In my “Big Jim’s weekend wrap” today I spoke of Carlton beating North Melbourne in the Aussie Rules even though all the so called “smart” money was on the Kangaroos. The notion of “smart” money is one that suggests the market has been influenced by those with inside information or a bevy of professional sports bettors. This so-called “smart” money does exist and it’s important to follow the market, but don’t simply be a sheep and follow the leader with your eyes closed.
If there are late changes to teams or conditions there can be some great bets to be snapped up where you can find an excellent price. Having said this, you have to be mindful about how most moves in the market are created. Professional sports bettors make their own markets for the bets that they want to bet on. What this means is that they asses what they think the market should be and if they find a price that is “over the odds” they jump at it. When this “smart” money is put on, the market adjusts. The bigger the sport, the more money it takes to move the market but savvy bookmakers are aware when their winning clients jump on good bets, so “smart” money always moves the market more than regular bets.
Let’s say for example a smart bettor rates a horse as a 5/1 proposition to win a race. The horse opens at 7/1 and the smart bettor launches a big bet at 7/1. The market now instantly moves into 6/1. The smart punter now bets again at 6/1 and the horse now moves into 5/1. The “smart” money has now bet at 7/1 and 6/1 but now the horse is at the quote of 5/1 – the price the “smart” money thinks is a fair price for the horse. The money didn’t go on because they had any special knowledge about the horse and it is no guarantee of winning either. The money was a calculated investment because in the bettor’s opinion the horse would win that particular race more than once if it was run six or seven times.
This is the perfect scenario for the sheep to be led over the cliff. Because there has been a significant market move, the sheep think the “smart” money knows something they don’t. The market tells them there has been a mountain of money on the horse. This is true, but the mountain of money didn’t come when the horse was at the odds of 5/1. This doesn’t stop the sheep who swarm like a pack of sharks on a wounded seal to part with their money and soon the horse (that was once quoted at 7/1) has been backed into 4/1. The “smart” money is on at 7/1 but the sheep are on at 4/1. The “smart” money wouldn’t dream of betting the horse at 4/1 because they only viewed the horse as being value at better than 5/1.
So be one of the smart ones, not one of the sheep. When you see a betting plunge on a horse or sporting event it doesn’t always mean there has been an event that has caused the market to move. Most of the time it’s just the “smart” money adjusting the market to where they think it should be. If you get on at the tail end of the plunge you might find you are actually getting terrible value instead of a good bet.
