This post was originally published on April 1, 2011. 

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As a general rule, I am pretty strict with my discipline in all forms of gambling. However, even in the famous book, Market Wizards, you see wildly successful billionaires note that there are occasions when it is not only acceptable to break your rules, but when you should actually feel compelled to do so. Far too often, though, overly aggressive traders use that loophole as a convenient excuse for reckless gambles and, in the end, breaking your rules that frequently will cost you too much money. A classic example of this happening is when it comes to your position sizing.

A few years ago while in Las Vegas, I found myself in an interesting $80/$160 Texas Limit Hold ’em game at the Bellagio. The game was pretty good (weak players, but a lot of action), and I was playing my usual tight aggressive style. At one point, a seat opened up to my right and in came a well-dressed guy who could have been a stunt double for Dr. Christian Troy from Nip/Tuck. He had two attractive blonde ladies with him, and he was wearing a white golf glove. He sat down next to me, and started chatting me up. He told me that he had just flown in on a private jet from California after playing golf all day. He had alcohol on his breath, but said he hadn’t had a drink in a few hours. The women he was with wore a lot of jewelry and had expensive handbags. Basically, this is exactly the type of person that I want to play poker with in an upper limit game–Flashy, wealthy, pretentious, probably just looking to have fun and doesn’t mind if he loses some money. He played every hand he was dealt for the first 15 minutes at the table, and hardly ever folded thereafter.

The cocktail waitress came over and took our orders. Most of the pros at the table ordered green tea, coffee or water. Mr. Golfer looked confused. “No one is drinking here? Cmon, guys! We’re supposed to be having fun!” He shouted at the table so loudly that players at other tables in the room shot annoyed glanced over our way. Of course, a few of the losing “pros” at my table were losing badly and were too frustrated to even play nice with Mr. Golfer, which is a huge mistake. You always have to be affable with the mark in the game.

Now, as a pretty strict rule, I never, ever, drink at the casino when I am playing for any kind of serious money. If I am out with some friends playing $1/$2 Hold ’em, then maybe I will have a drink. But, not a chance for the upper limits. However, in this situation I knew that if Mr. Golfer didn’t feel like he could have fun at the table, then he might very well get up and leave. At the very least, he would probably focus on playing better poker, which is exactly what I did not want to see happen.

So, in this specific situation, I broke the rules. I told him I’d be happy to drink with him, and I let him order a few shots of tequila for us. Right on cue, he unwound and started throwing money around the table some more, allowing me to win a few big pots off of him. While the phrase, “rules are made to be broken,” is too extreme for trading and poker, it is important to have the discipline to know exactly when you should break the rules…and when you are just fooling yourself.

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I recently learned about the death of Barry Tanenbaum. I assume you have never heard of him, as that is usually the case with even the most successful of “cash game” poker players (cash games, or “ring games,” as in playing for real money and risking your money you have in front of you via casino chips, instead of a fixed tournament structure with tournament chips). Barry was an old school Texas Limit Hold ’em poker player, grinding out the profits year after year in Las Vegas, the city where so many celebrity/famous “tournament players” quickly ascend to fame, only to stumble over to successful cash game players to ask for money when they soon go broke. He had made some money early in his life in the pre-Sicilon Valley days in Cupertino, California, before moving to Vegas with his wife.

I played against Barry many times when I lived out in Vegas several years back, when he was a regular in the cash games around town. He was a fixture in the Bellagio poker room, $30/$60 Limit Hold ’em game, where the average buy-in to sit down was about $1,000, and the volatility you endured as a player could be up to several thousand dollars per session. He was a very solid player and clearly a winner. Unlike many crybaby “pros” who berate bad players at the table when they lose a hand, Barry was a total pro, maintaing a sense of humor and not going on tilt, while keeping the bad players happy and playing longer, thus giving him an edge over the long run.

A few summers ago, during the hot cash game action that takes place when the World Series of Poker (“WSOP”) comes to town, Barry and I squared off in a $100/$200 limit hold ’em game at the Bellagio which is, generally speaking, one of the bigger limit games you can find in any brick and mortar casino in Vegas or on the east coast.

I was honored to read him blog about a particular hand the next day, referring to me as an “excellent player.” It was rewarding for me to get that kind of respect from an older, accomplished player. The hand went exactly as he recalled, and I found it quite entertaining to experience and then read about the other two players in the hand. Even if you are not a poker player, I still recommend watching the speech he gave in the video above. Mike “the mad genius of poker” Caro gave the introduction. Barry discusses patience and grinding out “one big bet per hour,” which means, as an example, earning $60 per hour in the $30/$60 Limit Hold ’em game. The parallels to disciplined stock trading are plentiful.

Here is Barry’s blog post, told in first person, from July 2007 detailing a hand played against yours truly. The “UTG” player was actually a friend of mine and the “cute girl” was indeed a cute girl and very aggressive player. I included the other portion of his blog about those two after the hand that I was in, for entertainment value. Click here for the full post and his blog as well. (“UTG” refers to “under the gun,” the player at the poker table first to act in a Texas Hold’ em game, to the left of the small and big blind, “BB” refers to big blind, “JJ” refers to pocket Jacks, “late-middle” refers to my position at the table when I re-raised or “three bet,” as he says, with pocket kings before the flop).

I played some sessions of $100-$200 recently. With the WSOP in town, the game is better than usual.

Perhaps you would be interested in some laydowns I made. Here are a couple:

UTG (average player, not especially tight) raises. Excellent player three-bets from late middle. I have J-J in the BB and make a marginal call. Flop is 7-6-6. I check, UTG bets, good player calls, I call. Turn is a 7. UTG bets, good player raises, I fold. Probably should have folded earlier, but there it is. Oh, on the river, check-bet-call, good player shows down kings, and UTG confides to cute girl player on his left (these two will be back in this post) that he had J-J! At least I put in $400 less than he did.

They were not all laydowns. Here is a play I picked off because of table talk. I have the button and a new player posts. Everyone folds to the new player, who checks (though the book says raise). I have 9-7 and do not wish to get involved. so I fold. SB (guy on my left again) completes, and cute girl (who is wildly aggressive, and gets way too much respect from the others) raises. Poster calls. SB folds. Flop is something, She bets-he folds. Fine. But now guy on left says to girl, “Nice play. I was thinking of doing that.” She rewards him with Mona Lisa smile.

 

 

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At the end of the day, all we are doing in the stock market is wagering money on outcomes that have yet to be determined. If you insist on spending your time coming up with condescending, pre-packaged responses about how trading is categorically not gambling, then you are already battling demons that will eventually come home to roost. Trading is most certainly gambling, and so is investing for that matter. Even if you buy a stock for a dividend in lieu of capital appreciation as a long-term investor, you are gambling that the dividend is safe. I invite you to take a look back at history at how many firms cut or completely erased their dividend back in 2008, to illustrate just how much of a risk it is, even when it seems like the safest thing in the world.

Given that we are gamblers, it is especially illuminating in a market like the current one to see how traders react to adversity. Look at your local Twitter stream, and you will see traders trying to fade other traders simply because they dislike them. You will see others arguing against straw men, creating their own twisted reality where “everyone” expects a 2008 crash, so therefore they are bullish. Alternatively, you will see other traders arguing “everyone’ is bullish, so therefore they will press their shorts here (albeit with the wind at their backs). Of course, when “everyone” is fading “everyone” else, you really do not have the type of contrarian evidence that you look for at inflection points. Instead, you have noise upon noise.

In a market like this, you also see raw emotions come out. When the market is trending higher in a low volatility environment, it is very easy for traders to act like one big, happy family, save the few outcasts who short the uptrend all the way to the top. However, once the tide turns and volatility returns in a corrective market, most traders get bit–The only question is how much. If you take a lump early on in the correction/bear market, there is nothing wrong with cutting your losses and retreating to a highly defensive posture via cash for the duration of the volatility. For those who continue to trade these markets in an active manner, unless you have a specific game plan you are bound to lose control of your emotions. You simply cannot afford to lose your head. Imagine sitting at a poker table in person with nine of the traders you despise the most from social media. Imagine them getting lucky and winning a hand of poker against you, and seeing them smirk as they drag in your money and count it. How are you going to react? Will you throw your cards at the dealer? Will your berate the jerk who won your money and got lucky?

The first thing to remember is that you are here to make money without exposing your capital to undue risk. So, you should ask yourself whether you truly are, in fact, getting unlucky in the current market. If you honestly believe luck has nothing to do with it, and you are simply not adept to this type of a stock market, then there is absolutely nothing wrong with getting up from the table, walking away, and coming back later when the game conditions (stock market conditions) have changed. The next thing to consider is, supposing you are truly getting unlucky in this market, then will emotionally reacting by cherry picking a trader you dislike or think is weak to use as a contrarian indicator be an effective strategy? I view this type of a reaction as being the poker equivalent of throwing your cards at the dealer for losing a tough hand.

In the current market, we have seen unrelenting selling in many of the industrials, energy, materials, and financials. Indeed, that can be described as forced selling and capitulatory. I can certainly envision a bounce sometime soon, but it is likely to be much more of a function of exhausted selling than of “everyone” leaning bearish. In other words, since many traders appear to be focused on making bets based on sentiment, I am getting up and walking away from the sentiment game altogether, focusing now more than ever on price. Because when “everyone” tries to fade everyone else, you are left with an amorphous quagmire that is nothing more than a sucker’s bet.

 

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As a general rule, I am pretty strict with my discipline in all forms of gambling. However, even in the famous book, Market Wizards, you see wildly successful billionaires note that there are occasions when it is not only acceptable to break your rules, but when you should actually feel compelled to do so. Far too often, though, overly aggressive traders use that loophole as a convenient excuse for reckless gambles and, in the end, breaking your rules that frequently will cost you too much money. A classic example of this happening is when it comes to your position sizing.

A few years ago while in Las Vegas, I found myself in an interesting $80/$160 Texas Limit Hold ’em game at the Bellagio. The game was pretty good (weak players, but a lot of action), and I was playing my usual tight aggressive style. At one point, a seat opened up to my right and in came a well-dressed guy who could have been a stunt double for Dr. Christian Troy from Nip/Tuck. He had two attractive blonde ladies with him, and he was wearing a white golf glove. He sat down next to me, and started chatting me up. He told me that he had just flown in on a private jet from California after playing golf all day. He had alcohol on his breath, but said he hadn’t had a drink in a few hours. The women he was with wore a lot of jewelry and had expensive handbags. Basically, this is exactly the type of person that I want to play poker with in an upper limit game–Flashy, wealthy, pretentious, probably just looking to have fun and doesn’t mind if he loses some money. He played every hand he was dealt for the first 15 minutes at the table, and hardly ever folded thereafter.

The cocktail waitress came over and took our orders. Most of the pros at the table ordered green tea, coffee or water. Mr. Golfer looked confused. “No one is drinking here? Cmon, guys! We’re supposed to be having fun!” He shouted at the table so loudly that players at other tables in the room shot annoyed glanced over our way. Of course, a few of the losing “pros” at my table were losing badly and were too frustrated to even play nice with Mr. Golfer, which is a huge mistake. You always have to be affable with the mark in the game.

Now, as a pretty strict rule, I never, ever, drink at the casino when I am playing for any kind of serious money. If I am out with some friends playing $1/$2 Hold ’em, then maybe I will have a drink. But, not a chance for the upper limits. However, in this situation I knew that if Mr. Golfer didn’t feel like he could have fun at the table, then he might very well get up and leave. At the very least, he would probably focus on playing better poker, which is exactly what I did not want to see happen.

So, in this specific situation, I broke the rules. I told him I’d be happy to drink with him, and I let him order a few shots of tequila for us. Right on cue, he unwound and started throwing money around the table some more, allowing me to win a few big pots off of him. While the phrase, “rules are made to be broken,” is too extreme for trading and poker, it is important to have the discipline to know exactly when you should break the rules…and when you are just fooling yourself.

Comments »

It was the year 2006, and whether it was obvious or not, the real estate market in Las Vegas was on the verge of sliding down the other side of the mountain. I made my way out to the desert, naively planning to buy property in what turned out to be a sparkling mirage. Apart from real estate, the poker scene was thriving. A few years earlier, an unknown amateur had won the World Series of Poker, sparking a gold rush of sorts. Professionals quit their jobs and moved to Vegas, and teenagers all over America became instant poker pros, dropping out of high school and college to play cards full- time. Texas Hold ’em became the hottest thing going, not just in Vegas, but all across the country. I remember routinely walking into convenience stores and seeing poker cards and chip sets on full display right in front.

While I had previously been to Vegas on vacation, this time was clearly different. I was staying at a house that one of my friends owned, and it was no sweat off of his back. He told me that all he cared about was using that particular property for a home equity loan in order to bankroll him in his poker endeavors. Yes, he played poker too, and he was easily one of the worst players that I have ever seen. The last time I talked to him, in 2008, he had declared bankruptcy, as it turned out that he was leveraged to the hilt with properties throughout town.

My first night in Vegas, I went to the Bellagio hotel and casino, where the real action was for serious cash game players. I had no intention of playing that evening, but instead wanted to get the lay of the land, so to speak. I recall sitting at the bar right next to the poker room. Straight out of central casting, the crusty, middle-aged bartender struck up an innocent enough conversation with me. After a few minutes, he blurted out,

“You seem like a good enough fellow. Let me tell you something. I know you have seen those commercials where they say that whatever happens in Vegas, stays here. Well, we locals also have a saying: What money comes to Vegas, stays here. Someone is always getting hustled in this town. Either you’re hustling them, or they’re hustling you.”

He must have literally finished his shift, because he walked off and I never saw him again after that.

When I started playing limit hold ’em the next day, I was prepared. I had been a winning player online for quite some time, and frequently won when I played in Atlantic City and Foxwoods. I was able to temper any emotions at the table due to my background a tournament chess player as a kid. Unlike a quick trip to A.C., though, the Vegas experience was quite different. After a few days, I started to recognize some of the faces at the tables. A few wealthy housewives here and there, some retired millionaires, business owners, internet phenoms, wannabes gambling their life savings away, degenerates borrowing from a loan shark, and so on. When I stepped up to the high limit room, the famous tournament players that you see on television were actually considered the “marks” in the game. Tournament poker is much different than cash game poker. Ironically, the same flashy style and emotional outbursts that made the “celebrity” poker pros famous, also made most of them horrendous cash game players.

After a while, I befriended a 23 year-old guy from Phoenix. His talent was impressive, and he seemed to have a great instinct at the poker table. Even in limit poker, which is much more of a science than no-limit, which is much more about feel and instinct, his skills were undeniable. Every time we played together, he seemed to be on a never-ending hot streak. We were playing $30/$60 limit hold ’em, and the average buy-in was somewhere around $1,000 per player. I remember him consistently leaving up $3,000-$5,000. When he decided to step up to the $100/$200 game, his winning streak remained intact, as he took $10,000 out of the game his first time playing.

The grumpy local pros were growing increasingly exasperated by his success. They would often openly berate him at the table, out of frustration. But he was running hot, and more than just with the cards. One night, when I was lucky enough to not be seated at his table, he was literally winning big pot after big pot, sending people home broke, muttering to themselves as they stormed away from the poker room in a fit of rage. In an act of magnanimity, not to mention the sign of a great hustler, he bought everyone at the table dinner. As the hungry, losing faces dug into their steaks, he continued to wipe them out. All I could do was look over at him and start laughing in disbelief. After a while, he showed up to the poker room with a pretty girl on his arm. Every few days it would be a different girl. They sat behind him, and he smoothly stacked up everyone else’s chips, while cracking flirty jokes to his arm candy.

One night, he approached me and asked if I wanted to stake a percentage of the buy-in for a fairly big tournament he was going to enter. I took pride in the fact that I never, ever, lent or borrowed money from anyone. However, I was tempted to take a piece of the action, given his skills and hot streak. I thought it over for a bit, but eventually took a pass. Better to err on the side of caution, I figured. He ended up doing incredibly well in the tourny, taking 2nd place, and prize money of nearly $180,000 (I would have gotten $36,000 of it, had I backed him). I started to beat myself up. Once again, however, instead of rubbing his success in my face, he was magnanimous in his victory. He started living it up in Vegas, going to the best clubs and restaurants, and doing everything V.I.P. style. He actually insisted that I come along, and always picked up the tab. The only time I saw him lose his temper was when anyone offered to chip in to pay the bill. Hey, what can I say. He was a nice kid and he was doing great.

Eventually, he started wandering away from the poker room, into “the pit,” which essentially means all of those table games such as blackjack, roulette, craps. Instead of a different girl every few days, he started walking around with two or three girls at a time. Playing the pit is easily one of the huge downfalls for winning poker players. As opposed to poker, where you are playing against other gamblers, and the casino usually takes a very small percentage of every pot (“the rake”), the pit games put you directly against the casino. Believe me, those casinos are not built and kept in business because they are even money in blackjack or any other table game. No, those flashy hotels and spas receive much of their cash flow from mathematically challenged gamblers.

Seeing as the guy had gone above and beyond to be generous to me, I felt compelled to intervene. I pulled him aside and asked him if he was alright. I told him that playing the pit was a sucker’s bet. Unfortunately, he wouldn’t have any of it. He told me that “his girls” thought poker was too boring for them, and he was beginning to feel like it was too slow of a game for him. I tried, once again, to talk some sense into him, but it was all for naught.

Pretty soon, every high limit pit boss and casino host at the Bellagio and Wynn knew who he was. They started giving him and any amount of friends he wanted free V.I.P. access to all of the clubs and restaurants, all comped, so long as he kept playing blackjack. One time, I remember walking past his blackjack table at the Bellagio, and I saw that he was playing three hands at a time, each for $3,000.

About a week later, which in casino time might has well have been three months, he stumbled into the poker room and asked me if he could borrow money.

To be continued…

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