I play alot of Texas Hold’em poker as a hobby. I never thought about it as a business until I met my friend Bill who plays professionally. He is convinced that if I work hard at it that I can make four or even five figures a month. I’m sure alot of us have seen poker on TV. We watch as these guys make seemingly impossible calls with alot of money on the line. As they get knocked out, the TV tells how much they’ve won, from $10,000 all the way up to $7.5 million for this year’s winner of this year’s main event.
What we do not see on television is the cash games. These are games where they are betting real money with real chips. In the televised tournaments, when you see a player with 500,000 chips, they are not worth $500,000. The player cannot just leave the table and cash them out. In cash games, the chips are the same as the chips you use for blackjack. Whenever you want, you just stand up and go cash them out.
When I think about the life of a professional poker player I argue that it is the most competitive sport out there. Here is a one person sport in which you play for your own bankroll. Think about other sports for one second. A pro baseball or basketball player is getting paid to play. If the team loses, the player still gets paid. Even in golf or tennis, the winning player does not get paid by the losing players. These players do not have the risk of losing money when they are playing. They can only make money.
If NBA basketball were run like poker, the players on both NBA teams would put up their own money per game, let’s say $100,000 each. There are 12 players on each team, so the pot would be $2,400,000 per game. The game would play out as usual and the winning team would win the money. Their yearly salary would be totally dependent on the number of games that you win. Can you imagine being on a bad team? How long could a bad team keep playing if they lose $1,200,000 per game? I can tell you one thing, there would be no bad players on any team. The teams would fire them.
The liveihood of a pro poker player is directly correlated with how good they are. It’s the only job I know where you can go to work for 8 hours and lose money. In this profession, only the good will survive because poor players will just run out of money.
What does this have to do with investing? I often think about poker strategy and how it correlates to investing. Two weeks ago, President Bush signed a bill that made onling gambling illegal in the United States. The law actually only banned “games of chance.” Many poker proponents would argue that poker is not a game of chance… and after learning more and more about poker I tend to agree.
In the poker world, their is a term called “Expected Value.” If you ever hear a person talk about their real estate investment in terms of “Expected Value” they are probably a poker player. Expected value is the amount that is predicted to be gained from a certain play.
Good poker players know if the move they are about to do has positive or negative expected value. Likewise, investors should know this as they go into an investment.
continued in part 2…