It may not seem it on the surface, but trading and horse race betting have plenty in common. While some traders may not like to admit it, they are essentially placing bets on the value of companies, currencies, or commodities in the hope that their market price will go up or down.
Of course, there are many people who trade for a living while the horse racing industry also sustains many jobs, including those involved in handicapping and punditry. But the two activities share many more resemblances than this.
Horse Racing and Trading - Parallel Histories
Before we can learn about some of the ways traders can learn from horse race betters, it is helpful to know a bit about their histories. The UK has a long and rich history of trading in stocks, shares, and other commodities. The first stock exchange in England was opened in London in 1571, almost two decades before the now-famous New York Stock Exchange opened its doors across the pond.
In the 16th century, it was known as The Royal Exchange, although over time it has morphed into the London Stock Exchange that we know today. It plays a crucial role in the City of London, a small, autonomous part of London that is known for being the home of banking, insurance, and other financial service companies. It’s also the location of the Bank of England, from which the tube station Bank gets its name.
Shortly before this, the first formal horse race meetings began to be organised in England. The first recorded incidence of this was in the northern city of Chester, which has the country’s oldest and only non-oval racecourse.
Over time, the sport spread across the country thanks to its popularity with The Royal Family and English nobility. This led to the opening of famous racecourses like Newmarket, Ascot, and Derby.
Today, the two maintain many rich traditions, such as the pageantry of Royal Ascot and the fact that people still attend meetings dressed in suits and dresses instead of casualwear. In the same way, the London Stock Exchange, New York Stock Exchange, and many others around the world all have a “market open ceremony” each day. In many exchanges, including New York, a bell is still rung to signify the commencement of activities for the day.
Now we understand the background a bit better, here are some of the things traders can learn from horse race betting.
No one is born a great picker of horses or of stocks; this is something that you learn over time. Even great investors like Warren Buffett made bad decisions in their early days, but they overcame this by getting advice from experts and following in their footsteps.
Those that are new to betting on horse racing often look to experts for advice on what are the best bets to make. To cater to these bettors, many sites have established themselves as reliable sources of horse racing tips, providing expert picks that the public can take advantage of.
Of course, no tip is ever a guarantee of a winning bet or a profitable trade, so you always need to weigh up the advice of multiple experts, but they still offer excellent insight that you wouldn’t likely have yourself.
Execution is Just as Important as Picking
Knowing which horse is going to win is useless if you get bad odds from your bet. The same applies to trading, a company’s share price increasing isn’t going to be profitable for you if you wasted a lot of your capital in fees.
In horse race betting, there are plenty of services that you can use to compare the odds from different bookmakers all at once. This allows you to find the best value bet each time.
In many respects, it can actually be easier in stock trading since you’ll likely be doing all or most of your transacting through a single platform. This means you just need to search for a company that offers free or low commissions on your trades and that has low fees on the balance of your portfolio.
If you’re investing long term, these fees can really eat into your assets. Compound interest, which works in an investor's favour to grow their portfolio can work against them if they’re charged high fees.
Look for Value
Most casual horse race bettors spend their time looking to find the horse that’s most likely to win the race and then bet accordingly. The way they often do this is by looking at the horses that have won the most in recent races. As any seasoned horse racing fan will tell you, the one most likely to win often doesn’t.
Instead, experienced bettors look for horses that offer better odds than their chance of victory. This means that any victories they offer larger payouts.
Traders and investors should be taking the same approach. There’s not much point looking for a company that’s already enjoyed explosive growth in the stock market (unless you’re thinking of taking a short position).
Instead, you should be looking for stocks that may be priced lower than their true value. These are companies that, over time, are likely to grow in value.
The holy grail for investors are companies that have a total share value below their net asset value. This means that if a company with 100 shares valued at £1 each has £100 in the bank and £100 of machinery, you could liquidate the company and make a £100 profit.
Often, the companies that are the most overpriced are the ones that get all the attention. Looking at Tesla in 2020 may be an example of this. The company’s share price has been driven higher and higher as retail investors buy out of a fear of missing out, with many analysts saying that its current share price cannot be justified by future earnings potential.
Horse race betting and trading share many similarities, both in their history and the techniques that can be used by those that engage in either activity. There are never any guarantees with either, but by enacting these tips you can improve your chances of success.
By Sophie Kreimer