Review of Your Worst Poker Enemy by Alan N. Schoonmaker

Investing and poker are highly analogous (chess and investing, not so much), so even though I don't play poker anymore, sometimes I'll "cross-train" by reading a poker book, like Your Worst Poker Enemy, which is about poker psychology. 

The author, Schoonmaker, thinks that there are some highly gifted intuition or "gut" based players, but that everyone else should stick to making decisions according to a rules based system specified in advance.

He really belabors this point about the difference between logic and intuition. But is there really a difference? Isn't intuition just a pattern matching logic that's encoded in the neural network in a way that's difficult to articulate?

And even if you are an "intuitive" player, you still need to be disciplined. Anyway, the book is directed at the great mass of poker players who are overconfident and undisciplined.

Being overconfident leads players to play at tables where they are outmatched. He mentions the old saying: it doesn't matter if you're the tenth best poker player in the world if the other nine are at your table. This is why our ideal investing situation is when there is no one with brains (preferably an index fund or something) taking the other side of our trade. We don't like Bill Ackman, of course, but can't we find a trade where he is not on the other side?

Being undisciplined leads to players playing too many hands. This is also like investing. I was realizing over the weekend that in the past decade I have had about four good ideas. (Some were themes that lead to trades in a number of companies, but those are just applications of the novel idea, the theme.) It's hard for investors to sit still for a year or more waiting for a really good idea.

So why aren't all poker players disciplined, if it is a beneficial trait? It's because of the randomness of poker: the reinforcement pattern makes it hard to extinguish bad habits unless you really want to. Investing is like this too, and the essay Untangling Skill and Luck [pdf] talks about this. The uneven reinforcement pattern is going to keep the vast majority of poker players and investors undisciplined.

Similarly, poker players are not going to stop being overconfident, because that seems to be an adaptation that many people have (and few don't):

"Like other decision-making biases, overconfidence seems detrimental because it increases the frequency and costs of fighting. However, evolutionary biologists have proposed that overconfidence may also confer adaptive advantages: increasing ambition, resolve, persistence, bluffing opponents, and winning net payoffs from risky opportunities despite occasional failures."

So there is money to be made by those who are properly calibrated. Maybe the well calibrated won't rise to the level of billionaires - "sociopath took insane risk, got lucky" - but successful enough so that they can live off of their capital.

Being disciplined and appropriately calibrated is like being a tight-aggressive poker player. Not seeing a lot of hands but not being afraid to risk a lot of chips when expected value favors you.

Couple other worthwhile thoughts from the book about psychology. It is very common for people to play badly (make bad decisions) when they are losing (down). Because of the randomness in poker and investing, they are a "bad foundation for self concept". People in these fields probably need a hobby or another business where the progress and payoffs are more linear. Think of weightlifting and physical fitness.  

3/5.

Book That Looks Interesting - Doyle Brunson's Super System: A Course in Power Poker.

From the "brooklyn investor" review:

Brunson says, "Timid players don't win in high-stakes Poker". This is true in the markets too. But that doesn't mean you have to be "loose" or that you should ignore risk.

I think there are a lot of smart and competent investors and traders that don't do well because they don't have this sort of killer instinct. They are way too timid. They love a stock and they have 2% of their AUM in that stock, for example. I read a decent book on investing not too long ago and was impressed, but when I looked at the author's portfolio (no names!), it looked more or less like an index.

Quora: "What is it like to earn a living through poker?"

In response to this Quora thread about professional poker, a correspondent writes,

"I was in the locker room at the gym I go to last week and I heard this guy complaining to a friend, literally, about a bad poker beat. He was complaining about how he had pocket Aces and couldn't get a guy to fold and the guy caught the card he needed on the river and beat him. He kept lamenting, 'He should've folded! He should've folded!' and was clearly outraged that this horrible opponent had the temerity to keep playing so badly against the expertness he represented, and that he managed to suck out and win a hand that belonged to him just because he started with the best hand.

It was tragic to listen to because I thought, 'here is a person who is still quite an amateur, but he has learned enough about the game to think he's a pro. And yet, not enough to realize he is not.' I thought about all the things that were wrong with what he was saying:

1.) Just because you START with the best hand, doesn't mean you end with it
2.) Just because you HAVE the best hand, doesn't mean you win everytime (the game is more nuanced than waiting for AA and then going all in and winning...)
3.) Rather than being UPSET at the mistakes of other players, you want to encourage them to play as idiotically and recklessly as possible; by controlling your own risk you ensure you don't get wiped out and are around to take advantage of theirs, that's the essence of good poker, and similarly, good investing

Overhearing this guy made it obvious to me how much pain we can cause ourselves by not getting the psychology right. I think where frustration comes from is expectation. And expectation is fully under our control. We can set our expectations however we want and we will always reap what we sow. I think if we're finding ourselves confused, frustrated, angry, etc., about what happened versus our expectations, we have two options: get mad at the world for the way it is, or get in touch with the way the world is. That is, learn to accept, or choose to fight.

And I think economics and physics and everything we know about truth in the world is that accepting it is the path of least resistance and that fighting reality is costly and exhausting.

The point is, and the lesson from poker here-- you can play your hand right, you can get the right hand, etc., and you can still lose the pot. It's part of the game and it should be expected. The last thing you need when you're playing poker, investing or just trying to be a human being, is to be your own worst enemy by sabotaging your own experience and emotions."

Computer Poker

I've had some notes in the can for a while about computer poker research. There's an NYT article today about it.

"Dahl recalls staring at his computer screen, watching his neural nets compete, when he saw one of them make a fairly sophisticated bluff known as floating. You do this by playing passively, initiating no bets and matching the ones that your opponent makes. If, after the turn card is played, your opponent does not bet, you do. His slowing down usually means that he had been overplaying his cards with the hope that you would fold or his hand would improve. Your bet here signals that you’ve just made a strong hand or that you have been inducing him to put as much money as possible in the pot because you have had a superior hand from the start. 'At first, I wasn’t even familiar with that strategy,' Dahl says. 'Later, I thought it was amazing that the neural net could come up with a known, successful strategy on its own.'"

Poker is won or lost before the game is even started.