Has good insights into trading. I have been to his museum and it is amazing - www.mona.net.au From afr.com: The eccentric numerati David Walsh ascended â randomly in his telling â from humble origins in a housing estate in Hobartâs blue-collar suburbs to become among the most successful professional gamblers in history alongside his friend, mentor and fellow Tasmanian, Zeljko Ranogajec. Walsh and Ranogajec took on the might of global gaming markets and managed to consistently win over three decades. Much like the most advanced hedge funds, which employ armies of PhDs to identify patterns in financial markets, Walsh and Ranogajecâs consortium, called the Bank Roll, created statistical models that allowed them to exploit mispricings in betting odds wherever they could be found. The Bank Rollâs quantitative edge, which they refined over time to capitalise on and adapt to relentless technological change, has allowed them to individually generate hundreds of millions of dollars in profits across a multiplicity of countries and gambling domains. These rivers of gold also enabled Walsh to personally invest $75 million in a futuristic, copper-coloured fortress on Hobartâs foreshore, which houses a radical contemporary art collection. It was described last year by CNN as the âworldâs most far out museumâ. The Museum of Old and New Art (called MONA), which shocks the senses with graphic projections of birth, life, death and sex portrayed in every imaginable way, has become Tasmaniaâs premier tourist destination and galvanised critical acclaim. You know you are entering into an unhinged alternative reality when you wander by Walshâs two car spaces emblazoned with bold signs declaring they belong to God and Godâs Mistress. A hedonistically enhanced AMG Mercedes sits in each spot. Walsh says he established MONA, which he says loses millions each year, to repay a âdebt for getting lucky in a way that does no one any goodâ. UNDERGROUND CAVES Its total cost is estimated to exceed $150 million once the extraordinary art that sits in its labyrinthine subsurface caverns, carved out of 250 million-year-old Triassic sandstone, is accounted for. âWhen you trade derivatives or bet on horse racing, you have not actually made anything,â Walsh accepts. âThe world is in no way a better place because you have extracted wealth from the market and lined your own pockets. In this case, I did at least one thing that might have made me feel a _little bit better.â He says the nexus between his abstract professional life and his emergence as an internationally recognised art collector is the pursuit of learning. âArt can make very imprecise statements that are very profound and communicate them quickly. It overloads all the senses and emotionsânot just our intellectual capacity,â he says. âAs someone who was a kid who struggled with emotional expression, the sort of person that many people these days describe as autistic, art was a fascinating field that was unknown to me, and the more I explored it the more I realised I did not know.â While much energy has been expended documenting Walshâs personal history, idiosyncrasies and the story behind MONA, he has never really lifted the lid on his investment philosophy. That is, how he has managed to continuously beat the most competitive betting markets in the world. After several unsuccessful inquiries, Walsh agreed to engage with AFR Weekend on this subject. Asked what his advice is to any young Australian seeking to emulate his efforts, Walsh bluntly responds: âThe pursuit of excellent is a load of shit.â SKEWED EXPECTATIONS He believes many of us get deluded by a phenomenon known as survivorship bias, where we only see the winners outputted by random life processes and do not properly observe the losers. This skews our expectations around the likelihood of success. âIf you ask Rafael Nadal whether tennis is a good modality to explore in life, he would probably respond âyes, itâs fantastic and has served me wellâ. âYet at any given time there are hundreds of millions of kids trying to be tennis players. Luck and ability, and the nuanced interaction of nature and nurture, all play a part and result in maybe 100 to 200 making a living.â âThe average living across tennis players is very low and most are doing things that perturb significantly their chances of succeeding in other domains.â Walsh contrasts tennisâs âhigh varianceâ outcomes, which he equates to his own improbable path, to the prospects in accountancy. âEveryone can do a half decent job. Everyone can make a living. And the average income is greater than the mean income for tennis players and, importantly, it is a low variance, or higher probability, result.â His advice to aspirational Australians is, in short, ânot to live like I didâ. GHOSTS OF ME âIt is misleading talking to me if you do not acknowledge all the ghosts of me that did similar things but ended up with shitful outcomes, to coin a phrase,â he says. âI donât think there is a specific talent I possess other than the awareness that my success was loaded by the imposition of good fortune. âWhat got me into my situation was essentially being in a town where the casino was just down the road from the university. It also helped having pretty good computer and mathematical skills, but mainly from having excellent table tennis skills.â Walshâs proficiency at table tennis brought him to the attention of the more commercially inclined Zeljko Ranogajec, who would help him apply his mathematical talents to the gambling tables. However, this is where luck leaves Walshâs story. âOnce I got a winning gambling strategy, or once I had prosecuted it enough so I was not engaging too much risk, there was little luck involved. I was mathematically on a pretty rock-solid path,â he says. His providence was not about winning bets once they had been placed, but âalighting on a winning or mathematically appropriate strategy in the first placeâ. LIMITED DOWNSIDE A key feature of the markets Walsh and his partners invest in is that they are characterised by randomly âindependent eventsâ. Specifically, the occurrence of one event does not influence the chance of the other and they therefore have âfinite varianceâ, or limited downside risk. âGambling has the huge benefit of having independent events â I cannot get blown up by the black swans that plague financial markets.â He says deploying mathematics in âequities markets that may have infinite variance outcomes makes working out probabilities much harderâ. âYou donât know whether you are summing a sequence of fractions that add to one or if they add to infinity, because financial markets have non-independent [or potentially related] events,â he says. The bankable independence of results in gambling markets is the âcomponent of our strategy that gives me the most securityâ, Walsh says. âIt is even better in games like black jack, where the events are not only independent but also negatively correlated â your chance of winning goes up if you lost the previous hand because there are an excess of cards remaining that are advantageous to you.â He is critical of the billionaires printed in financial markets who âoften make money in the low-probability, high-opportunity outcomes that are essentially exhibiting âcorrelated parlaysâ [where one event significantly influences the probability of another]. âCorrelated parlays make people look smart and can create a whole bunch of rich folks, but there was probably nothing but pathologies in the financial data.â WISDOM OF CROWDS Asked about exactly what his teamâs âedgeâ has been over the years, Walsh distils it down to embracing the wisdom of crowds. âYou can work out some complex algorithm to predict horse racing odds using multinominal logistic regression,â Walsh says. âBut the result would significantly underperform the public odds. âThe key is that the public odds must be included in your model. The best models are not predictive models per se, but âperturbationâ models that start with the assumption that the public is right and then work out what small errors they might make. âThe public odds are not just an important signal â they are a remarkably efficient signal.â He cites the example of the former Russian chess grandmaster Boris Spassky, who played and lost to the Russian public in a game of chess. He describes the publicâs ability to make accurate collective decisions as an âemergent strategyâ, like birds flocking or democracies (which form not in the mind of one individual, but through the interactions of many). âI am saying there is wisdom in crowds beyond the point you can model without explicitly incorporating it.â How does this system work in practice? âLetâs talk about Sydney race night on Saturday,â Walsh explains. âWe might have a model of what we think the probabilities should be that includes the public odds. âWe essentially wager on those events that have better chances than the public thinks, which gives us a positive return expectation.â
EFFICIENT MARKETS There are echoes of Walshâs thinking found in the more bounded forms of the ârational expectationsâ and âefficient marketsâ hypotheses, which landed Robert Lucas and Eugene Fama, respectively, Nobel prizes. Many astute investors accept that market prices are right most of the time and focus their attentions on more difficult-to-find exceptions. Walsh says that if he had his time again knowing what he does today, and he had no money, he would prefer to start off in financial markets rather than casinos. âIf someone wants to assume high risk with very little cash, financial markets, with their correlated parlays, are probably the right place to be.â In this context he argues that if investors ignore the information signals in public market prices, like those on stock exchanges, they are âgoing to eventually blow upâ. Harnessing these insights, the Bank Roll hunted for distortions in gaming markets in the same way hedge funds do. While Walsh says technology and the globalisation of gaming rendered the strategies used in the 1980s and 1990s redundant, and have made it harder to outperform, he believes you can still win consistently. âNowadays the opportunities are better in smaller markets because there is more statistical dispersal and perhaps because smart people donât bother playing, and the back-end technology they need to get access to the marketâs data does not exist.â The biggest impact of technology is also not what you might think. âTechnology can certainly help you place bets more accurately and rapidly, build more models, think about opportunities in new ways, and tap into research from around the world.â But Walsh says the âmost important change has been the increase in pool sizesâ. EXPANDING MARKETS âTechnology has allowed betting venues to provide more sophisticated services more often and thus the market size has grown faster than its organic rate, which we benefited from.â Asked what gaming risks get most frequently mispriced, Walsh says there are âhundredsâ. Much to his surprise he finds people underestimate the utility of a good jockey. âI would have thought they would overestimate a jockeyâs capacity.â Walsh also believes punters place too much emphasis on the âweight a horse is carryingâ. Some have speculated that the ârebatesâ the Bank Roll receives from gaming venues in exchange for the billions of dollars it transacts each year have been essential to their profitability. Walsh says this is incorrect because they do not get rebates in most of the gambling they undertake. And even when they do, the âprofitability of our system is statistically significant in their absenceâ. So can lay punters win regularly? _âAbsolutely yes,â Walsh confidently exclaims. âThere are punters that watch horse races that have insights that nobody else has. âIt is bloody amazing to me, but is a fact.â He highlights a Betfair disclosure several years ago that among its 800,000 customers there were 30,000 consistent winners. âI was surprised by how large that number was â I would have probably been surprised if it was just 5000. âWe are talking about statistically significant volumes of regular winners that are far higher than the law of large numbers would suggest.â âThe upshot is that there are ways to win that I am not privy to and that donât require the sort of expertise I have.â Intellect and insight are great levellers.
I tracked with him except the bit about the correlated parlays. What types of trades is he alluding too that a hedge fund would do. It seems like he is saying that taking one trade and leveraging up on successive trades is time how billionaires get minted. I am dubious that is the case. I would suspect most hedge fund billionaires get minted the hard way by earning it through great investing and next by getting great information or having goldman let you select the other sides mortgages pools you will short. Nevertheless fun read. thanks for the link.
Why is that? Exploiting mispricing in fixed odds betting across countries has been done for years. And now more than ever, with the help of the Internet and instantaneous information...
The Coriolis Effect applies to horse racing? Do they really run the track clock-wise south of the Equator?
you seem to have too much time over the weekend go out and play. or devise trading plan for next week.