Of the commonality between horses and financial markets

The alarm sounded. It was 0745h. I left it in the office, to force me out of bed. That usually did the trick, and I didn't go back to sleep again.

It was Saturday. I drew the office curtain, it was a dewy, undecisive morning.
To cycle or not to cycle. I popped my health pills and washed them down with the usual gulp of cod liver oil. This thing better not cause cancer, I said silently to the bottle. And who's to say, in the industrialised world, what products are to blame. Even an innocuous chocolate wrap, who knows.

I made and ate my porridge. Pumped the tyres to 110 psi, packed my pockets with the usual essentials. Spare inner tube, pump, tyre levers, munchies, phone and money. Enough to get me to the border, if I had to make a break. Not that I was planning to, otherwise I would have packed the passport, too.

I left in good time for the caf where the cycling crowd was assembling. Lots of expensive steeds left casually leaning on the railing delimiting the outside eating area. Yet they were never stollen - while the crack heads were just down the road. This remains one of the greatest mysteries of cycling to me.

I had my double espresso while chatting to M_. This guy I had seen a handful of times, over the course of years. That was the code of the cyclists as I perceived it. We became friends in the saddle and on the road and interacted hardly anywhere else.

M_ had a business, selling porn to people who failed to find it for free.
He started by buying a list of tens of thousands of email addresses of credit card owners who had purchased, with their cards, some form of porn. He got the list from a man in California, who worked for a US governmental organisation which generated the data during an anti-porn crusade. He then shot some weird stuff, like people dressed in luminous rubber costumes urinating on each other, added music and sound effects, plus overdubbed moans and groans. Then he emailed his client base about his latest offering and watched his bank balance increase for the next couple of weeks. He worked about 20 hours a month. I found this out between huffs and puffs, while cycling with M_.

Over on the pavement was young S_, all skin and bone. Once in the British development squad, he gave up because it was too focused on track - he preferred the road. His doctor urged him to put on some weight, but as they say, a cyclist is ready to race when his mother tells him that he's not looking too well. Young S_ was now attending uni but still turned up for the occasional weekend ride. Although he still looked as emaciated as ever, gone were the days when he took six weeks to shake off a cold. The price of being competitive - a very low immune system.

Once the hot drinks had been drunk we set off in the cold autumn morning air. It was sunny as we dived down Anerley Hill hoping as always that a distracted weekend driver would not cut us off. I counted 23 riders and about 45k worth of kit. Mostly carbon, bits of aluminium and steel, some titanium. In the peloton was Red Jeff. I wasn't sure why, because his hair was definitely not red. Maybe he was a rocker, who once died his hair, or maybe it refered to his political views. I never asked and was never told.

Red Jeff was an equity fund manager who had a semi-decent engine, too. He almost managed to drop me on the way back, going up Box Hill, but I hung in there and in the end beat him to the caf at the top. He was bluffing and his legs gave way under him towards the end.

The weather held out and there were scores of cyclists assembled. Plus some hikers and bikers. It was a nice spot and there Red Jeff told me of the commonality between horses and the financial markets.

He said "Daniel, I want you to invest these ten pounds on the 1345 race at Donkey Park by placing bets on every horse such that no matter what outcome, you WILL be able to return, ignoring taxes for simplicity's sake, my ten pounds."
He then said there would be 3 horses in the running; Spotted Eye at 10/1, Gin & Tonic 5/2 and Takashi Pearl 2/1 favourite. He made my life simpler by investing my money for me - after all, that was how me made his living - and said if I placed a one pound bet on Spotted Eye, that would assure me a ten pound return. If I placed a four pound bet on Gin & Tonic I would also make ten pounds. Finally, if I placed a 5 pound bet on Takashi Pearl, that would return me ten pounds as well. I would have gambled ten pounds but safely made my ten pounds back.
That much I understood.

Jeff then said that was all very well but I would never make any money. "To make money you must take risks" I anticipated him saying, as he did, with minor variations.

"So let's say you decide to take a risk" Jeff expounded. He continued with three different scenarios whereby each horse bet was left out in turn and drew every possible outcome. He was somewhat high on endorphins as were all the others and myself. Around us I heard fragmented laughter and lore - of past and future rides.

"You leave a pound out by not betting on Spotted Eye - best case scenario Spotted Eye loses, you are up one pound, recouping your ten pounds on one of the other two horses making up the original ten pounds, plus an extra one pound, by not betting on Spotted Eye. Worst case scenario, you are down nine pounds, by saving one pound by not betting on Spotted Eye but losing nine pounds you bet on the other two horses."
Once the first case had been verbosely outlined he summarised the next two.
"Leave Gin & Tonic - best four up, worst six down.
Leave Takashi Pearl - best five up, worst five down."

He then explained; that by managing the risk over a set of races you could actually come out on top, that in true life there was no such odds scenario and most likely two and sometimes three horses would have to be left out, but by shopping around for the best odds you had a guaranteed return - he gave me an exact figure of 3%.

I asked him if he did it. He said no, that it was too much work "you end up placing hundreds of bets everyday". Still, "nice little earner" he reassured me, and that in some moons to come, with the right technology infrastructure he might revisit the horses.

He then said financial markets worked exactly in the same way.