Does price = value?
The misconception that costs punters time and again
“Price is arbitrary and value is fundamental”.
This is the phrase I found when chewing my pen thinking about the thorny subject of how to make a long-term profit from betting.
How best to achieve a goal that eludes 98% of punters.
Well, the time-worn mantra is to seek out value. Because only by backing horses or football teams, golfers or tennis players, at what are considered to be “value odds” will you be able to create and maintain an edge over the bookies… and so a profit in your betting account.
But in the midst of the discussion which surrounds this subject, far too often over the past 30+ years that I’ve been working in this business have I encountered a basic misunderstanding of what value is. Or, more to the point, where it can and cannot be found.
What exactly is value?
Forgive me if this is Betting School 101, but to introduce the topic we need to do a quick piece of revision!
Value is when the odds offered about a particular outcome are higher than the true odds for this outcome actually happening.
The industry standard here is the toss of a coin. It’s either heads or tails.
An airtight, laboratory tested, 50/50 probability where only 1 of 2 possible outcomes can occur.
Hence we have the unequivocal yardstick of what an Even money bet in its purest form should be. And so a benchmark in terms of defining value.
Were you to be offered anything greater than Evens (2.0) and you’ve got yourself a value bet… and anything less than even money and you’re onto a long-term loser.
Got it?
And this is the cornerstone behind the success (for the casino owners that is) of the roulette wheel.
A cash-generating device (for the casino owners that is) because the odds paid out to the players on, as an example, black or red is Even money. And, yes, there are 18 black and 18 red numbers of the wheel.
So that’s an even money bet right?
WRONG!
The presence of one green “0”, and in some cases two – “00” – is all it takes to tip the balance in favour of the house.
Meaning you, as the player, are getting paid out Even money, on a bet that is actually less likely to occur than a true even money shot.
The presence of zeros no longer makes this the equivalent of a coin toss.
In actual fact, on a standard European roulette table this makes the House Edge 2.7% (the maths is 1 divided by 37 = 2.7%), and in the US with often two zeros it’s 5.26% (2 divided by 38).
Why does value matter?
Just in case you think it doesn’t, if you were to put the same stake time and again on the toss of a coin, at odds of less than Even money…
Or simply backing level stakes on red or black, again at less than 2.0…
Then over the course of time, you would lose all your money.
This is the “Law of Probability” at work. And it’s non-negotiable!
It is defined thus – Probability measures the likelihood of an event occurring. Expressed mathematically, probability equals the number of ways a specified event can occur, divided by the total number of all possible event occurrences.
Which is a long-winded way of explaining the above example of the coin toss.
And played out over a big enough sample group (do not forget this) you will see the effect of probability, positively or negatively, depending on which side of the value you choose to be.
Better on the positive side though!
So why is the concept of value misunderstood?
Maybe it’s not so much misunderstood, as wrongly applied.
Because all too often I find bettors drawn towards an approach to investing which confuses price with value.
Now as said at the top of this article – “price is arbitrary and value is fundamental”.
Value is also, as we know, constant. It’s defined by mathematics. The law of probability.
This means the presence (or absence) value isn’t determined by price alone.
Example. Let’s take a dice. In some ways, if you think about it, a 6 sided coin.
Coins have 2 faces, a dice (or single die) simply have 6.
So rolling any single number from 1-6 has a 16.66% chance of happening. This equates to true, mathematical odds of 5/1.
Alternatively, rolling either a 1, 2, 3 or a 4 has a 66% chance of happening (4 chances in 6 of backing a winner). This makes for a bet at the cannot-be-denied odds of 4/6. Which as we know would be betting at odds-on.
So imagine you were offered 4/5 by a bookmaker for this bet. To roll either a 1, 2, 3 or a 4.
True odds are 4/6.
You’re being offered 4/5.
That is a better value bet than backing a single number at 5/1. Why? Because as we now understand, the odds offered about this particular outcome are higher than the true odds for this outcome actually happening.
But I tell you this.
Many punters will not back at these kind of short odds because they believe it’s not possible to win by backing odds-on.
THIS IS INCORRECT.
It’s not possible to win by betting on poor value – we know this. But poor value, like good value, isn’t determined purely by price, it’s defined by the law of probability when applied in relation to the price.
Too often I see backers casually (lazily?) but certainly incorrectly believing that a bet at 33/1 has more value than one at 2/1. Based on nothing more than the price.
Or those who refuse to bet below 3/1 or 6/4, or dare I say it Even money, because they believe it cannot be done.
Remember, there are bad value bets at 33/1, as much as there are good value bets at 3/1.
Price alone does not imply, suggest, or guarantee that there is value present.
This is only done when the odds, or chance, or probability of an outcome happening is applied to the price on offer by the bookmakers.
And as we know. Value is fundamental to making money at betting.
OPINION: I wrote this article because it’s important to remind some backers of the underlying factors which make winning gamblers just that – winners. That ability to see beyond the odds visible on a list of prices, and to understand which of them (if any) offer true value beneath the surface – and so the chance to profit. Because they appreciate that price alone does not signify the presence or absence of value… and so must you if you wish to make your betting pay.
