Poker is both loved and hated, welcomed and vilified. Yet, some of the world’s smartest and most successful men and women engage in this card game as a favorite pastime. Maria Konnikova – worth $296,267 in poker winnings – an academic PhD researcher, turned poker pro, has been excelling at the game for a while now. Philanthropist and hedge fund manager David Einhorn has always had a soft spot for a Texas Hold’em and he has been a somewhat familiar face around tables at the World Series of Poker (WSOP).
With all of these business people engaging with poker, this begs the question whether there is a link between understanding poker and business acumen. Science is there to suggest that there is and by playing poker at a better level, you are in fact somewhat better at business as well – or are you? At least, this is what a new paper entitled “Hedge Fund Hold’em” by Yan Lu from the University of Central Florida and Sandra Mortal from the University of Alabama suggests.
Raising Cash for Your Fund: Win a Tournament Title
The Hedge Fund Hold’em study is quite interesting and it suggests two things. First, poker-loving fund managers play at a lot of tournaments and their results are usually quite respectable. Does this success translate back into the fund, though?
The authors of the research believe so. For starters, the average return in funds managed by “poker players” is 0.67 percent, compared to an average of 0.58 percent for non-playing managers. According to the paper, this is already statistically relevant data, despite the what may appear as a minuscule difference.
Plus, hedge funds that are operated by managers who have won at least one tournament have an average lifespan of 3.72 years as opposed to non-playing managers whose funds last 3.02 years on average.
Of course, there could be a sort of “bubble effect”, as managers who win or make headlines at poker tournaments usually start receiving more capital to manage. The research itself notes that:
These increases are concentrated in cases where there is media coverage of the manager’s poker playing, when the tournament win is bigger, and for more prominent tournaments, e.g. the World Series of Poker
Yet, we ought to ask: what similarities do poker and business have after all? We shouldn’t forget that with poker, the stakes are usually much lower and managers are in fact far more relaxed playing a game than running their business. Here are several curious overlaps between the two activities.
Keep Score and Don’t Focus on the Short-term
Poker players hardly ever focus on the short-term. The best of the best have the long-game in mind and that’s what most successful business owners and entrepreneurs do. Warren Buffet would buy stocks that would almost lose their entire value only to surge back as a smart investment – possibly years after the original investment. That requires nerves of steel and admittedly – a big purse to afford.
When Jeff Bezos launched Amazon he kept stressing the importance of playing the long game. Similarly, poker players are not swayed by a momentary loss and use the information they collect to further fine-tune their strategy.
Learning the Value of What Makes Business Sense
Poker players would seldom commit to weak hands, even when it comes to bluffing. Similarly, fund managers for example wouldn’t take a risk on an investment that appears to be rooted in non-practical considerations.
Similar to poker, some projects flop and when it makes no business sense to keep a project alive, skilled business people move on, writing off the entire endeavor as sunk costs. In other words, some hands and endeavors cannot be saved by throwing more money at it, and that’s a skill that guarantees success in the long-term.
Ego Cannot be Part of a Business Plan
Egos turn good relationships sour and eventually spell financial ruin. A manager who is confident in his or her abilities, but isn’t predicating all their argument on themselves, is a successful leader – whether that’s in a game of poker or handling millions of invested money. Once you become aware to the practical implications of a project, you needn’t involve your ego in it – either act on hard facts or don’t act at all.
Know Your Enemy, Know Your Trade
Ultimately, both poker and business expect you to show the same approach towards decision-making. You must be coming out of a position of someone knowledgeable rather than pursue a venture that is based on a hunch. Yet, just like in poker, business does rely on a sort of “feeling” about a situation which can then be reinforced by facts.
Whatever the popular wisdom may be – i.e. that it’s nothing personal, it’s just business – the idea that cognition and emotion can be separated by the brain is increasingly proving erroneous. Yet, facts must determine your next decision. In a game of poker, you can assess your opponents. In business, you need to asses an entire industry, drawing from your specialist knowledge and understanding of a certain trade.
Poker Remains the Easier of the Two
While you can see how poker and the world of business overlap, there should also be a cool-head consideration of facts. Unlike poker, business owners, entrepreneurs and fund managers need to think in the long term without being granted an immediate confirmation of whether their strategy is successful.
In a game of poker you find out what the implications of your decisions are in the matter of minutes whereas a business venture may succeed or go belly up in years. With this being said, poker is definitely still a game, so treat it as such.
Victim of Their Fame
Fund managers and entrepreneurs win poker tournaments for pleasure, and they don’t necessarily want the exposure that it gets them. Under enough stress already, having disproportionate capital handed to them could throw smart business people off their game in the shot-term.
What we know for a fact is that these men and women who navigate the world of poker do so drawing on all the lessons that running a demanding business venture has taught them.