Monday, 30 November 2009

If you play your cards right ...

Top poker players are being studied to help traders’ strategic thinking

2 comments:

Guanyu said...

If you play your cards right ...

Top poker players are being studied to help traders’ strategic thinking

Mason Levinson
29 November 2009

Yes, successful investment is all about playing your cards right.

Brandon Adams, who teaches behavioural finance at Harvard University’s Department of Economics, says some of the best candidates for Wall Street trading jobs are the professional card players.

“They’ve essentially been the survivors in the system, a very difficult system where 95 per cent of people lose money,” Adams, who plays at FullTiltPoker.com, said.

“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 scrutinising professional poker to find talent and analytical tools, say financial recruiters such as Options Group. Susquehanna International Group, an 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 former poker pro who is now a risk manager at AQR Capital Management, which oversees US$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.”

Skills that define successful traders - rational approach towards 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.

“Before, we were asking about GPA or the Maths/Physics Olympiad,” Satanovsky, a former Russian national bridge champion, said. “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.

Adams said disciplined players can be spotted on poker sites 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 firm’s trader-development programme. It 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 websites or try to beat them, will get hedge funds interested, said Todd Fahey, a recruiter.

Guanyu said...

“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.

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

Although poker players make good traders, they are not necessarily good with their own investments, said Adams, adding he is “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 on to other people’s ideas.”

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 was first among 6,494 entrants and took home the US$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 US$10,000 entry fee.

“As a kid, I used to watch the stock markets day in and day out,” the 22-year-old Cada said. “My parents always thought I was going to get into banking or become a stockbroker because I was really good with maths 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 of years of trying.

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