The Pareto Principle & betting
Why you would be wise to heed this lesson in money-making.
I spend a lot of my time explaining to members the way betting services function when it comes to generating profits.
Because whether they’re recent recruits to a service like the Golf Insider, or have been with another, let’s say the Irish Cash Consortium, for several months, the question they pose is very often the same… “why aren’t we winning at the moment Matthew?”.
And I can totally understand why some express this point of view.
On the one hand…
Many new members expect to start winning big money the second they sign-up to a service.
The promotional literature said it generated profits, so why isn’t it winning NOW.
Whilst on the other…
A sizeable number of clients, who are of longer standing, find it hard to grasp why the service they’ve joined (one that has historically performed well) has lost money during the past few weeks, or has maybe generated relatively small profits during the last month, or two, or three.
The point being, rightly or wrongly, members expect profit-making to be a regular and consistent process.
Like an unbroken line of upward bank growth (see the graphic below) where bank growth is incremental, incessant. Inevitable.
However…
Most types of investment, almost all in fact, of which betting is certainly one, do not subscribe to this model of performance.
And these days, given the state of financial uncertainty we currently live in, even the previously used gold-standard example of a bank account, where you’d see your balance increase metronomically by “x percent” each month/year doesn’t work as interest rates change on an almost monthly basis.
So stocks & shares, crypto, bonds, hedge funds, property portfolios, gold bullion, high street bank accounts, offshore tax havens and, yes, our highly-prized betting banks… all of these forms of investment are subject to fluctuations in performance. Sometimes better than expected, sometimes worse.
Sadly none of the ways in which we commonly try to make money provide the linear, automated, month-on-month bank growth that many of us might prefer.
And whether affected by the global economy, localised market forces, or simply a disappointment in the 3:30 at Ascot… we have to accept that when we speculate/invest/bet our returns might not always come in the manner or time frame we would hope, or expect.
Sorry for the spoiler!!
But it’s a basic principle of money management that we all must accept.
Let me introduce you to Vilfredo Pareto…
Vilfredo (Wilfredo) Federico Damaso Pareto was an Italian national, born in Paris in 1848.
But of more interest to our story here, Pareto grew to become what is referred to as a “polymath” – an all-rounder working in parts as a civil engineer, sociologist, economist, political scientist, and philosopher.
And the most recognised legacy of his output was the Pareto Efficiency, or Pareto Distribution, which in turn morphed into an economic rule known as the Pareto Principle.
Now originally this was borne out of an observation that 80% of the wealth in Italy belonged to roughly 20% of the population.
And as this concept was subsequently adapted and re-applied over time…
It became more generalised…
The Pareto Principle now represents the belief that for any outcome, roughly 80% of consequences come from 20% of causes.
Another name for this principle is the 80/20 rule.
And in discovering, or highlighting, this phenomenon, Pareto had unwittingly put his finger on the reason why in so many walks of life, but in this case money-making, and in particular betting, we spend the vast majority of our time relatively static and stable (and, yes, sometimes even losing), before in short bursts we make great strides forward.
The Pareto Principle and betting
So when it comes to betting, and members following a particular betting service or tipster, there are distinct parallels to draw between Pareto’s teaching and the way in which long-term results ebb-and-flow – whether viewed over the course of a month, quarter, or year.
And often it is a failure to recognise, understand and accept such cycles in betting (or investment in general) which trigger comments as to the short-term performance of any given service.
Because the basic fact of the matter is that for 80% of the time (that’s 9½ months out of every 12, near as damn it) a betting service will show little forward motion.
BUT…
Those other 2½ months, will see a huge amount of growth.
Problem is, do we know when these golden periods will occur? Can we predict precisely when the sun will shine, and we’ll make hay? Are we able to say when the winners will fly in left, right and centre?
No, we can’t.
That’s why a “disappointed” new member to a service, or a “frustrated” existing subscriber, will always be prone to experiencing these periods of stagnation, or even loss. It’s just inevitable. This 80% portion of time that Pareto highlighted.
That said, by the same token, remain with a service over a long enough time-frame, and the converse will happen… and during the remaining 20% you will make significant gains. Fact.
So when you look at a set of results for almost all services, you’ll see the bulk of the profits made over a small number of months. Not an even, steady level of winning every single month.
This is one of the “laws of investment” that seasoned investors understand well.
And it’s one which you, as a bettor, must also take on board.
What this means in terms of your subscription…
Now that you’ve been introduced to the Pareto Principle, and can appreciate that in all areas of money-making a long-term view is best…
To be successful, and to make money betting, you need to apply this state of mind to your support of any service, tipster, or system you choose to follow.
Remembering that…
Time as a member of a winning service is your friend, not your enemy.
It makes me think of a favourite quote of mine by Charlie Munger.
Munger is a business-man, investor, philanthropist and long-time collaborator of the multi-billionaire Warren Buffet… and aside from this, is still worth a few billion himself!
Munger said this…
“The world is full of foolish gamblers… and they will not do as well as the patient investors.”
As I say, at the last count Munger was worth close on $3 billion. So you’d be wise to take heed of the words spoken by a man who knows a thing or two about making money.
And what he says echoes the teachings of Pareto.
Have the patience to go through the 80%, and you will reap your reward in the remaining 20%.
Get it?
So 80% of your membership is a waste of money?
NO!!!!!
And this goes back to our disgruntled new member who we started with.
He doesn’t know, like I don’t know… as the tipster himself often doesn’t know, when the big winning months will come along.
Might be this month, might be next.
Could be the next 3 months, every month. Might not be until 6 months down the line.
We simply don’t know.
But the point is… by investing in these quieter months, and remaining with a service, you will guarantee that you’re right there, front and centre, at the time the blue touch-paper is lit, and the profits start to roll in.
And even if you feel like you’re not getting anywhere, you actually are. You’re simply getting closer and closer each day to the pay-off that will inevitably come.
I’ll close with the words of another man who wasn’t short of loose change, J. Paul Getty.
He said…
“It is possible to make money – and a great deal of money – in the stock market. But it can’t be done overnight or by haphazard buying and selling. The big profits go to the intelligent, careful and patient investor, not to the reckless and over-eager speculator.“
Treat your membership to a betting service, or a portfolio of sources, in this way, and you will win.
That’s not rhetoric, nor is it some unqualified claim.
It’s sound financial advice from people who know what it takes to make money. It applies to investing, same as it does to betting.
And first laid down by Vilfredo Pareto some 150 years ago, it’s a lesson that shrewd investors have long understood, copied, and successfully employed ever since…
… and if you do too, your betting, and your profits, will enjoy the benefits.
OPINION: There are so many parallels between the world of financial investment and betting. I have frequently spoken about them in my previous blogposts. Common themes appear time and again. Discipline, patience, analysis, confidence, forward thinking. All the things which make good investors, good investors. And all of the qualities that losing punters tend to lack. Always remember Pareto, and always understand that even when times are slow or downright tough, and this will be the majority of the time, if you hang in there YOU WILL WIN.
