UPSIDE VS. DOWNSIDE RISK

Upside risk and downside risk are terms that I’ve thrown around for years.

If you are a subscriber to the DAILY SOUTHERN CALIFORNIA HORSES TO WATCH, you read those words nearly every day.

They are frequently used in our publication alerting clients to our opinion about a specific horse in a specific race.

We need a working definition of both “upside and downside risk” before going any further.

I’m going to keep it real simple definitionwise.

We’ll all agree that gambling involves a degree of “risk” because if it didn’t, gambling wouldn’t be called “gambling”, it would be called “banking”. Why would it be called banking? Because in banking, there is the guarantee of a return vs. gambling where there are no promises of any kind.

“Downside risk” means that there is a much greater likelihood of losing than winning. This is not to say that one would never bet a horse with all “downside risk”. If the odds were “right”, a horse with nothing but “downside risk” might be worth a bet depending on your past personal success record with similar “downside risk” wagers.

“Upside risk” means that there is more of a likelihood of cashing a ticket than with “downside risk”, but with the full understanding that there are never any guarantees that your mutuel ticket is a winning one.

As you can see from our simplistic definitions of these terms, they are open to wide and varied interpretations.

In offering my opinions on both, I’m not looking to do battle with other handicappers over the correctness of my interpretations. They work for me in my personal methodology and that’s all that matters to me. Additionally, I’m positively not attempting to superimpose my thoughts over others or change their interpretations of “upside” vs. “downside” risk.

What follows is nothing more than my opinion. And face facts, opinion is what drives our great game.

Okay, what makes a wager either “upside risk” or “downside risk” thru the eyes of Takach?

That’s an easy question to ask. But to answer, it requires very careful analyzation of many specific situations and interrelated factors in any given race.

Every race is a very unique event that will only occur 1 time!

That statement forces a quick “sidebar”.

I continue to get a good laugh from the know-it-all professional authors in our game who claim to have the “inside” on exactly “how to wager”. Some go as far as to say that even if their readers are only mediocre handicappers, their time-proven money methodology will take them out of the red and into the black. All a reader has to do is follow their impeccable money management techniques based on what they deem as “value”. To them, a horse is allegedly offering “value” when his odds are greater than they should be.

And how do these professional authors know exactly when the odds are more than they should be?

They tell their readers that the way to determine the fair odds of any runner is to ask themselves a simple question something like this; “If this race were run a hundred times, how many times could you expect this horse to actually win”?

There is no correct answer to that question, so don’t waste your time trying to answer it.

Why can’t you answer the question you ask?

Simply because their basic premise is incorrect. The fact that they would even imply that any one race could be run 100 times, only speaks to their ignorance.

No race is run exactly the same way twice, let alone 100 times!

Something is always changing to include weather, post positions, jockeys, trainers, track maintenance, trip, track bias, physical condition and energy levels of each horse and rider, etc., not to mention a different mix of handicappers that will handicap the race differently and will therefore bet differently.

In essence what these professional authors are really doing is guessing what a fair price might be or put another way, what they personally perceive to be “value”.

If you’ve been educated in this manner and believe these misguided souls to be correct with their “if this race were run 100 times” nonsense, my sympathies go out to you. A mindset similar to this only serves to fatten bankrolls of those who know better.

For the undecided and for those that have already come to the common sense conclusion that no one race could possibly be run the same way twice let alone 100 times, I invite you to further investigate “upside and downside risk”.

At worst, you’ll confirm what you already know about “upside and downside risk” and take comfort in the fact that you are well versed when it comes to grasping the true meaning of the word “value”.

At best, you’ll pick up one or more pointers on “upside vs. downside risk” that will continue to pay you dividends for the rest of your horseplaying career!

Could this be yet another Takach “win-win situation”? Stay tuned!

PART 2---UPSIDE vs. DOWNSIDE RISK

© Joe Takach 2003