Once you have made an in-depth analysis to make accurate assessments on the draws you want to invest in, other essential observations come into play to help make a good investment.
The “different twins” of value investing W. Buffett and C. Munger use the Four Filters as an effective formula to evaluate the goodness of a business.
They look for:
- a business that they are capable of understanding
- a durable competitive advantage
- honest and competent management
- a bargain price as a margin of safety
Understanding a business is only the first step towards a profitable long-term investment. To go forward after a first thorough analysis, asking yourself the right questions is crucial for an aware choice about a business.
Does it have a durable competitive advantage?
People are very emotional when it comes to Sports Betting.
They instinctively bet on their favourite team for a good feeling, a superstitious act, a revealing dream.
All these behaviours aim at an immediate reward through the low odds of a favourite or seek an adrenaline rush thanks to the high odds of an underdog.
Such behaviours protect the value of draws just as a wide moat protect a castle.
Betting on winners is like believing in historic brands with a wide moat such as Microsoft, Google, Amazon, Coke, Ferrari.
They are a long-standing landmark very hard to replace in their minds.
In this regard, I like to remember what Warren Buffett said:
Chains of habit are too light to be felt until they are too heavy to be broken.
It is very hard to pass from one thing to another when the first one is so rooted.
Many people supporting a company also increases the strength of the company itself and those who do not will feel obliged to do it.
Big Spenders and Pro Tipsters also reinforce the moat.
They can bet so much money and attract so many followers on winners to make their odds drastically dropping as much as the draw ones growing.
Even the Bookmakers play their role to make the Castle of Draws inviolable.
Occasionally, miscalculating the fair odds out of necessity or by mistake, they create value for a profitable bet on the draw.
Does it have honest and competent management?
Amateur Bettors, Big Spenders, Pro Tipsters and Bookmakers.
All together feed the Draw business.
A good business with good management.
They unknowingly act as that good management with a lot of integrity and talent within a company capable of attracting investors.
Does it have a bargain price as a margin of safety?
The behaviour of such management allows the price of draws to flourish.
When the punters start betting a lot on the winners causing the line to move enough to create value with overpriced odds for the draws, or when the bookmaker offers a bargain price with the opening line.
In this way, you have the odds very much in your favour.
The bargain price itself is a margin of safety.
Paraphrasing Seth Klarman, I would say:
A margin of safety is achieved when draws are wagered at odds sufficiently above fair value to allow for human error, bad luck, or extreme volatility in a complex sport like football.