♠️ Poker, risk, and avoiding financial blowups
Also ego, not losing at tennis, and choosing your battles wisely.
Howdy. As mentioned a couple of weeks ago, I recently made my annual poker pilgrimage to the local-ish casino to play the WSOP crowd.
It's a good time. Good energy, good friends, lots of money, and rooms packed full of (mostly) awkward (mostly) males from all walks of life who descend upon this tiny tribal town to try to outsmart other awkward males into giving them all their money.
What's not to love?
For those wondering, I did pretty well based on my small-timer metrics. I didn't play the tournaments (they take too long), I just played all the many cash games outside of the tournament with those who had already busted out. I cashed in for $1k and left with $4,700 the next day.
This is about the norm for me every time I go. Sometimes I win a little more, and sometimes I win a little less, but I can't actually remember the last time I went and played poker at a casino and lost money. It's been many years.
Now, the funny thing is that I'm not really a great poker player. I'm ok, yeah sure, but I'm nothing special.
The thing I believe I'm good at is knowing how to win. Not playing poker, but winning.
I think it's maybe an emotional intelligence thing, not necessarily a skill thing. In fact, when I was ~ 20, like so many other entrepreneurs, I played online as a source of income.
I was actually a much better technical player then. Like wayyyyy better. I instantly knew the probabilities of hitting my possible outs, I could run the math in my head of if I was getting good odds, etc.
I honestly can't remember a damn bit of that now, but yet I consistently win more than I did during my more-skilled youth.
I think it probably has a lot to do with my business and investing career. A surprising amount of these meta-skills translate into other walks of life, including poker.
There are a boatload of skills that relate. Patience, adaptability, bankroll management, choosing the right table (competitors), ego, etc.
Let's chat about a couple of these, and directly how they tie into making good business decisions in our crazy world right now.
How amateurs win at tennis
A couple of years ago, I was hunting for a mortgage and having a really hard time. Despite being in a good place financially and having great credit I just didn't check the right boxes for a traditional mortgage (banks love steady paychecks, even if they are actually more fragile). I was venting on Twitter about it and trying to get some advice.
He was (halfway) proposing that we start a bank. A bank specifically for entrepreneurs. A bank that was run by people who understand how entrepreneurs' assets work, and then developing a method so we could provide loans against them (aka mortgages). I'm simplifying, but you get the gist.
I don't remember the specifics, but I think the plan was to maybe raise $10mil or so, buy the smallest bank known to man (just to get the hard-to-obtain banking license), and then to start working towards the new founder-friendly vision.
I listened for a bit, and gave my feedback.
"Jason, I love this idea. I think it would be amazing if it works.""But man, that just sounds really hard. There are just so many easier sure-fire ways to make money."
This is a business that SHOULD exist. If it works, building a new bank could be insanely lucrative (just look at Mercury). But talk about an uphill battle filled with torture and paperwork and government and decades.
Howard Marks is one of the OG value investors of our time. Inside one of his legendary memos called "What’s Your Game Plan?", he talks about winning as a tennis pro vs winning as a tennis amateur.
As an amateur, all you have to do to win is not make game-losing moves.
If you survive, you win.
Now let's go back to poker. Why is it that I can consistently crank out a modest profit?
Luck? Probably. High IQ? Definitely not.
IMO I think a lot is just because I frequently go for the easy-mode wins.
If I'm at a table and I feel everyone is better than me, I move tables or go home.
Last year, as it got late, I was at the table and noticed a couple of the guys knew the staff, a few others knew each other, and they all seemed to be there a lot. "Uh oh" I thought, "I'm the mark". I got up and went home, setting aside my ego.
I also don't try and play 5D chess. I play with plenty of focus on downside mitigation and bankroll management. Maybe I have a so-so hand, but I actually think I'm probably ahead of my opponent. If I'm being challenged really hard for large sums I might decide to just lay it down.
I might be right, but being wrong could be very costly and my hand is only so-so to start with. I'm focusing on the bigger picture.
I can win on the more sure-thing bets, which will come.
Of course, you can't just sit there and wait all night for pocket aces, you have to play offense. If all players pick up that you're just waiting around all night they'll fold when you show aggression. It's a balance of not getting carried away.
But in the end, it's a bit like amateur tennis in that I'm just waiting for the opponent to make the error, not focusing on outsmarting everyone at the table. I'm playing against amateurs, not pros. They will make errors.
Now, clearly, y'all know I've really been talking about business and investing this whole time. Let's just tie a few things together.
Think of Amazon FBA in the early days. If you just threw any sort of neon spatula up on Amazon you'd be a millionaire. Now you have to do a bazillion more difficult things and compete against thousands of others with deep pockets doing the same.
Or think of Crypto in 2020 and 2021. If you did any sort of yield farming (and heavily diversified away your blowup risks) you probably made millions. Now all of the most profitable crypto people I know are just sitting on the sidelines, hoping that one day another bull run ponzi-szn will happen.
Yeah, you can still make some money, but the risk is high and the rewards are low, and since there is zero true fundamental value, there is no technical bottom to any of it. (An ETH at $200 works just as well as an ETH at $2,000).
I relentlessly focus on not blowing up. You ARE going to lose money on bets, whether that be investments or marketing campaigns. The trick is ensuring that you don't overreach with anything.
I make "high-risk" investments all the time. I have an angel portfolio of about 60 companies. More than half of these will go to zero. That's ok though, it's expected, I'm diversified into all kinds of asset classes, cash-flowing small businesses, stocks, PE, real estate funds, cash, etc.
Although I don't really do what they do, I love listening to stories about traders like George Soros, Druckenmiller, and Paul Tudor Jones. Some of the best traders we've ever seen.
One thing that I love about them is how quick they are to kill their own ideas and change their minds (and positions).
I looked for the actual story but couldn't find it (email me if you remember it), but there is a story of Soros (or maybe Tudor Jones?) along the lines of at breakfast he was chatting with a friend about how he had very high conviction on a trade where he was long. His friend responded with how he was short and why.
That day ended up being the famed "Black Monday" in 1987, the market cratered and the friend feared the worst for Soros, but when he saw him he was in a great mood. Soros had changed his mind in minutes, done a complete 180, and ended up wildly profitable.
Winning vs not losing
In the end, there isn't a "right" path to go here.
If I wanted to be a billionaire, maybe I should have considered Jason's bank idea.
Poker pros will have much bigger swings. The good ones will win insane amounts, but the slightly less good ones (or unlucky ones) will disappear.
Some of the richest people in the crypto space were those who went all-in and leveraged themselves up early on. Their conviction paid off with ridiculous sums.
But there is a lot of survivorship bias to that too. How many people leveraged themselves on the wrong token, or in 2022, or used the wrong exchange?
How many of the r/WallStreetBets crowd made millions from the GameStop and AMC trade, and how many lost their homes (or at least their wives)?
I know what works for me, and I'm happy to be on that path. I maximize my investment portfolio for good sleep, and boy oh boy do I sleep well at night.
Until next week,
P.S. I probably jinxed my poker winnings for life after this newsletter.
Huge Disclaimer in Smaller Font
This content is being provided for information and discussion purposes only and should not be seen as a recommendation to do anything at all, especially not to buy or sell a security. Opinions expressed are that of the author, who is NOT a registered investment adviser, or a financial professional, or can barely even tie his shoes half the time. Do not try and copy the author or you’ll probably lose all of your money and have a rather bad day.