The Thoroughbred of Investing

This weekend the NYT ran a piece on people on investing in thoroughbreds. No, not superstar hedge fund managers, but actual thoroughbred horses:

These New Yorkers track the careers of Karakorum horses not merely as bettors but as owners. In a once rare but increasingly popular arrangement, each Karakorum horse is owned by a commercial partnership in which up to 200 shares have been sold to people from all walks of life.

For an initial $499 payment and a monthly maintenance fee of $29, Karakorum — the operation takes its name from the ancient capital of the Mongol Empire, which conquered its enemies on horseback — will sell a buyer a one-half percent stake in a racehorse. This low threshold for ownership has made the sport of kings easily accessible to working-class and middle-class horseplayers whose involvement might otherwise be limited to yelling at the television sets in their local OTB parlor.

This is funny, because this summer I actually got the idea of starting a thoroughbred hedge fund -- a fund that traded horses. I had a few gut assumptions as for why this might be feasible. For one thing, there's a lot of money in thoroughbreds that's thrown around by people who are in it for sport and show. It's reasonable to think that all this (somewhat) dumb money would cause inefficiencies which a calculating investor could exploit.

I also took a stab at guessing what such an inefficiency might look like. Admittedly, I came up with the most obvious thing, which would be anyone's first guess: perhaps horses that win the prestigious titles are overvalued, while horses that regularly place and/or show (i.e. money) are undervalued, because they don't get any prestige.

It's a reasonable working guess, but it's not clear whether this actually exists. Actually, the one academic paper I found from the Journal of Sports Economics said exactly the opposite, that there's no observable "championship effect".

I'm not the type to be deterred easily though, so in addition to spending like $100 bucks on journal articles (yeah, a real waste, but if they could've made me rich...), I went and bought The Blood-Horse Authoritative Guide to Pinhooking for Profit from Amazon. But I knew that a book like that wouldn't really have much info that wasn't totally commoditized and widespread. I figure it would mainly be a primer, which it was.

I haven't done anything else with it since then, unless you count joining the pinhooking group on Facebook.

Anyway, when I have more time, I'll look into it more. If you've done any work on this, let me know, cause I still suspect there may be something interesting if you looked hard enough.

Comments

[Shelly]

I suspect that there might be something interesting there as well. In the event that you read this comment, I have my own ideas for exploiting inefficiencies in the thoroughbred market. I think how much money there is to be made on such "trades" depends on when in the horse's life you buy it and the over/undervaluation tends to happen on the basis of the perceived value of a horse's bloodline instead of their performance. There are only a few races that really up the value of a horse to the point that owning 10% of it's hind hoof would matter anyway but once they've won that race basically the sperm will end up being more valuable than the horse. If you remember just last year they were trying to keep Barbaro alive for agonizing months to see if they could extract a few hundred thousand dollars worth of semen out of him before the ASPCA demanded that they put him down. Anna Wintour even made the MOST asinine comment about it in one of her editor letters in Vogue. I might be the only person who would have been reading Vogue looking at $800 shoes and knew the name of the horse's owner and trainer but it goes to show that the sport is mainstream enough that plenty of other people might be cooking the same idea.

[Btubes]

Shelly

The aspca did not demand Barbaro be euthanized nor does the JC allow AI ( given his subsequent case of founder compounding existing condition multiple treks to the shed/ mare simply would not have been physically plausible ). Your claim is totally farcical. Value would be in picking up yearling fillies with at the moment hot bloodlines ( i.e. banshee lines ). A hot enough bloodline and she does not have to set hoof onto a track to hold her value as a broodmare. Colts are too risky ( I know this personally haha ) and particularly with the colts at the yearling and 2 yo sales the unknown variable of ego bidding has to also be taken into account ( a la the king mambo yearling debacle between the coolmore boys and the sheik )

[Phil Henderson]

I actually own 12 thoroughbreds by myself, starting with a $5000 claimer 4 yrs ago. Best investment I have ever made, making over $300K the past couple of years.

Feel free to contact me as now I have become a horse "broker" in investing in thoroughbreds. I might be able to help with the ins and outs and what to look for for a smart investment.

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