Why are many great fund managers also great card players?

Brief background: I have been an options trader for 7 years and I was a successful online poker player in the mid 2000s. Damn I'm getting old.

In general, most answers to this question are good answers like the one Andrei Kolodovski gave in this thread. Certainly there are similarities between poker and trading. Here are the key ones in my opinion:

– You make lots of bets with incomplete information. There is a big difference between trading/poker and a game like chess, where you know where all the pieces are.
– You must understand and embrace variance. In my experience, the best poker players and the best traders are able to perform at a high level whether they are making money or losing money. For me, this is the one major skill my poker education gave me.
– You have to have an obsession with edge. It is very important for both poker players and traders to understand where their profitability comes from. Often markets/people change and you have to adapt and improve to remain profitable.

But here's the truth: finance professionals are almost always terrible at poker. And it's the best kind of terrible to play against because many traders/investors think their skills will translate into poker, and have no idea they are terrible at poker.

Here's the bottom line: poker is hard. When I was competing at a high level in poker, I played 40+ hours of poker a week. Then I spent another 10-15 hours analyzing my hands by using software and by discussing individual hands with other top players. I did this for almost 4 years of my life. One year after I took a full-time job in finance, I probably went from being one of the best 200 players in the world to the 20,000th best player.

Another thing about poker is that it is much harder to get good at poker now than it was before Black Friday. It is much easier to get better at poker if you can play online. In person, you might play 20-30 hands an hour if you are lucky. Online, you can comfortably play 4+ tables at 60 hands/hour. You can also easily import your hands into a database and fix problems with your game. You can actually play a meaningful sample size of hands and draw real conclusions from your results. Many finance professionals who play poker have never played online. The ones who are good have usually played a bunch online. It requires a ton of time playing live poker to get very good.

What makes poker the best game in the world is accessibility and short-term luck. Anyone can beat anyone on a given night (unlike Chess where I will lose to Magnus Carlsen every time with no exceptions). Anyone can win a poker tournament. This is why poker is so popular.

Because of the luck involved, it is almost impossible to deduce poker skill based on in-person results. The financial press loves to make a big deal when a finance guy makes a deep run in a poker tournament… but luck is by far the biggest factor to winning a single poker tournament, not skill.

To sum it all up, poker is hard. The vast majority of big-shot finance guys who are listed as great poker players are mediocre at best. Most of these people are way too busy running a business and/or trading to be able to invest the time required to get good at poker. There is certainly some overlapping skills that successful poker players and traders have–but that doesn't mean every good trader can play poker!

13 Replies to “Why are many great fund managers also great card players?”

  1. I can comment on the value of poker (I play as a hobby).

    Poker can offer insightful lessons for both investors and traders. It is essentially a game of decision-making in the face of incomplete information, which  teaches how to judge risk and properly assess probabilities in situations involving uncertainty.

    For investors, one of the most important lessons is the role of luck in investing. Anyone can be lucky and score an occasional profit even if their decision-making is poor. However, in the long run a player with the most correct decision-making process wins. Thoughtful players (investors) should judge their results not by the short-term profits or losses, but whether their underlying decisions were correct or wrong:

    In the long run, "Unlucky losses" and "Lucky profits" tend to balance each other out. What is left is the difference between the profitability of your skills and the cost of your ignorance.

    Investors will also learn the importance of correlating the size of their bets (investments) with the probabilities. Given the odds, most players will get Royal Flash only 3-4 times in their life time, and that's when it pays to go all-in:
    For traders, there are several additional valuable lessons:

    • Humility. Many traders suffer from Overconfidence.  Poker can offer great lessons in humility: whenever you start thinking that you are smarter than others, go to Las Vegas and sit down with the pros. A few hours later, while licking your wounds from the encounter with the harsh reality, realize that the stock market is even more brutal;
    • Value of psychology. Poker is second to none in its insights on how human emotions and psychology can affect the mathematical odds of the game;
    • Importance of knowing your edge. As Warren Buffett put it, “If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy”.

  2. Card games require players to provide solutions to combinatorially explosive problems.

    When playing card games, there is always too much to consider. There is not enough time in the life of the universe, nor space in your brain to evaluate most decisions sufficiently. The same is true for a fund manager faced with a question of whether or not to invest in a person, idea, or company. But you have to relax, make informed decisions, and enjoy the ride whether you win or lose. After all, it's just a game.

    As a fund manager, there is always too much to consider. Balance sheets, employee compensation, interest rates, market fluctuations, processor speed, hierarchies, known unknowns, unknown unknowns, contingencies–what is a fund manager to do? The only solution is to develop heuristics to resolve these problems as best as possible, and to self-flagellate just enough to learn from mistakes. Games help build these heuristics in a lower-stress environment.

    Particular card games exercise particular skills:

    • Poker helps negotiation and evaluation of adversaries
    • Blackjack stresses the ability to forecast based on what has been seen and keep a feel for how the tide is changing
    • Bridge develops teamwork
    • Gin builds on the same skills as Poker and Blackjack but replaces complexity of betting with complexity of card arrangement and trading

    These games are all great, but are primitive compared to what Dominion, Magic, and other newer games provide. The situations are more varied, colorful, and abstract, just like the financial instruments and investment ventures that fund managers are presented with today as opposed to the past. The only thing holding back these games from prominence in the investment world is tradition. Fund managers feel more comfortable betting on numbered spades than they do dragons and planeswalkers, which is sad because they have no idea how much they are limiting themselves in terms of enjoyment and creative/knowledgeable expansion.

    I should stress that Poker may still be the best preparation for a fund manager, simply because it is the game with the highest stakes where the best player can have a huge edge. Losing a boatload of money tends to strongly imprint strategic lessons, and will help teach a player important meta-lessons about actual money management and mood stability.

    For more details on why Poker in particular teaches important lessons, see:

    • Jeff Meyerson's answer to Game Theory: What are applications of game theory in poker?
    • Jeff Meyerson's answer to Poker: Should I learn poker to make money?
  3. A number of them are, but many are also athletes such as PTJ, Greg Lippman, Victor Niederhoffer etc. Generally speaking the more pure risk type of strategies  like intraday l/s, risk arb, macro arb tend to require great risk management as much as great calls, so these guys are naturals at card games. Generally card games require a combination of probability, guts, and luck to be successful — all underlying characteristics of successful wealth managers putting down millions on spec positions.

    Bill Gross is an outlier among fixed income managers. If I recall, I cant think of a single fixed income manager I met who was much of a gambler. Also Buffet playing Bridge makes perfect sense because the game is very systematic and redundant at the higher levels.

  4. Here's my thoughts on this subject. Investing is similar to card games because:

    • In both you are given a hand (investment idea) that can be quite random – it can be terrible sometimes, or very good at other times.
    • Both involve dealing with massive uncertainty. You need to be able to process and organize all the uncertainty and take decisions
    • Uncertainty has to be converted into probability of expected events, and your investment (and card) calls have to be based on events you feel as most likely and very likely to happen.
    • In both investing and cards, players have to be defensive (inactive) and aggressive depending on the situation. Not just from game to game, but even within a game, circumstances can change fast and acting decisively and boldly is required for success.
    • In both, to succeed needs people to go beyond the obvious, and build a sense, or a gut feel of the situation. Their subconscious has been trained to help them decide, over years of practice. The most successful players get available information and then just take the call. Getting a rational explanation from them for their decisions may be difficult, even if they wanted to tell you.

    Cheers and happy investing. And playing cards.

  5. The answer is they are not (at poker, at least). However, what is *probably* true is that a lot of them have the aptitude to be great poker players. None of them would actually take the time that would be necessary to become great, nor should they since the income ceiling in poker is many orders of magnitude lower than finance. There are obviously skills that translate well from one to the other, but the fact of the matter is it takes a lot of time and dedication to get really good at either– and, if you're already really great at one of them (say poker), by the time you were really great finance, you'd already be not so good at poker.

  6. Great answers here already. I just wanted to share a tradimo infographic on the matter that appeared on ZeroHedge (Guest Post: Poker And Trading) and created a lot of discussion. The trading school tradimo.com grew out of PokerStrategy.com – The World's Leading Online Poker Strategy School which may be an interesting side note on this topic.

    Infographic Poker vs Trading:

  7. Andrei Kolodovski and a few others answered it very well.

    The general reason one connects the two is because they both involve:
    1. Working on partial information
    2. Sizing your hand vs. other players/investors
    3. Understanding psychology of the other players as much as the probabilities/odds
    4. Knowing when to fold, when to upsize and when to go all in

  8. Where is the data that suggests there is correlation between being a fund manager and great card player?

    David Einhorn winning a poker tournament doesn't equate to the other 8,000 fund managers knowing what to do on the flop with aces in the hole.

  9. Because the best way to become a millionaire gambling is to start as a billionaire.

    Who has proof any of these guys are actually making money off gambling?

    Of course ed thorpe counting cards for profit and warren buffet playing bridge with bill gates are also wuite different stories.

  10. To be good in any of the games you mentioned you need to invest a hell of a lot of time in it. I doubt these people have lots of free time to invest, therefore I doubt they are really good players. They just attract media attention, and people, who has no idea how to play the games, think they are good. In reality people who make their living by playing these games celebrate whenever they see a rich and famous guy sitting at their table.

  11. Generally, to be a good card player, you need to be good with numbers, you need to be able to keep your cool and you need to know the laws of statistics.

    The same is true for investing.

    As for poker: it always helps to not have to worry too much about the money you might lose – which is probably the case for many wealthy fund managers.

  12. They Know
    When to bet high.
    When to play luck.
    Optimum risk level.

    Most importantly:
    When to Quit.

    They enjoy what they do.

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