This Memorial Day our neighbors asked The Wife and I would like to join them at Belmont State Park for a couple horse races and since we had been at the beach the previous two days it was a nice change of pace. While there are a ton of different ways to bet on “the ponies” there are three traditional bets that are easy to understand and give an insight into the type of person you are! When it comes to life are you the kind of person who bets to Win? Place? or Show? Are there certain areas in your life where you are more aggressive as compared to others?
The Three Traditional Types of Horse Betting
- When you bet on a horse “to win” you collect only if your horse comes in first place.
- When you bet on a horse “to place” you collect only if your horse comes in first or second place.
- When you bet on a horse “to show” you collect if your horse comes in first, second or third place.
Since you have a better chance to collect money when you bet on a horse “to show” you collect less money if that horse ends up in first, second or third place. For example, the real payouts on a $2 bet on the 2011 Preakness (one leg of the triple crown events) were:
As you can see if you took the safer bet and chosen Shackleford to Show, you would have won less money than if you had enough faith in Shackleford to win. Before you assume I am some horse nut, I don’t know a thing about individual horses or jockies…I choose by names and follow the crowd sometimes with odds.
So what does this have to do with personal finances?
Personal Finances and Horse Racing
I was talking to the group I went with and I explained to them that I always bet “to show” because while it has the lowest payout it’s the safest bet. They couldn’t understand my reasoning and would argue, “But I am giving up so much upside if the horse wins?” It was that exchange that inspired this post.
Whether you are discussing asset allocation, starting a business or other random personal finance I tend to go for the safer gains. I do take some risk, but that risk is usually calculated and controlled. I actually think it may be one of my negative traits.
How is it a negative trait? I don’t have a huge tolerance for risk which probably explains my choice to utilize the show option.
So what about you? Are you a Win kind of gal? How about a Place kind of guy?
I bet on horse races purely for entertainment once every several years or so, so I’m no expert, but I like to bet “to win”. Higher stakes!
In terms of risk-to-reward, a show bet is actually a higher risk wager than a win bet.
The mutuels are rounded down to the nearest $.20 at most tracks (excluding NY, where they round to the $.10). So show bets, seeing as they have smaller payouts, are disproportionately eaten up by the rounding effect.
You do get some safety in being able to win more frequently, but you’ll actually lose more over the long haul than someone who bet to win, all else being equal. I think there’s a PF lesson to be learned there, though. There is such a thing as playing it too safe.
Whenever I gamble (less than 4 times in my life) I set limits as to how much I am willing to lose. I take business risks, but those are different. In my personal life there are limits too. My asset allocation tries to limit exposure to industry segments and other risks.