At the risk of this blog becoming idempotent’s gambling journal, I wanted to mention that in the last week I have become infatuated with poker (limit hold ‘em in particular). I’ve read somewhere that lots of traders are also avid poker players, and now I know why! It’s an uncannily familiar feeling when judging when to wager and how much! Cutting losses when a hand turns against you, winning big when it doesn’t… poker’s got it all for people with trading in their blood!
Mini-Review
I got interested when I read The Professor, the Banker, and the Suicide King: Inside the Richest Poker Game of All Time just on an impulse. It’s not a poker how-to book, but rather it’s about a Dallas banker who took up poker and played several extremely high-stakes games over the past few years. His name is Andy Beal, and from the description of him, he’s like my new hero. He’s done a little bit of everything in his career, from real-estate, to banking, to mathematics, to aerospace engineering, and now poker.
The book has a lot of colorful history of big gamblers, and their lifestyles. They acknowledge that their money-management is pretty reckless, and they all seem to balance that by taking money out of the casinos as often as possible, and doing their best to leave it out, for good.
So, I looked up how to play on-line, and started playing in fake-money games on yahoo. Just like in the stock markets, the whole key seems to be to wait for good opportunities. I think my trading experience really paid off here . By simply folding about 70% of the hands I got, I doubled my first fake $1000 stake in just 4 hours. I am hooked! It seems that the legal status of real-money poker in America is iffy, so I have so far resisted it. But, it’s tempting!
That got me thinking… what does poker have going for it that the markets don’t? Probabilities are easy to compute, and reliable. That is, I can get a reliable probabilistic lower bound on the expected value of my hand at any point. In fact, just quickly calculating, there are only about 2 trillion unique games with two players–less if you consider that lots of hands are equivalent, differing only by suit. Technology’s getting close to the point where you could just precompute them all on a large workstation. If you wait til after the flop, there are only 1.2 million possible outcomes with two players. On the other hand, in the markets, it’s not clear to what extent past behavior implies future behavior (some say, not at all!), so any probabilities you have calculated based on past events could be useless. So poker hands are a ton more predictable.
A downside of poker compared to the markets is the binary result–you can have an awesome hand, and still lose. And, you can have the a royal flush, but still only win a small amount of money. In the markets, everyone who is right, wins, and the amount they win is proportional to how right they are.
More directly related to the stock markets, I’ve started reading Fooled by Randomness : The Hidden Role of Chance in Life and in the Markets, and it seems promising, if a little long-winded. I will write more about it when I’ve finished it.