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Why Doing This Well Will Have You Making Money Until You Die

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November 04, 2010 – Comments (15) | RELATED TICKERS: SIRI , MSFT , AAPL

Why Doing This Well Will Have You Making Money Until You Die by mikecart1

So what is this?  Well instead of talking a bunch of filler in order for you to read the entire article like some authors we know, I will come out and say it in the 2nd sentence: bankroll management. 

Having an early history of poor bankroll management and having failed early in my life, I have realized far sooner than many average investors the power of bankroll management.  Now you can read all the articles you want on what stock is hot or which one is not.  You can read all about the dividend plays and when to enter the market or to do blah blah blah.  But without proper bankroll management, you are only setting yourself up to fail and sometimes lose the game for good.

I used to play poker pretty seriously for several years during the Moneymaker Boom.  Poker players know what I mean with that phrase.  Anyways, the most important thing about poker in my opinion is bankroll management.  It has little to do with knowing what to do with the cards, all the pot odds, and all that stuff.  Just like in investing, we all know the end goal: win and make money.  I mean the entire teaching of millions of investors and poker players is a complete waste if these people don't know how to manage their bankroll!  Bad poker players will usually make the least amount of money on good hands and lose the most amount of money on bad hands.  With investing, things aren't much different.

Now to the point.  I see it all the time.  I don't even need to see it all the time.  I hear it too.  You hear it too.  "Investors losing it all during xyz crash". "Investors going bankrupt after the bubble burst".  Why are these things even happening anyways?  You have to be naive to think the market  will always go up.  You have to be even more naive to think the market will never crash or drop unexpectedly.  We are living in reality afterall, right?  This has nothing to do with timing, it has to do with bankroll management.

Here is an example I find all the time that make absolutely no sense:

1) Entering a stock with a number of shares/dollar value that you can't afford to lose AND you can't average down several times over with no loss in sleep.  I mean come on guys!  This is like that poker player that is playing with a bankroll and at stakes they can't afford to lose.  Why are people entering stocks (no matter what the stock is, no matter how good it might be) with so much money on the line?  They are leaving themselves with no way out.  Averaging down is powerful and I have used it a lot to get out in the green over 95% of the time.

So about those bubble bursts, crashes, and bear markets.  I love how there are so many descriptions of these but so few people pay attention.  If you had bankroll management during the dot-coms for example, you could have easily gotten out of many of the stocks with no issues.  But in reality, many people were chasing the next "microsofts".  And for what?  These people went all-in, something in poker you rarely should do, even if you have the nuts.  It just doesn't work long-term for your bankroll management!

In the recent recession, or current one, if you don't believe the lies on TV and the media, many people lost a lot on banks and blue chip stocks.  I'm willing to bet those that lost had so much of their available cash assets in the stocks, that they left themselves with absolutely no way out.  Their best and ONLY bet for many of them is to wait until the market reaches back to where it was.  All this waiting is doing nothing and it is actually doing a big negative to your bankroll management.  Since you have these stocks you are waiting to break even, many people had no available money to invest in broken stocks but solid companies.  They didn't even have money to play the spec plays that could have changed their lives completely.  This is similar to those with bad bankroll management in a $5/10 NL game and the person only has $1000 total to bring to the casino.  In a $5/10 NL game, usually you can buy a maximum of 100 big blinds.  In this case, $1000 is the max starting you can bring.  So if you are only holding $1000 and buying into this game.  As soon as you go under $1000 in chips, you can't buy back in.  When you finally get the cards you want, you may be penalyzing yourself without even knowing it since you can't get the maximum reward for your hand.

In investing, you should be going for maximum reward, but not if it costs you to lose on potential future opportunities.  So next time, when you are thinking about going "all-in" on that "awesome" speculative stock or historically low stock, that you just "know" is going to return to greatness, save a little cash on the side, keep your options open, and use good bankroll management.  You might be surprised at how saving that extra cash will help you create a ton more in the future.

Cheers!

15 Comments – Post Your Own

#1) On November 04, 2010 at 4:57 PM, chk999 (99.97) wrote:

Words to live by.

And I know what the Chris Moneymaker boom was. 

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#2) On November 04, 2010 at 5:03 PM, mikecart1 (99.00) wrote:

#1) Yeah chk999, those were the glory years of online poker and easy ATM adventures to Atlantic City.  Those days are gone - at least for now.  :o)

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#3) On November 04, 2010 at 5:13 PM, MyunderratedLife (90.80) wrote:

You're posts are interesting!

 

I use to play a lot of poker too, the easy money there is gone.. I'd bet most of it went to the sites rather than players though.

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#4) On November 04, 2010 at 5:28 PM, mikecart1 (99.00) wrote:

#3) Your bet is a very strong possibility.  When sites like PartyPoker and other popular ones left the US a few years ago, a few like Full Tilt and PokerStars soared in profits.  Full Tilt poker is what makes me angry.  The original investors of Full Tilt: Howard Lederer, Phil Ivey, Chris Ferguson are freaking loaded now.  Chris Ferguson who owns a significant portion of Full Tilt is worth almost half a billion dollars!  I hate him because he is the tightest and most stingy player ever on tv now.  Even Mike Matusow called him out on Poker After Dark.  Chris is so stingy that he refused to play 2-7 during the cash game which was like $500 a person to whoever bluffed a pot and won with 2-7.  So he would only have to pay that person $500.  We are talking the cash game too.  These guys have $50K+ at the table each and he is too stingy to play with $500 on the side?  Everyone called him out and eventually no one said anything to him.  Him and Buffet are 2 of the guys I can't stand the most in the world.

But yeah, back to your question.  I'd say both Pokerstars and Full Tilt Poker are making margins that are not seen in any other industry.  The only thing you need is startup costs and then maintenance costs.  They collect so much in rakes it is just sickening.

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#5) On November 04, 2010 at 10:10 PM, Robuh (24.38) wrote:

IMO it's a very inappropriate analogy. Bankroll management is essential in poker but it takes many tens of thousands of hands to first determine your edge at the various stakes and then determine your optimal course for maximum profits. A lot of people use something like the Kelly criterion. It allows you to maximize your profit per hour invested in poker and also limits your risk of ruin to an acceptable probability. This sort of thinking is primarily for win/lose types of scenarios (gambling) where you have a statistical edge and can play the game indefinitely.

Investing is a completely different animal. You are purchasing fractional ownership in companies, debt, commodities, etc. You are often fully invested in various asset classes as opposed to risking a portion of your bankroll to a simple win/lose scenario. You are searching for assets at a fair/undervalued price that will yield above average returns over time.

Risk management in investing is important but that comes down to portfolio theory (for amateurs.) Better yet, know exactly what you are buying and celebrate when prices go down. The more you understand about what you are purchasing the less you have to diversify and worry. Time will be your best friend. 

The only application of bankroll management I can see in investing is for high volume day traders, speculators, and options traders where they are making many hundreds of small bets using a repeatable process that yields a somewhat predictable edge. I'd rather be a value investor and care about owning the most value I can for my money. 

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#6) On November 05, 2010 at 12:18 AM, TMFBabo (100.00) wrote:

What do you have against Buffett? Is it along the lines of what you said about Chris Ferguson?

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#7) On November 05, 2010 at 2:02 AM, Valyooo (99.45) wrote:

Could not freakin agree more

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#8) On November 05, 2010 at 11:09 AM, RonChapmanJr (64.93) wrote:

+1

Good post.

Once played in a big tourney where I had pocket rockets on the very first hand and went all in.  I lost to a guy who ended up getting trip 2s.  Sad day.

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#9) On November 05, 2010 at 12:14 PM, mikecart1 (99.00) wrote:

#5) Agree to disagree! :o]

#6) I personally feel he is very overrated.  He is living off what he did in the 1960's and 1970's to build his snowball up.  Time is powerful and has been to his net worth.  The media and TV make him out to be something he is not - a God.  No doubt he is rich and all but there are people playing with a lot less money being a lot more accurate in their calls in recent years.  Some are on this site for example.  I respect Jim Cramer a lot more than Buffet because even though he might be wrong, he admits it.  I haven't heard Buffet or the media admit to any of his mistakes.  They only like to highlight his awesome Berkshire portfolio and treat him like he can do no wrong.  I find it funny how no one asks about his bad calls.

I hate Chris Ferguson because he is a cheap poker player and living off some gimmick that helped him win the WSOP several years ago.  I'm not asking him to donate money or play in $10000 buy-ins everyday but when he is supposedly worth $400 million+ just in his Full Tilt Poker stake, and he won't agree with the table to play 72 for $500 when blinds are already like $300/600, there is something really flawed in his character.  I don't hate him as a poker player, no doubt he is smart, but his character is what I can't stand.  To get a gage on someone I like that is also part of Full Tilt, I like the rest like Ivey, Matusow, etc with exception to Howard Lederer.  I feel he is just a douche and comes off as one everytime  he is on TV.

#7) Thanks.  At least I know I'm not crazy then.

#8) Exactly, and thanks for the example.  You are not alone.  I and thousands of others will fall into that trap.  When I played online tournaments a lot, I would make the top 3 (sit-n-gos of course, I'm not that lucky haha).  Even when you got something like AA, KK, AK, etc. the goal is to profit and to control the bankroll.  You never know what the other guy has and you can't buy-in again (usually).  So going all-in just isn't something you want to do - just like in investing.  Watching the WSOP main event, I heard one of the final 30 guys (out of 7000+) was in a hand that was on ESPN and he went all in.  What he said is what I'm trying to say here. "This is the first hand the whole tournament I've gone all in." And this is someone that made it to to very top of the biggest tournament in the world.

Cheers!

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#10) On November 05, 2010 at 2:21 PM, roncool11 (< 20) wrote:

Have you read Buffet's shareholder letters each year? He  calls out his own mistakes. He calls some of his own decisions terrible and stupid and decisions that have cost his company BILLIONS. Just last month he admitted he cost Berkshire something like 400 billion!!! because of a judgement call based on emotion.

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#11) On November 05, 2010 at 3:17 PM, TMFBabo (100.00) wrote:

Like roncool11 said, Buffett does call himself out on his mistakes.  If you've read his partnership letters of the 1950s and 1960s and also his annual Berkshire Hathaway shareholder letters from 1970s to present day and still feel that way, we'll just have to agree to disagree. 

I agree that his best days are behind him, but Buffett himself started to temper his investment projections even in the 1960s during the later Buffett Partnership Ltd. years.  Buffett worried about the size of the pooled funds affecting returns even when he was only managing tens of millions.  He then proceeded to thrash the market anyway for many more years. 

Today, I think he'll have trouble outperforming by more than just a few percentage points.  I would love to have been a Berkshire Hathaway shareholder a few decades ago, but I'll pass today now that the company has grown so large.  

I also remember many times where he urged partners to only stay onboard if they fully agreed with his ground rules.  He did say there were people likely exceeding him by great amounts and that there were people far smarter than he in the investment profession.  That doesn't sound like someone who's full of himself.

Buffett has never paraded around going "look at me, I'm awesome."  The media has done that.  While I wouldn't follow him into any large cap investment ideas, I still admire the body of work and his constant messages on value investing.  It's humbling to read his partnership letters from 40 to 50 years ago and be schooled by them, even today.

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#12) On November 05, 2010 at 3:27 PM, TMFBabo (100.00) wrote:

Man, I forgot to write about poker.  I haven't watched a lot since I quit playing limit hold 'em in 2007 or so, but I still remember those guys you mentioned.  Phil Ivey was my favorite player, because he's a beast and he has crazy eyes. 

I hated Mike Matusow being "Mike the mouth" at first, but he started to grow on me.  I could tell he was a solid player who often blew up emotionally and just went on tilt after a bad beat.

Chris "Jesus" Ferguson...I have no real opinion on him, but he does sound insanely cheap from your story.

I remember I also liked Daniel Negreanu because he could read hands like nobody else.

Do you still watch WSOP, WPT, and the like? I just googled the bracelet count and I see Phil Ivey is catching up.  I want him to pass Helmuth so badly.

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#13) On November 05, 2010 at 3:41 PM, mikecart1 (99.00) wrote:

#10) Nope, but if that is the case, then I am wrong.  I still don't like him because of the media though haha.  They always ask for his opinion on the economy and stuff.

#11&12) Yeah right now Phil Ivey is the undisputed greatest player in the world overall, in tournaments, and in the cash game.  His place he stays at is out of this world.  He also participates online a lot and isn't afraid to take on new opponents.  He online tracking since 2007 has him up over $18,000,000.  On High Stakes he is one of my favorites. 

I used to hate Mike the Mouth too but I read about him and followed him.  He actually won the WSOP tournament of champions a couple of years ago.  But he also has gone broke several times in recent years as admitted by himself and people that have given him money.  I believe he is still in the hole though as many pros are (despite what the public believes).  A lot of them are degenerates and will never quit playing and losing no matter what.  Matusow took a big hit in online too and think he quit.

Yeah no one talked to Chris that entire week of Poker After Dark at the tables.  They needed everyone to agree to 72 and he declined.  I've never seen such a stingy poker player in my life.

Daniel got owned on the past season of High Stakes Poker.  He was losing bricks every show (brick is $50K).  I think he took the biggest losses for the entire season.  

I watch WSOP main even just to see what will happen.  It is full of noobs that got lucky.  ESPN really ruined poker for everyone.  There are no fish anymore.  Everyone knows how to play so it really comes down to luck and a few good decisions.  WPT is probably better if you want to see actual pros since they don't attract noobs so much.  I like High Stakes Poker the best though.  They are forced to play the players and not wait for AA or  KK. 

Phil will no doubt go down as the greatest player ever if he sticks around.  His game is just on another level right now.

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#14) On November 05, 2010 at 4:05 PM, TMFBabo (100.00) wrote:

I remember watching Mike Matusow win the tournament of champions.  I think I also saw the one where Annie Duke beat Hellmuth in the final showdown, I think.  Now that I think about it, I love watching Hellmuth lose and how he's so offended when he does.

I'm glad Ivey's doing so well.  He's nasty and I love that he just silently sits there with his eyes darting around.  It must be hell trying to figure that guy out.  I love that he plays without sunglasses of any sort.   

Now that I'm getting the itch to watch poker again, I'll be sure to check out high stakes poker.  I might also watch WPT if some of my favorites are in it, which they usually are.  

The point where I realized I couldn't play poker seriously was when I realized the long-term goal of any professional poker player is really just to win 1 big bet an hour.  If you make a bad mistake, you could lose a few big bets in one freakin' hand.  Well, that and the possibility of a cold streak spanning weeks.  I guess that's what they truly mean by grinding.  You have to endure hour after of cold cards at time while not going on tilt because you risk losing a sizeable portion of your bankroll - I'm not cut out for that.

I agree with you.  If everyone knows how to play and calculate odds on the spot, you really have to make a few more good decisions than others every few hours to generate your entire profit margin.  The luck will sort itself out over the long haul in cash games.  In a tourney, you do of course need flawless play and a lot of luck to beat a ton of players who all know how to play well.

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#15) On November 05, 2010 at 4:16 PM, mikecart1 (99.00) wrote:

#14) Yeah Hellmuth blew up on another poker show called the Big Game.   It is where novices play against pros.  This guy called the flop and then randomly bet $43000 on Phil.  He went nuts.  The people at the table told him to hurry up and he told them to STFU.  He was legit and mad.  He finally folded.  It was so dumb because his thinking took up like 15 minutes of the show haha.  I've seen him on High Stakes Poker where he just dumps his bricks and chips in a bag and leaves during the game.  He has been pretty mad lately.  I love his quote though when someone asked him to keep playing, "I'm rich and I want to stay rich!" Such a powerful statement haha.

High Stakes new season is about to come back on GSN.  Tom Dwan killed it last season.  I hate him but you gotta respect him that he plays the players more  than anyone else even though he nearly went broke a year or so ago online after going up $10 mil.

Yeah the poker life was a dream to me in college but it wasn't something I wanted to do long term.  It used to be easy money but it quickly became hard and frustrating.  I have been following this guy on another forum that plays online still.  He has a tracking page where you can follow him.  I started watching him when he hit $200,000 in profits.  He has taken some major swings and is up to about $690,000.  Keep in mind he also has played over 700,000 hands and this is over a 2-3 year time span.  Might seem awesome, but he represents less than 1% of all poker players.  I also doubt that he gets out much lol.

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