Variance and regression to the mean: How to handle it

variance, vince accardi, winning on the punt
variance, vince accardi, winning on the punt

“Nothing is as good as it seems, and nothing is as bad as it seems. Somewhere in between lies realty.” Lou Holtz, neatly summing up variance!

Consider a cricketer who averages 50 with the bat over a long period, but then has an amazing season averaging 100. For the remainder of his career, do you think he’s more likely to average closer to 50 or 100?

The answer is 50, and that cricketer was actually former Australian captain Michael Clarke. He was Bradman-esque in 2012 when he averaged 106. But the year before he averaged 39. And in 2013 it was 48.

Variance in gambling

Mathematicians call this concept “regression to the mean” and it is absolutely relevant to all punters. Short-term under or over-performance is corrected over a longer period. As the sample size increases, variance decreases.

In layman’s terms you could say that variance is simply the ups and downs of gambling. Streaks are a natural and unavoidable occurrence which means you can be doing everything right as a punter, yet still be losing in the short-term. 

The results of tens or even a few hundred bets can be deceiving either way. There is such a thing as positive variance too. Following a month of winning every Saturday you might think that you have suddenly fine-tuned your form analysis skills to the point where you will continue to win very consistently.

However the most likely scenario is that you have merely enjoyed a lucky run and over a longer timeframe your winning (or loss) rate will revert back to its historical average.

Professional punters have a very good grasp of variance because it simply can’t be avoided. 

However, most casual punters either disregard it or believe that somehow it doesn’t apply to them. That approach can be very, very costly. The reason is that while you can ignore variance, it certainly will not ignore you.

We all expect to win over a longer timeframe, but in the short term anything can happen. For example, if we flip a coin five times and witness four heads, we wouldn’t be completely surprised by an 80% win rate.

But if we flip the coin 5,000 times, it’s almost certain that heads and tails will come up very close to 50% each. It would be very unusual to see anything more than 1% variance.

Variance on favourites

Back to horse racing, and a real life example. In one recent season, backing the SP favourites in every race resulted in a loss on turnover of 4% based on Best Tote prices. But there was a month where punters actually won 3% backing all 1,160 favourites. That is a substantial positive performance compared to the historical average. It’s very interesting to note that in the first month following the significant over-performance, favourites lost a massive 9% on turnover. That’s regression to the mean in action.

You should also be aware that the lower your winning strike-rate is, the greater the variance you will endure. So if you’re a longshot punter, you need the mentality and betting bank that can cope with sustained losing runs.

In summary, most punters bet too much and quit too early. You shouldn’t give up on a proven approach just because of a short-term losing run. Nor should you get overly excited by a short winning run.

Instead you have to be willing to focus on the bigger picture and accept variance by sticking with a solid money management plan… probability and variance is the main reason we have one in the first place.

Join Alpha Racing now to get best bets from right across Australia and let an expert do all the work for you!