How To Catch The Kentucky Derby’s Annual Investment Lesson

Trends, stats and this Saturday’s Run For The Roses

I have a confession to make. I love horse racing. It’s not for the betting or gambling aspect of it. A big loss at the track for me is way less than a moderately-priced Saturday night dinner. After all, I see enough big dollar signs during my day-job.

For a while, I struggled to figure out exactly why I enjoy horse racing so much. I did grow up around the Meadowlands, which was a pretty big racing center in the past, and still hosts the biggest harness racing event of the year, the Hambletonian.

In my home area of South Florida, we do have one of the more beautiful, relaxed and upscale venues in the country to watch live thoroughbred horse racing. Gulfstream Park is a track within a shopping village and office complex. And they race live there 10 months out of the year, mostly in very nice, warm weather.

I do remember my grandmother being a frequent visitor to Gulfstream way back in the 1970s and 1980s. She would talk about it with us, but did not take us there. So, that alone doesn’t explain my affection for the sport.

Horse racing: winning in the Covid-19 era

The pace of a day at the races is nice and consistent, so that’s an attraction to process-oriented types like me. The horses and jockeys are amazing athletes.

And I give the sport credit for barely skipping a beat during the Covid-19 pandemic. Some tracks did close or limit their schedules, but races are held without fans.

But unlike other sports, horse racing in the U.S. and abroad has continued, with cable networks like TVG filling the day and night with live action. This appears to have broadened interest in the sport, after a period in which growth was clearly declining for years.

The current stock market in some ways resembles a gambling scene (more like a casino than a racetrack). However, that is not the reason I like horse racing. Not at all.

The real reason I like horse racing (and others do too)

My own entertainment value from horse racing was made clear during the preparation my latest annual Kentucky Derby-themed investment article for this column. That’s because again this year, I had the pleasure of interviewing Caton Bredar, who has been a professional racing handicapper via print, radio and television for several decades.

Like many in the horse racing industry, Caton’s roots go back a generation or two. She can be seen regularly on the aforementioned TVG each week, and will be covering the 146th running of the Kentucky Derby this Saturday for that network.

I asked Caton what she found so enjoyable about the sport she has devoted her career to, and she did not hesitate. “To me, it’s about trying to solve the puzzle that is each race.” Aha! That’s it! It’s the process of solving that “puzzle” that makes racing so enjoyable to follow. As Caton explains, between the jockey, the past performance, track conditions, trends, momentum, varying race distances, running surfaces and track locations, there is plenty to analyze with each race.

Wall Street: its own sort of horse race

For those of us who have made our careers creating and executing an investment process, there is the obvious importance of handling wealth. It is also the effort in preserving it and making it grow. It’s the challenge of fitting the pieces together.

Portfolio management has a few things in common with horse racing, especially if you do it over the course of days, weeks and years as Caton has. And, there sure are a lot of stats, math and variables involved. Oh, and some luck too. And let’s face it, investing has a lot to do with creating a “track record” of success.

So, with that puzzle solved (literally and figuratively), Caton and I moved on to discussing the field for this Saturday’s Kentucky Derby.

The 2020 Kentucky Derby

This year’s race is, naturally, like no other in recent memory. For starters, it is not being held on the first Saturday in May. Swap out May for September, thanks to the pandemic. Churchill Downs racetrack was to have a limited number of fans, but that was scrapped in late August.

But the race will go on, not as the first leg of thoroughbred racing’s triple crown, but as the middle contest. The Belmont Stakes took place earlier this summer, and the Preakness, normally the middle leg, will be in early October.

Caton points out that instead of leading up to the Belmont, the longest of the 3 races, this year’s Kentucky Derby follows that NY-based event by a few months. That is one of the many things that make this year’s race so intriguing.

The Kentucky Derby Field: favorites, longshots, etc.

Here are some of this year’s contenders in the “Run for the Roses,” with Caton’s summary thoughts on them.

Tiz the Law

Caton emphasized that the best horse does not always win the Derby. However, it is hard to argue with anyone landing on this year’s heavy favorite, Tiz the Law. Winner of the Belmont and also the Travers’ Stakes at his home base of Saratoga, NY, Caton says it’s “him versus everyone else. That’s a contrast to last few years,” where there were a few leading contenders.

What plays in his favor is that the scheduling changes gave him longer to establish his reputation. The Travers race would normally be after all 3 Triple Crown events. She is picking him, but as with so much in investing, it pays to be mindful of the risks. “Every single thing has gone right for him. So, that’s the risk,” she explained.

Here’s a look at some contenders and some interesting long shots, according to Caton. But remember, it’s horse racing, not long-term investing. So in that sense, they are like day-trading penny stocks.

Art Collector

Should be second choice. Distance of the race is no issue, as the horse has the pedigree for these distance races. Along with Tiz the Law, he has been the most consistent horse running in the Derby. His relatively unknown trainer could make him a value.

Honor A.P.

Had a lot of buzz early in the season, but was beaten in last start. That tempered the enthusiasm. As opposed to Art Collector, his trainer and jockey are part of the buzz. They teamed up Giacomo, who won the 2005 Kentucky Derby at 50-1 odds, and Zenyatta, an iconic philly (female horse) who amazingly won 19 of her 20 career races.

Authentic

Trained by the legendary Bob Baffert. Second in Derby points race. Caton is skeptical, however. Among other things, Authentic tends to be unsettled on race days. Even with an empty grandstand at Churchill Downs, that’s an issue.

Thousand Words

Another Baffert horse, and has skilled rider Florent Gereaux. Might be peaking at right time.

King Guillermo

One of the more consistent entrants, and an overachiever. Inexperienced Derby jockey aboard him, and has had a 4 month layoff.

Caracaro

Always close at the end, and has earned a shot to run in this race. Hall of Fame jockey Javier Castellano had his choice of horses to ride and chose him. That is a good sign.

Max Player

Has done everything that no one does for the Derby, including changing barns. Despite the non-traditional route he took to get here, he likes racing the longer distance, and is training extremely well. But Caton says he will “have to pick it up a notch” to have a chance.

Post time!

Thanks to Caton Bredar for helping me bring you this annual article. It is one of my favorites to write every year.

I’ll be back to my usual “gig” of helping you solve the myriad investor “puzzles” soon. Enjoy the Kentucky Derby!

Comments provided are informational only, not individual investment advice or recommendations. Rob Isbitts provides Advisory Services through Dynamic Wealth Advisors