Friday, November 20, 2009

Best Poker Players Make The Best Traders?

Nov. 20 (Bloomberg) -- Brandon Adams, who teaches behavioral finance at Harvard
University’s Department of Economics, says some of the best candidates for Wall
Street trading jobs are the professional card players at FullTiltPoker.com and
similar Web sites.

“They’ve essentially been the survivors in the system, a very difficult system
where 95 percent of people lose money,” the 30-year-old Adams, who plays at the
site, said in a telephone interview. “Anyone smart enough and disciplined enough
to survive that system is probably going to do very well in the trading world.”

An increasing number of hedge funds and brokerages are scrutinizing
professional poker to find talent and analytical tools, according to financial
recruiters including Options Group, a New York-based executive-search company.
Susquehanna International Group LLP, the Bala Cynwyd, Pennsylvania-based options
and equity trading company, uses poker to teach strategic thinking.

“Someone who has made a successful living as a poker player for a few years
would more likely be a good trader than someone who hasn’t,” said Aaron Brown, a
53-year-old former poker pro who is now a risk manager at AQR Capital Management
LLC in Greenwich, Connecticut, which oversees $23 billion. “They know to push
when they have the edge and they know how not to bust, and that’s a tough
combination to find.”

Skill Sets

Skills that define successful traders -- rational approach toward risk, speedy
decision-making under pressure, discipline and a well-trained memory -- are the
same ones that separate elite poker players from ones known as “dead money,”
financial recruiters say.

After the World Series of Poker started in Las Vegas four months ago, Options
Group recruiter Simon Satanovsky said he received a hedge-fund request for
online poker players with no financial experience. He wouldn’t identify the
client.

“Before, we were asking about GPA or the Math/Physics Olympiad,” Satanovsky, a
former Russian national bridge champion, said in a telephone interview. “Now,
we’re asking questions about poker successes.”

Satanovsky said Wall Street firms and recruiters have been paying increasing
attention to poker players as job candidates since 2003, when amateur Chris
Moneymaker beat hundreds of professionals to win the World Series of Poker’s
No-Limit Texas Hold ‘Em main event.

The Right Game

Adams, who has taught at Harvard in Cambridge, Massachusetts, each spring since
2003, said disciplined poker players can be spotted on sites such as Full Tilt
and PokerStars.com waiting for particular games, not tempted by those outside
their area of expertise or financial comfort level.

Their self-control and confidence would be useful in trading where large
profits are possible, the probability of going broke high and the competition
formidable, he said. Adams cited as an example a trader who notices a slight
imperfection in the way options are being priced, then works to come up with the
proper bet per trade.

“In poker, people are used to not sitting back and waiting for the fat pitch,”
Adams said. “They’re used to skirting the edge of ruin and they learn the tools
of how to do that.”

Susquehanna has been using poker to teach its new traders since it was founded
in 1987, said Pat McCauley, who heads the privately held firm’s
trader-development program.

College Friends

The company’s founders played the game as college friends at the State
University of New York-Binghamton. Susquehanna has held in-house poker
tournaments to recruit traders and monitor decision-making skills.

The trainees learn to use information they see in the marketplace to infer what
motivates others, helping them make better prices. It’s the same way poker pro
Phil Ivey, considered among the game’s greats, makes bets based on what he sees
among his opponents, McCauley said.

“What professional poker players are really good at is taking this information
that’s relatively subjective, quantifying it and making it objective, and that’s
what trading is about,” McCauley said.

The ability to write complex poker algorithms, which either run poker Web sites
or try to beat them, will get hedge funds interested, said Todd Fahey, a
recruiter who specializes in quantitative finance at New York-based Exemplar
Partners.

“There have been a few guys that I’ve placed in the industry that come from the
poker software side of the house,” Fahey said in a telephone interview. “Two
Sigma, D.E. Shaw and any of your larger computationally-based hedge funds are
going to want to see people like this.”

Two Sigma Investments LLC and D.E. Shaw Group, both based in New York, declined
to comment.

Begleiter’s Try

The worlds of poker and finance often intersect. Steven Begleiter, who headed
corporate strategy at Bear Stearns Cos. before its 2008 collapse, earned $1.6
million earlier this month with a sixth-place finish in the main event.
Greenlight Capital LLC founder David Einhorn was 18th in 2006. The annual “Wall
Street Poker Night,” benefiting Math for America, was started by billionaire
James Simons, the founder of hedge-fund firm Renaissance Technologies Corp. This
April, the $5,000 buy-in tournament drew 100 entrants -- 90 percent from hedge
funds or other Wall Street jobs -- raising $1.3 million.

Even though poker players make good traders, they aren’t necessarily good with
their own investments, said Adams, adding that he is almost “famously
unsuccessful” as an investor.

“Poker players are lazy and they’re gossipers,” he said. “If you look at the
way they trade, they tend to latch onto other people’s ideas.”

Texas Hold ‘Em

One person who has chosen poker over finance is Joe Cada, who this month
outlasted Begleiter and Ivey at the main event final table. Cada, who plays the
game professionally, was first among 6,494 entrants and took home the $8.55
million top prize, giving half to financial backers Cliff Josephy and Eric
Haber, poker pros with Wall Street backgrounds. The Texas Hold ‘Em contest had a
$10,000 entry fee.

“As a little kid, I used to watch the stock markets day in and day out,” Cada,
22, said in an interview. “My parents always thought I was going to get into
banking or become a stockbroker because I was really good with math and logic,
and I was obsessed with money.”

Cada said he plans to remain a poker pro. AQR’s Brown, the author of “The Poker
Face of Wall Street” and a life-long player, long ago gave up the game
professionally after a couple years of trying.

“I eventually decided finance was easier,” he said.

To contact the reporter on this story: Mason Levinson in New York at
mlevinson@bloomberg.net .

4 comments:

ANON said...

I trade and play poker (and keep some notes on both at my blog).

Poker can definitely help develop some aspects of self-control/discipline, probabilities, and psychological understanding, all of which are useful in trading.

The General said...

Good point ANAN

Stewie said...

totally agree!

John (aka The Masked Financier) said...

TraderStewie,

Thanks for drawing attention to this Bloomberg article.

I promote the Texas Holdem Investing concept which teaches people to invest through the tool and medium of poker.

Therefore, I'm a big fan of these types of articles and you can see my own work at the Texas Holdem Investing site - I would be interested in your feedback.

Keep up the good work,

John (aka The Masked Financier)

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