Risk

Defined as "The quantifiable likelihood of loss or less-than-expected returns."

I think most of us are risk adverse. This certainly is true for the average joe, you know the type, the person who bets $2.00 on sporting events or considers buying a square in a Superbowl pool "gambling". These are also the people who get together to play cards for "fun." Nevermind that these people are often in debt to the eyeballs, they simply have an aversion to potential loss. Typically they associate gambling with the equivalent of "flipping a coin." Since "anyone can win" they believe that they have no control over the outcome. They do not recognize that in certain situations the outcome may be more often heads than tails or vice versa. Some consider gambling to be fun and are prepared to lose. I often hear people say "I take $300 to the Casino, I know I'm goig to lose it all, that's my entertainment."

Then there are gamblers. True gamblers understand the risk but try and find instances where they are getting the better of it. Then they try and take full advantage of this. They quantify the advantage and then decide what portion of their resources the potential reward merits putting at stake. They are unemotional and detached from the outcome and it's participants (at least in theory). This is why we take AA losing to KK in stride and why we're (gamblers as a collective whole) sharks, not feeling any emotion or regrets when we win someone's mortgage payment. This is necessary because the shark one day can be the fish the next.

But even gamblers have different risk tolerences. Ads for Harrah's (targeted at problem gambler's - not the subject of this post) have supposed casino customer's saying "I don't need to take big risk to have big fun" among other things. While I'm sure Harrah's is very concerned about problem gambling (wink) this actually is in their best interests. It's much better for them to have a customer religiously lose $250 every Friday than for them to blow their entire life savings, lose their job, become destitute and never play again. OK got sidetracked.

My point is that true gamblers risk because there is reward. Usually the size of the risk is proportionate to the reward. Yes a $1.00 lottery ticket can return 277M but that is not the definition of "gambling" as I've defined it (finding an edge and pushing it) Many people are happy playing 2/4 Limit Hold'em forever. Some do this to grind out a living and I have no problem with this. Usually they still try and do things to increase the reward while minimizing the risk (multi-tabling for example). This is smart and the end result is to increase the reward.

One way to increase the reward is to increase the risk. Jumping to 10/20 or 30/60 certainly offers the potential for greater reward but also greater loss. I think that true "gamblers" whether they make this leap or not would still, if you asked them, indicate that they want to. They may not because they don't have the roll, have other obligations to which their finances are tied, need to grind out the rent, etc. but the basic instinct is "if I'm going to push an advantage let's reap the biggest reward possible." It also feeds the desire to become better, the desire for action (Howard Lederer says that all high stakes pros are a little sick) but the fundamental principle, I believe, is "lets make as much as possible when an possibly advatageous situation presents itself."

Of course, one has to then deal with the corresponding losses. You will lose and you will lose big, but at the end of the day/month/year the 4000/8000 dollar player is asking themselves the same question as the 2/4 player, "where my wins greater than my losses?"

The reason for this post is that I believe I'm actually too risk adverse. I often will deposit to a site, make a nice run and then start thinking I should take the money out. I begin thinking I could pay off this debt, or buy some stock, or buy a nice watch. While a cetain amount of this prudence is certainly a good thing I'm certainly never going to make a large or even moderately large score thinking this way. Think about it, at this point I'm essentially free rolling with someone else's money. Why not take a chance and see If I can make a run - a run which will have some fundamental impact in my life beyond a nice timepiece or paying my student loans off 6 months faster.

The motivation for this post was an article in February's Card Player magazine (the one with the Grinder on the front). The article was about Dewey Tomko. Tomko is a high stakes card player, golfer and business man. A little fact I didn't know is that he has played in more consecutive World Series of Poker Events Main Events than anyone else on earth. At last year's WSOP he made the final table of the 50k Horse event and cashed over 400k in total from all events.

Tomko has always been willing to put it all on the line. There is a great story about how when he was in his 20's (he's now 60+) he had built his roll to about 98k. He agreed to fly out to Nashville to meet Doyle Brunson for a golf match. Prior to the flight he had been up for 48 straight hours playing poker so he planned to check into his hotel for some sleep prior to the match. He never made it to the Hotel, played Doyle, and lost and had to fly home to Florida broke.

There is also a great story about him playing in a poker game with Benny Binion's body guard with 10k (all the money he had to his name). Tomko bluffs his last 10k all the way to the River causing Binion's bodyguard to muck JJ, and the winning hand. Tomko quickly mucked his as Binion's body guard (who was packing a gun) was telling Tomko throughout the hand that if he was bluffing that "he would kill him."

Tomko also talks about his business ventures. He says that he can name at least 50 things he got involved with and wound up with zero - meaning he lost his complete investment. He, Brunson and Reese lost 7M on a TV station, they financed an expedition to find the Titanic and lost money, they invested in gold exploration off Venezuala and lost money.

There have also been successes. Tomko now owns a casino, a golf course and a restaurant among many other ventures. His biggest money maker is, of all things, orange groves. He invested in these when he was young, another whimsical investment that, at the time, provided a good tax write off. Now they are worth 50-100k an acre. He owns them outright and makes 2-3M a year just from selling the fruit. He calls it "dumb luck" but I don't think so.

What if Tomko had taken that 98k and said "ok, that's it, I'm going to invest this, it'll provide me with a nest egg after 30 years. Where would he be today? Hard to say, but probably grinding it out at some job he didn't like, waiting to retire so he could dip into that nest egg. I'm certain he wouldn't have the stories to tell, the experiences to share, the interesting life to look back on or the 3M in citrus revenue.

Risk.