This Is How You Beat the 1-in-10-Million Odds
Editor's note: Pulling ahead of the crowd means being smart, not lucky...
If you want to be successful in investing, you need to create your own edge.
In today's Masters Series, we're sharing a new essay from editor Corey McLaughlin on how one gambler won a $16 million jackpot in the sports-betting world and how you can apply that same technique to your portfolio...
This Is How You Beat the 1-in-10-Million Odds
The odds were 1 in 10 million...
In a 27th-floor office, amid the neon skyscrapers of Hong Kong, Bill Benter and Paul Coladonato watched their computer screens intently as they displayed the results of the horse races at the Happy Valley Racecourse.
It was November 6, 2001, and about a million people in Hong Kong – 1 out of every 7 residents – placed a bet on that night's "Triple Trio."
To win, you needed to hit a "trifecta of trifectas," picking the top three finishers in three consecutive designated races.
Much like the Powerball lottery in the U.S., the jackpot grew as the season went on without a winner. By that November night, the jackpot had rolled over six times and was around 100 million Hong Kong dollars, the equivalent of around 13 million U.S dollars at the time.
Given the number of horses and races involved, there were 10 million possible winning combinations.
But Benter and Coladonato had developed a data-driven system to generate profits over time with large numbers of bets.
They placed 51,381 bets (costing nearly $210,000) on the Triple Trio.
In the last of the three critical races, a horse named Bobo Duck beat out Frat Rat and Mascot Treasure to take first.
On 35 tickets, their system correctly picked the top three finishers in two of the races. But one slip hit the jackpot.
In total, the two Americans won $16 million, a roughly 7,500% return.
Benter and Coladonato won the lottery, but it wasn't pure luck.
Benter had a history of exploiting data...
In 1985, the then-28-year-old college dropout from Pittsburgh was essentially banned from making money as he knew it in Las Vegas.
Inspired by Edward Thorp's 1962 book, Beat the Dealer, Benter and a few friends had mastered counting cards in blackjack.
The idea is simple: Track the ratio of high to low cards remaining in the deck and increase your bets when the odds tilt your way. It's legal, but casinos will throw you out if you're good enough at it.
In the mid-1980s, Benter and a small card-counting team were each making around $80,000 a year. That much winning was enough to land them in Las Vegas' Griffin Book, a blacklist of suspicious players who'd taken too much from the house.
They needed a new game to play. So Benter took his concept of exploiting data to generate asymmetrical profits and applied it elsewhere... to horse racing in Hong Kong.
While horse racing is an American betting pastime, the Hong Kong market was an untapped opportunity.
Its population was only around 5.5 million in the 1990s, but folks there bet more on horses than the entire U.S., to the tune of a $10 billion annualized market.
Benter hit the University of Nevada, Las Vegas library in search of research on horse-racing handicapping. He found a paper that suggested predicting winning or losing horses could be tied to traits like speed, size, record, and jockey skill.
Benter and his friend Alan Woods gathered this information and used it to create a system that could give them an edge at the track, just like the one they'd had at the blackjack table.
It was definitely an unconventional approach...
As Bloomberg reported in 2018...
Benter taught himself advanced statistics and learned to write software on an early PC with a green-and-black screen. Meanwhile, in the fall of 1984, Woods flew to Hong Kong and sent back a stack of yearbooks containing the results of thousands of races.
Benter hired two women to key the results into a database by hand so he could spend more time studying regressions and developing code. It took nine months. In September 1985 he flew to Hong Kong with three bulky IBM computers in his checked luggage.
In the pre-Internet days, Benter created software that analyzed dozens of inputs on horses, jockeys, tracks, and even the weather. Then, he placed thousands of bets on races to win on just a few of them.
Benter struggled to break even with this strategy in the first few years. He even hit the blackjack tables again in Atlantic City to raise more capital. But he stuck with the plan, confident his unique research edge would pay off.
In 1988, he made $600,000 betting on horse racing in Hong Kong.
He increased the frequency of his bets. And he started paying locals to call in eight bets a minute to the Hong Kong Jockey Club.
And then he made a big tweak to the system that generated even more upside. As Bloomberg reported...
Benter hit on the idea of incorporating a data set hiding in plain sight: the Jockey Club's publicly available betting odds.
Building his own set of odds from scratch had been profitable, but he found that using the public odds as a starting point and refining them with his proprietary algorithm was dramatically more profitable. He considered the move his single most important innovation, and in the 1990-91 season, he said, he won about $3 million.
Eventually, the system grew to include 120 inputs.
Benter went on to make nearly $1 billion. Some call him the most successful gambler of all time.
But you've likely never heard of him. He tends to stay out of the public eye and has given only a handful of interviews over the years.
Today, at age 69, he lives in his native hometown of Pittsburgh, runs a medical-documentation business that he founded in 2001, and has given away millions of dollars to philanthropic causes in the U.S. and Hong Kong.
And here's the real kicker: Benter and Coladonato never claimed their $16 million Triple Trio winnings. Benter sent an anonymous letter to Hong Kong racing authorities stating his intention that they keep the sum. By law, they were supposed to give it to charity.
It wasn't about the money for Benter. The challenge was simply too big for him to ignore.
"I never made a serious career choice to become a gambler," Benter said in an interview in 2012 with a publication from Hong Kong's Rotary Club. "My only real interest has been to beat the system and come out ahead."
At its heart, this isn't a horse-racing or sports-betting story...
Benter wasn't smarter than everyone else about horses. He was smarter about data. His profits took off when he used the crowd's own odds against them. The same approach can work for beating the stock market.
Today, information is more widely available than ever before – with Google Trends, social media activity, global shipping information, hiring data, and all sorts of unconventional data sets in between, like Congressional stock trading filings or Reddit message boards.
However, that means simply doing the work to collect data doesn't create enough of an edge on its own.
To beat the system now, you need to find information in new places, have a disciplined strategy for valuing it, and – crucially – know when the crowd has caught on and your edge has disappeared.
Over the next few days, we'll be sharing a special series on this topic...
We'll show you more examples of people who beat the system... and what it could mean for your money today.
It will all build up to a brand-new event we're hosting on Tuesday, April 7...
That's when one financial expert is stepping forward to reveal his own system for beating the stock market.
You see, the market has undergone massive changes over the past several decades, with various technological advances, Wall Street hedge-fund trading algorithms, and, most recently, AI-driven disruption.
To really succeed in the market going forward, this expert says investors must consider alternatives to the traditional long-term buy-and-hold strategies. His short-term, data-driven system identifies fast-moving winners and, just as importantly, shows when to exit before inevitable reversals arrive.
Just like Benter, you've probably never heard of him.
But he has advised billionaires, briefed Congress, and managed positions as large as $200 million at one of the world's most influential hedge funds. His strategy targets triple-digit winners in one specific industry, and it has flagged 442 winning trades since 2017.
You can sign up right now for Tuesday's event to learn more.
Stay tuned to the rest of our special series in the Digest. And you can go ahead and sign up for our free event on Tuesday right now to make sure you don't miss a thing.
After you register, you'll also get reports on one of the world's most envied hedge funds... what it really takes to find an edge on Wall Street... and a closer look at the man behind this strategy.
And just for tuning in to the event, you'll get two free stock recommendations – one to buy, and one to avoid.
All the best,
Corey McLaughlin
Editor's note: As we said above, you can sign up for our free event on Tuesday right now.
During the event, you'll hear from one of the most sought-after voices in finance. He predicted the rise of the iPhone and bitcoin. And now, with the world in chaos and tremors hitting the market, he's stepping forward with his most critical market warning yet. Sign up for free here.