A Gambler’s Odyssey: The Beginning

Many people dream of breaking free of the 9-5 rat race, e.g. by acquiring an income stream – or a “muse,” as Tim Ferriss calls it – that is independent of bosses, location, and schedules. For most it remains just a dream. But for some it comes from creating an Internet business, a profitable patent, or a good play on the financial markets. A few realize it through professional gambling.

Of course, to do this sustainably you need to maintain a positive rate of expected winnings, which is impossible with most casino games. For instance, even under optimal play, the house will always a retain a wafer-thin advantage in blackjack (unless you count cards, but casinos have caught on to that nowadays). The biggest exception is poker. Though luck is very significant for the first few hundreds of hands, the effects of skill begin to predominate after c.15,000 hands in Texas Holdem No-Limit.

My experience of poker, until recently, came from the odd home game and the one or two times I bought in at a casino table. I was pretty crap at it. I limped in with hands like K7 offsuit and went all-in chasing straight draws. But a few months ago, one of my net buddies pointed me to a thread in a forum he used to frequent, in which a Las Vegas hustler recounts how he started playing online poker and ended up making $100/hour by the end of the month. Then soon after I came across Tim Ferriss’ concept of the 4 hour workweek, and exploiting geoarbitrage – the art of earning money in high-income countries and spending it in cheap, low-income ones where one can live like a king on a US minimum wage. I added two and two, realizing that online poker has potential for a great synthesis of these principles; if you earn $200 in a day playing online poker, then you could spend the rest of the week lolling on the Thai beach in style and comfort. All you need are skills and a reliable Internet connection. I had all the Internet I wanted, but acquiring the poker skills was going to take a lot more work.

One of my friends, who dropped out of university a while ago to become a professional poker player – he earned $250,000 in the last fiscal year – recommended that I start with the classic in the genre: THE THEORY OF POKER by David Sklansky. I didn’t get much of it in my first read, but one thing did stick with me as encapsulating the meaning of expected value (EV) that underlies all poker calculations.

Lesson #1: The Fundamental Theorem of Poker:

Every time you play a hand differently from the way you would have played it if you could see all your opponents’ cards, they gain; and every time you play your hand the same way you would have played it if you could see all their cards, they lose.

I started trying to actively apply the lessons of the book to my play. I went from being a negative EV, or at best break-even, player in home games, to making substantial winnings. But it is hard to improve from playing in home games, because of their infrequency, the amateurishness of play, and above all the slow pace of the game – you can play 5x+ as many hands in one hour by playing on two tables online as you can in a live home game. Not only is the intensity of learning low, but another personal problem is that slow low-stakes games make me tilt, i.e. play sub-optimally because of boredom. It was time to go into the interwebs.

The mother of all bad beats.

I could not have picked a more inauspicious moment. I deposited a $40 investment on April 14th. The day after, on the poker world’s “Black Friday,” the FBI shut down the three biggest poker sites operating in the US: Full Tilt Poker, Poker Stars, and Absolute Poker.

Fortunately, I made the right call – at least for now – by placing the money into Bodog, one of the few sites that continues to service US players. A few of my friends weren’t as lucky and have up to several $10,000’s in limbo.

Lesson #2: As an online poker player in the US, your property rights aren’t secure. More generally, there are Black Swans in poker just as in life, and capitalism.

Nonetheless, at this point, I’m driven not by pecuniary motives, but by the desire to improve my game. I spend my first two weeks, first going up, then down, and breaking even. I typically played, and continue to play, half an hour to an hour per day. It’s almost as interesting as writing about peak oil and geopolitics, and certainly far more profitable! 😉

Lesson #3: The importance of bank roll management. $40 is only good for the lowest-stakes 2/5c games offered at Bodog. To make a reliable cushion for the 5/10c games, something closer to $100 is preferable. Anything higher and you’ll need well more than $100.

Grinding at the SNGs.

What are the three characteristics of the successful poker player? In my opinion, they are iron discipline, theoretical mastery, and lots of practice. They are three legs of a tripod, as any two by themselves aren’t enough to win. In greater detail:

1. Discipline. The discipline to fold second-best hands instead of calling to the end; the discipline to recognize tilt and move away from the tables if you can’t suppress it; the discipline to avoid calling raisers who you suspect are bluffing just to “see their cards”; and the most germane, at least for me, the discipline to avoid getting bored and playing too many bad hands. Good play can win with suboptimal hands, but there’s a limit to it – even the world poker champion with a KK on the preflop is an underdog to an amateur with an AA.
2. Theory. Some degree of ease, if not mastery, with poker theory is essential. The math itself is pretty easy, but there are many marginal situations in which the right decision, as per the Fundamental Theorem, is hard to identify as it will vary based on position, relative bankrolls, player temperaments, history, and a host of other factors. Having a good grounding in pot and hand odds, and expected value, is enough to be a positive EV player at the micro-stakes; but among experts, these margins are the boundaries between mediocrity, and fame and glory.
3. Practice. Play 100,000’s of hands, it’s as simple as that.

After two weeks, I established that I was best (in terms of expected winnings) playing two 6max tables at 5/10c. My winnings began to soar… and then they crashed.

I hope it will keep doubling in perpetuity.

So WTF happened on May 7th, 2011? I got a bad beat, on both tables, within 5 minutes of each other. My Two Pair A-high lost to a back-door flush on an all-in, then my K-high Three Of A Kind, all-in on the turn, lost to a Full House made on the river. Despite being a big favorite to make big bank when I enticed my opponents all in, I ended up blowing $20.

Needless to say, I was very happy about it.

Lesson #4: The better a player you are, the more “bad beats” you will experience, because your opponents can only win with Fortuna’s intervention.

What is luck? It’s the discrepancy between expected and actual winnings. Here I am poor in dollars, but rich in Sklansky dollars!

By then, I had began using a trial version of Poker Tracker to analyze my game. This allows us to graph actual amounts won and net expected amounts won. Note how sharply the two diverge, twice, at around the 260th hand, in the graph above. But you might object: “These “Sklansky bucks” aren’t going to buy me any value meals!?” Not now, no. But in the longterm, as per the laws of probability, the real winnings and expected winnings will inevitably converge.

Fail to internalize this, and you will eventually lose.

Of course, my journey is only begun. My hourly rate for the past two weeks is a meager $3.50 per hour, and it wouldn’t have made minimum wage even had I not experienced those bad beats that set me back $20 in five minutes. To earn a decent salary, in my estimation, one must learn how to maintain a positive EV while multi-tabling the 100/200c games.

Lesson #5: The insights drawn from playing poker can be productively applied applied across life. See the following articles:

• Poker Is Good For You (David Sklansky)
• Poker And Capitalism (Anatoly Karlin)

I will continue writing about my experiments with poker in the coming months, and I hope it will be of interest to S/O regular readers. It’s not exactly the type of “job” that you can read about anywhere.

A short note on ethics. Some puritans (many of whom do not understand the game) condemn poker – it doesn’t produce anything useful; it fosters addiction and destitution; it corrupts morals; etc. All these criticisms have simple rejoinders. First, as an “entertainment” (or “financial transactions”?) industry, it might not produce much in the way of the public good; and yes, the suckers and “fish” who gamble without paying attention to bankroll management or expectations can and do go broke. But no-one is forcing them to play at gunpoint, so how exactly does it differ from the finance industry, or capitalism in general? At the very least, corrupt politicians don’t force taxpayers into providing free or subsidized rebuys for losing poker players. Those are reserved for Wall Street.

Second, the government has a vested interest in demonizing the gambling industry as it constitutes an alternate source of wealth, and hence independence, and a way for some people to escape the strictures of time and place imposed by wage slavery. Hence, it is logical for the forces of pro-regulation collectivist statism to unite with corporate neo-feudalism and the moralistic rhetoric of the Right to further advance its tyrannous agenda.