01/24/2002 12:00AM

Really a case of brains vs. lemmings


HALLANDALE BEACH, Fla. - When horseplayers tell non-horseplayers about their life's passion, they are invariably met with a skeptical response: "Aren't the races fixed?"

To this question, I have always given an ambivalent answer: "Yes, there's larceny in the game - trainers cheating with drugs, jockeys pulling horses - but it's almost always perpetrated by an individual trying to get an edge. In my whole life, there have been only one or two occasions when I think I've seen a conspiracy to fix a race."

But from now on I will have a new standard response to the people who believe Thoroughbred racing is a sucker's game. It will go like this: "There will be cheating in any activity involving big money, but compared to the stock market, horse racing is honest and well-regulated. If you added up the dollar total of all the larceny in the history of horse racing, it would be a tiny fraction of the money defrauded from the public in the Enron scandal alone."

Many horseplayers take perverse delight in the recent woes of the stock market - the demise of the Houston energy company as well as the collapse of tech stocks. We're sick of hearing that playing the horses is a self-destructive or immoral activity while playing the market is somehow sanctified. (This attitude is reflected in Washington's periodic attempts to clamp down on Internet gambling while ignoring online day trading of stocks.)

There is, of course, a fundamental difference between the racetrack and Wall Street, but it's not a difference of seediness vs. respectability. The main difference, I would argue, is that playing the horses demands more intellectual rigor.

Under the parimutuel system, horseplayers bet against each other. They can make substantial profits only when they hold opinions different from the crowd. As a result, they always try to find weaknesses in the crowd's opinion. When Monarchos last year won the second-fastest Kentucky Derby in history, the media hailed him as a budding superstar.

But sharp handicappers observed that he had a perfect setup: He was able to rally from far behind because an ultra-fast pace took a toll on the front-runners, and he was aided by a ground-saving trip, too. The skeptics were looking to bet against him in the next two legs of the Triple Crown series, and they were right: Monarchos hasn't won a race since the Derby. This is the way horseplayers habitually think, at the track and away from it; they are skeptical, cynical, distrustful of popular opinion. Wall Street would label them contrarians.

On Wall Street, however, everybody can make paper profits at the same time, and the easiest way to do so is to jump on a bandwagon, while corporate executives, analysts, brokers, and investors all promote a stock's virtues with a minimum of skepticism. If Monarchos had been a stock, the hype machine would have hailed him as a can't-miss prospect and valued him with an outlandish price-earnings ratio. That's what happened with Enron. As the Wall Street Journal wrote last week: "The culture wanted to believe in Enron's promises, which helps explain why 16 of 17 Wall Street analysts rated Enron a 'buy' as recently as last October."

Most horseplayers look with disdain on the herd mentality of Wall Street, and many watched with resentment as the herd got rich in the 1990's. Because handicappers work extraordinarily hard to acquire the insights that give them an edge in the parimutuel competition, they were galled to see people making easy money by following the crowd and buying absurd dot-com stocks.

But the crash of the tech market has reminded many "investors" that they were really gambling all along. Among gambling games, I believe, horse racing has no equal.

An individual bettor can obtain almost all of the important information he needs to analyze a horse race and it's trustworthy information, not the kind distorted by accountants' flimflammery. He doesn't need inside connections; he doesn't need analysts' reports. The past performances in the Daily Racing Form and the films of past races let a handicapper make accurate judgments of horses' ability. (A good student of films can easily detect jockey thievery, too.) While racing fans may not be privy to the change in horses' physical condition from race to race, a good student of horseflesh can make those assessments in the post parade and the warm-up.

Of course, horse racing has one significant drawback: the takeout. While stock buyers can make a trade for $8, horseplayers are soaked an average of 20 percent on each bet. If legendary investor Warren Buffett had to pay a 20 percent fee on every transaction, he'd be operating a Pepsi stand in Omaha. But the obvious difficulty of betting the races has some virtues, too. People who play the horses are constantly aware that this is a difficult, treacherous game - a lesson that many people who play the market have learned the hard way.

(c) 2002, The Washington Post