Chapter 4: Real Value

A few months ago I read Steve Fierro's book, The Four Quarters of Horse Investing. At first reading, it did not impress me much as something that I could use because I don't normally make an odds line. I'd prefer to click the button and let HSH do it for me. (There is that lack of responsibility thing again.)

In December, I wanted to try something new that I hadn't done before, so I decided to give his approach a try. In a nutshell, Fierro's approach is to help you make an odds line by offering a template system. (i.e. If the top horse is 3/1, then there are just so many choices to the 2nd pick, and even less choices for the 3rd pick.

I began testing Fierro's templates using the HQ's odds line. I quickly learned that his approach was doable and likely profitable. (As I tested, I caught a bug in the odds line calculations which helped things as well. Will be fixed in the next release.)

It was not the templates that struck me as great near as much as it was the "filters," as he calls them. These are the races he passes because (this is important) his records have told him to.

First I applied his "filters" to my play and immediately I saw an improvement. And I mean a significant improvement. Like tripling the ROI from 8% to around 22%.

Specifically, I learned that when there is a low-priced favorite in the race that deserves to be low-priced, I get clobbered. (Steve calls them "PLFs" or "Pass Legitimate Favorite" races.)

So, from Steve I learned two things... We all know the first one... We must have a way to determine value in a race. (Whether it is by odds line or spot play, either of those are value oriented approaches.)

But the second one is a little tougher for most of us. We must have a structured way of determining which races we are likely to produce profit in and which not. Do we beat short fields? Do we beat races with low-priced favorites? Most of us simply do not know. I know I did not but I will. (Check out the upcoming "State of the Program" for development 2003 plans. [Check it out soon.])

If you don't have Steve's book, you can get it from NetCapper (Gordon Pine). It is a worthwhile read.

So, what am I doing?

Well, the truth is, it does not matter. What does matter. What does matter is my method for getting here.

1. Select a handicapping path. Choose one that seems right to you. If you feel that early speed is where the answer lies, then start with an analysis of early speed.

2. Develop a research log system. Formalize your research. Become a scientist at this. Determine an approach to try and lay it out. Take the time to type out a description of the system you are interested in.

I did this by creating a folder named "Research," and sub folders under it with titles like "test 001-ES System." The first file in that folder is the main file. It contains a complete description of the theory behind the system, as well as the other fields, buttons, etc. that I think might improve the system. (These become my "mistake list" items.)

Every "sub test" I run will be documented within this file.

Whenever I do a "test run" it gets a letter code. Thus, the actual test file becomes "test001a.txt."

3. Test one race at a time, looking at the results before you begin the handicapping process. Although I used the word "test," this is really the development phase, not the testing phase. (Actually, in A.I. circles, we would call this the "exploration phase.")

4. Make notes in your race-by-race log by categorizing the "mistakes" the system makes. Use similar wording for the mistakes whenever possible. It is much easier to look back at the races and say, "I played 50 races which had a PLF and did much worse in those races."

5. Stick with the original system for the number of races you committed to before the test began. Resist the urge to dump a system because it lost the first 10 races. Maybe in this sample there will be a hot streak in the last 20 races. How will you know if you never get to the last 20?

6. When your sample is over, you should have a feel for how well it is working and, by looking at the mistake log, get some ideas for improvement.

Implement whatever changes you need to make and do some more "exploration" by returning to step two. That is, create a new test log entry in the main file, document what you are changing and continue.

7. Once you are confident that you have something that is looking pretty good, you finalize your "exploration" by documenting what you have found. Maybe I should say "what you THINK" you have found because you now have a hypotheses to test. You need to write out the final test description in the main file before beginning the test.

8. Set some reasonable number of races to test. Not 50, but not 2,000 either. Something like a couple of hundred. Remember to completely document how your test will be run. This includes days of the week and tracks to play.

Ever noticed how the first 10 races in a test are always excellent? That is because you are modifying the system to make sure it works from the start. Heaven forbid you should lose at the beginning of a test.

A great way to overcome this is to test the first day and then remove the first 20 or 30 races from the sample. Of course, don't do this until the day is over.

Another tip: When testing days, I like to jump forward 8 days at a time. In other words, I start on a Wednesday because that is the day I start my handicapping week. Then I move to the following Thursday, then the Friday 8 days after that. This way, a 7-day test covers 7 weeks.

9. After your test is finished, ask yourself if your hypothesis still appears to be true. Notice that I did not use the word "proven." We are simply not going to do enough races to "prove" it works.

10. Once we have determined that the system is performing as anticipated, we move on to the "exploitation phase." This is where we begin looking at the races we wagered for signs of failure. Do we win in sprints as well as routes? How do our picks do when they are under 5/1? Under 2/1?

Warning! Do not attempt this until you have several hundred races under your belt. Just because you are 0-4 in Allowance races does not mean you can't win in allowance.

The exploration phase is an ongoing process. It will even continue after you have begun using the system in real play. But if you can hit on the obvious ones up front, you can save a lot of disappointment.

(In my case I found that my win ROI was around 22% and then I did some "exploring" into exactas. It appears that my exacta ROI is over 50%, but the sample is only around 350 races. All this from keeping logs.)