Bankroll building

When people used to ask me what I did for a living back when I played poker full time then I used to say to them that I was in the risk business and that I used to manage risk and investments. You could in fact tell people a wide range of things from being a risk manager to being a portfolio and fund manager. I think this certainly sounds better than being a poker player even though essentially you are doing the same thing. It is amazing when you think about it because one has far more respect and kudos among non-poker players while the other doesn’t. I have met and spoken to many people who perceive that poker is out and out gambling.

Now don’t get me wrong here because when the online games became far tougher then poker became closer to gambling than it has ever previously been. There is a strong and powerful reason for this and it is because your earn rate is closely linked to standard deviation and variance. So when your edge shrinks then the swings increase. If we looked at a coin toss to explain what I mean then it would be instructive. Let us say that you could call both heads and tails and make a wager on the outcome.

Clearly you cannot lose and if you were making $10 bets per toss then you would win 100% of the time and there would be no losing runs. But poker isn’t quite like that as very few forms of gambling offer this degree of certainty. But what if we introduced the threat of loss into the situation where you drew balls out of a bag and there were nine white balls and one black ball. You were paid even money on the bet and you have to pick a white ball to win the money. Clearly then this is another massively +EV situation where you would enjoy a strike rate of 90% winners. If you could guarantee enough bets per day then you would almost never have a losing day.

Now let us alter that situation massively where you were once again tossing coins only this time you had to choose between heads and tails. Now heads and tails would equal each other out over time but when you call heads you win $1.10 but lose $1 every time tails comes. This means that for every two spins then you would win $0.10 or $0.05 per toss. This is only 5% of the amount that you wager and so your return on investment is 5%. This is very significant but nowhere near enough to guarantee a winning day.

If you spun the coin 100 times during the day then the expectation would be for 50 heads and 50 tails which would leave you ahead by $5. However it would only need a very short swing in favour of the tails to totally wipe that EV out and leave you with a losing day. This is why you need to be very careful in how you handle your bankroll because you are only ever on the right side of gambling.