Don't re-fight the previous election
In the previous political betting masterclass, I focused on election betting and mentioned how each particular race is unique. Assuming the dynamics will transfer to the next contest is usually bad strategy - politics changes quickly. The same argument can certainly apply to another popular type of market - leadership contests.
Consider some recent examples. When Jeremy Corbyn announced his resignation as Labour leader, Rebecca Long Bailey was swiftly gambled into odds-on. Why? Because a narrative had grown, simplistically categorising their half-a-million members into rigid factions. Having backed Corbyn twice by big margins, they would back another 'hard left' candidate.
As it turned out, RLB never got close and the centrist Keir Starmer won by a landslide. The choices made in previous leadership contests involving different candidates, amidst different conditions, didn't prove a good guide. Many of the voters weren't even the same people, given how party members come and go.
There are plenty more famous examples. When Donald Trump and Ted Cruz were leading the Republican primary in 2015/16, the market initially preferred candidates more favourable to the mainstream such as Jeb Bush or Marco Rubio - based on previous contests. In reality, the party had changed in the four years since it picked Mitt Romney - in tone, policy and members.
Beware early leadership polls
The history of leadership contests is littered with bad early favourites. Particularly the Conservative Party, although Boris Johnson broke the mould last year. The recent Democrat primary involved favouritism switching between four candidates before Joe Biden finally won.
A classic mistake is to overstate the importance of early polls. When members or supporters are first asked, name recognition will be uneven. They will be unable to form a considered opinion about several candidates. The dynamics of the race will not yet be clear. Laying the early favourite generally proves a good tactic.
Know the party electorate
A common mistake made in leadership contests is to assume that party members will be in tune with wider public opinion. That is why Corbyn, for example, was the 24-1 outsider of four when I tipped him on these pages back in 2015. For at least a month, the media ridiculed his candidacy, primarily on the grounds that he would prove unelectable with the wider public.
The point they missed was that Labour members (as with all political parties) are, by definition, unrepresentative. Less than 2% of the population are party members and most are nowhere near as engaged or partisan. The key to identifying Corbyn was understanding the mood of the members.
The same could be said of the last Conservative contest, when MPs who voted to Remain in 2016 were at an irreversible disadvantage compared to Leave backers - because the party members were very pro-Brexit.
Indeed this is a recurring lesson with both parties. In Kenneth Clarke, the Conservatives had twice previously rejected a well-known candidate, with wide popular appeal, on the basis of his pro-European stance, in favour of virtually unknown alternatives William Hague and Iain Duncan Smith. Labour picked Ed Miliband over brother David - generally regarded to be more electable - due to their policy differences, not electability.
Know the electoral system and its dynamics
Likewise, this is essential knowledge. The Conservatives operate a multi-round system. First MPs whittle contenders down to two, by eliminating one per round. Then the top-two go forward to members.
This can mean - as with that IDS victory in 2001 - that the candidate best placed to win with the members never gets the chance. On that occasion, Michael Portillo was thwarted by tactical voting among MPs. Tory leadership contests are famous for such shenanigans.
Labour, alternatively, use the Alternative Vote. Here members get to rank the candidates in order of preference. The effect can favour the least offensive candidate - who hasn't alienated any particular faction. That is how Ed Miliband won.
In US primaries, the voting system involves elections in each state, lasting several months. Therefore, one must constantly think ahead and weigh up the dynamics of each particular electorate.
Buy the rumour, sell the fact
Successful trading in any market involves successfully predicting the trajectory of the odds. In politics, that means staying ahead of the news cycle and looking to predict the future.
This is key to playing side markets such as leader exit dates or when the next election will be held. For example last year there were good profits to be made from predicting how the complicated Brexit process would play out. It was possible to think ahead and work out that a general election would be needed and that Theresa May would be removed as Tory leader before it took place.
Likewise, this is how I prefer to play leadership contests. Whilst they can appear wide open, including dozens of listed candidates, they are not. Usually, only a small number of candidates are realistically well-positioned.
When there have been upsets that didn't meet obvious criteria, or were very hard to identify a long way out - Corbyn, Trump - they could easily be covered once the contest started for real, due to their attractive odds.
Realistic leaders are small in number
Therefore my plan is invariably to get these obvious candidates onside early - perhaps a year or two in advance. Then look to cover at much shorter odds when officially declared. One would usually expect no more than a handful of realistic contenders so it really isn't asking much to get them to trade much shorter.
A perfect example was the 2016 Conservative contest. A year previously, I'd successfully traded in and out of George Osborne when he shortened from 17/29.4 to 2/13.0, then placed two sizeable bets on Theresa May at 11/112.0 and 9/110.0. I was sure she would run and be one of the top two or three candidates, thus making it easy to secure profits once the field had whittled.
Such strategies require two things. First, obviously, political knowledge. Second, staying ahead or at least in touch with the news cycle. By doing the latter we can keep up with which candidates are being touted in the media, by which publications and journalists, and are therefore expected to run.
Follow the widest range of media
This requires following a wide range of media. Knowing where their biases may lie and whose cause they wish to advance. Understanding the agendas and party preferences of each outlet. Don't assume what you read to be fact - nobody is totally neutral in politics, however much they might try.
Historically in the UK, that meant the press. Until quite recently, the endorsement of Rupert Murdoch's The Sun was political gold. Nowadays, with circulation falling and an ever expanding variety of alternative media, that is highly questionable. In fact association with such an overtly partisan paper might even count as a negative.
Political information in the 21st century is a free-for-all. Anarchy. Anything goes. It is not always easy to differentiate between verifiable, objective truth and lies - whether designed to generate clicks or propaganda.
Conspiracy theories and smear campaigns are relentless. It is quite possible that conspiracy sites will attract a bigger audience than conventional news channels. Moreover the conversation is more divisive and abusive than ever before.
Avoid echo chambers!
In my view, navigating this post-truth world involves embracing it. I seek to read as wide range of information as possible and certainly not merely that which reinforces my own politics. My Twitter timeline includes fascists, communists, libertarians, social democrats, racists, anti-racists, feminists, misogynists.
Blocking people makes no sense - these perspectives will form part of the wider political conversation that will ultimately help shape opinion and therefore voting behaviour.
It is equally critical to remember that the average voter is not a political die-hard. The opinion of a lay person is often just as illuminating as the politico. Whether in real life or on social media, listen to what the non-politicos say. It is often at complete odds with the diehards.
It is useful to distinguish between social media platforms. Virtually everyone in politics or journalism is on Twitter. It is a conversation they seek to influence - a window on politics and the dynamics shaping it, because so many players are actually performing live.
Twitter and Facebook are fundamentally different
However that makes Twitter a bubble - absolutely nothing like the conversation most voters (especially the persuadables) are having. To see that conversation, use Facebook. It is no wonder that parties spend such vast sums advertising on Facebook. It is where the majority - the voters who don't follow every twist and turn in politics, but do pay attention during an election campaign - reside online.
Which brings us to one of the great questions of our time. Who is driving these political conversations? It is no longer merely the well-connected Westminster lobby journalists, known to avid followers of politics. Or even the owners of their newspapers, or the strategists in party headquarters.
Dark money - unaccountable, funnelled through offshore secrecy havens - is now a cornerstone of modern politics. It pours into every election campaign via adverts micro-targeted to the individual voter, whose data has been mined to create a psychological profile. The Netflix film "The Great Hack" explains the phenomenon in detail.
Beware the bots!
The growth of microtargeting and fake news took many of us by surprise. I had no idea that fake accounts (bots) and trolls (disinformationists working out of an office such as the Internet Research Agency in St Petersburg), were gaming the EU referendum.
I did realise the Kremlin's social media operation was active during the 2016 US Election, working on Donald Trump's behalf. What I didn't realise was just how effective they would be, or the deeper story of Kremlin influence all across the world.
So how effective are they? Should we be backing whoever they back? Well, following that Trump election, a counter-bot movement started. Activists began monitoring them and it became clear that Russia weren't alone. China, Saudi Arabia, India and Iran are all using these tactics. So, one must assume, are Western nations and parties.
However in the 2018 US mid-term elections, the Kremlin's fabled social media machine proved impotent. Perhaps their effectiveness has been blunted by greater awareness.
I am not so sure. Where bots and trolls definitely remain effective is regarding internal party warfare and aggravating tensions that already exist. For example this research suggests around half the 'anti-lockdown' social media accounts trying to ramp up conflict in Michigan were bots. They aren't winning the argument - Governor Whitmer has an impressive approval rating on her Covid-handling. Yet they probably have been effective in energising, or radicalising, the sort of Republicans who would be prepared to protest.
The reason Twitter politics looks like a warzone is to a large extent because the bots and trolls set out to trigger grievances and start fights. They amplify the most extreme accounts and positions. To understand politics and successfully predict, we have to know what they are saying, how much it cuts through to the wider public and be able to evaluate their effectiveness. The key is being aware, distanced and therefore impossible to trigger.
Follow Paul on Twitter and check out his website, Political Gambler.