. Across any 1,000-bet sample, you can statistically expect at least one losing streak of 14+ if you only win 40% of your bets. In contrast, if 70% of your bets win, losing streaks will seldom go beyond six, and you could enjoy winning streaks of 19+.
With short-odds betting, you kill long-losing runs and enjoy the psychological boost of winning a lot. Yes, losses can hurt, and it seems odd to bet $100 to win $10. However, get your head around it, and it makes sense.
Furthermore, the lack of long losing runs means you increase betting volume, possible ROI, and profits. This reality ensures you can become slightly more aggressive with your staking plan.
There are different schools of thought regarding determining bankroll and staking. What we can tell you is that most tipsters overestimate the strength of their respective systems and recommend bankrolls that are too low.
According to Michael Wilding of the popular UK horse racing website Race Advisor, developing a bankroll that’s ten times your longest expected losing streak is best. If like him, you are risk averse, you can increase it to 15 times. This is the wisest option if you view betting as a long-term investment. Alternatively, you can create a bankroll that’s five times your longest expected downswing.
Deciding on a bankroll also involves calculating your likely win rate. Using our 70% metric, you can expect a losing streak lasting at least six bets. Using the risk-averse “15 times your losing streak” option gives us a bankroll of 90 units.
Now, figure out your average stake size and multiply it by the number of units in your bankroll. Suppose you want to bet $20 on each short odds wager. This means you begin with a bankroll of $1,800.
If you win 70% of the time, you reduce losing runs and increase winning streaks. With a well-designed bankroll, you can bet more often than you realize. With 90 units, you can easily make 10+ wagers a day, safe in the knowledge that your bankroll is unlikely to fall quickly, even in a downturn.
At $20 per wager, ten bets a day equates to an investment of $200. In a year, this equates to a betting volume of $73,000, over 40 times your bankroll! A 5% ROI equals a $3,650 profit for a ROC of 202.7%! If you’re more conservative and make five bets a day, your profit stands at $1,825, for a ROC of 101.35%.
Even if the ROI is just 3% and you make five bets daily, your annual profit is $1,095, with the ROC figure at 60.83%.
Short odds bets often represent more value than long odds. Suppose you see a horse priced at 8.00 and believe it ‘should’ be 7.00. Imagine seeing a horse priced at 1.61, but its true odds (per your estimation) are 1.40.
Believe it or not, your edge is about the same in both situations. The difference is that your chances of winning are far greater in the short-odds scenario.
It is a fact that patience is essential when investing in the stock market. Even with average returns of 10% per annum, your investment will take over seven years to double. Furthermore, the market endures bad spells that can take years to recover from.
Many people don’t realize that a similar mindset is required when approaching betting as an investment. Even the best-designed betting systems will have peaks and troughs that can take time to bounce back from. However, when you use short odds and begin with an appropriately sized bankroll, you can generate long-term returns that significantly overshadow what the S&P 500 offers.
When you select value wagers as part of a low odds betting strategy, you increase your win rate, reduce losing runs, and decrease risk. Overall, it can serve as a hedge against inflation and could offer protection against the volatility of the crypto market.
Nonetheless, we must once again point out that when creating a bankroll, you must remember that the entirety of it is at risk. You could lose all of it, so don’t invest money you can’t afford to live without.
Disclaimer: This article does NOT constitute financial advice, nor should you ‘expect’ to make money from betting. The process is known as ‘gambling’ for a good reason; there’s a strong possibility that you will lose in the long run. Only a small percentage of people make a steady, long-term profit from using betting as an investment strategy. Before you continue reading, please remember that it is possible to lose your entire bankroll, so NEVER risk more than you can afford to lose.
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