Poker & Investing: Lessons from a Professional Poker Player

A couple weeks ago I interviewed one of Macro Ops’ members, Macro Nakamoto (not his actual name). Macro is a professional poker player by trade. After finding success with the card game, Macro turned to another interest: trading and investing. My interview focused on Macro’s background as a poker player. Yet despite focusing on poker, the lessons and stories discussed can easily transfer to the world of investing and speculation. That’s the beauty. Whether you’re a poker player, currency trader, or value investor, we’re all making bets. That’s it.We try to manufacture our occupation as some highly intellectual practice, but at first principles, we’re bettors. Specific topics include risk management, betting size, psychology of blowing up accounts, hypnotherapy, fitness and diet. My questions and comments are in bold. Macro’s comments italicized. Enjoy!_________________________________________________________________________Can you give me a background on how you got into poker, where you're from, and how you got into markets. I started playing poker fifteen years ago. Started just as friends at home. We actually started playing for buttons -- that's how we got into it. And then it accelerated from 5 euros to 10 euros and increased a lot more over time. At one point we were playing pretty big and I was noticing, "okay, I'm somehow better at this than others." I was winning more often. And that's how I got into it. I started doing a little bit more research and yeah, studied. That's how I got to online poker. What was it that made you better than other people you were playing with? What was your edge? At that time I think my main edge was patience and basic math. And most beginners don't actually think about these things. There's no strategy involved, no math. It's basically gambling where you put your money in and you either win or lose. That's not the case. Poker is such a complex game and there's so much room to maneuver. Pretty much patience and basic math.Got it, when you were in school, were you a good student? Did you have a knack for math? No, actually I was a terrible student. I was always pretty bad at math, actually. But poker math and academic math is completely different. Algebra and all these things have nothing to do with poker. Poker is really basic math. Probabilities and odds pretty much. So it was pretty easy for me. You're winning a bunch of money. Take us through one of your biggest losses. I had a pretty good moment. After I realized that I was a little bit better than others, I finished my studies. I financed my studies with my poker winnings (playing online poker). When I finished my studies, I decided to turn professional for at least six months. Just to try it out and go from there. I saved some money -- my bankroll was $15K. I pretty much ran it up to $50K and that's when I looked into playing bigger. I wanted to make more money. And online poker is really easy to play higher games and higher stakes. Back then I was not that advanced, especially my mental game. What happened was I played higher and I started losing. Going on a downswing. Just having a few bad sessions. I actually went even higher and played $50/$100. You sit down with $10K. I had five buy-ins pretty much. I lost pretty much 2/3rds of my bankroll in a couple days. For me, I've never lost that much money that fast. So it was really difficult for me to accept that. I had to step back for a couple of weeks and regroup. I asked myself, "Do I really want to do this?"I just needed a better strategy. But it was a good lesson. It taught me "OK, you're not superhuman. You can lose." It really helped me in the long-run. There's already so many parallels between poker and investing that I can peel at. I want to dive deeper into the poker psychology when you lose your edge. What brought you back to that framework of being a consistently good poker player vs. falling off the wagon? That's a good question. I think number one thing had nothing to do with poker at all. It was my mother, who always taught me to treat money well. When I was telling her the story [about losing all my money] she said, "OK, you took risk. That's always fine. Just be smart about it. Don't risk all" She has good understanding. She's self employed for three decades. She just told me "be careful with risking money"That's how I learned about bankroll management and the fundamentals about risk. And in my opinion it's one of the most important things in industries like finance or gambling. You need to have a good understanding of risk and totally eliminate the potential for risk of ruin [losing everything]. After that, that became my number one goal to never risk that I would go broke. And to this day I can say that I never went broke. And not many poker players can say that. Many of my poker friends went broke -- so that's really something that helped me. You've gone pro, you've done well, you blew up, you came back. When does financial markets come into the picture? When does trading come in? I started getting involved in finance pretty early -- but I was not serious about it. I was putting money into some ETFs. Doing beta, not really interested in it. Pretty much only playing poker at that time. When I started realizing poker wasn't forever -- that it will go away -- you just have to look at the demographics of poker. My main income source as a professional poker player is mostly older gentlemen. Baby boomers that have a lot of money. They have time to play. And at one point, in 10-15 years, this generation will not play poker that much anymore. So I just realized I have to start looking at something else. That's when I got to finance. There are a lot of similar things from poker to finance. Maybe three or four years ago I started getting more interested in trading and investing. Last year I made the decision to transform into maybe a trader/investor -- for the next 1-3 years of my life. You've had a short-term calling / career path. Where did you first go when you made that transition? How did you accumulate the knowledge? As a poker player, I learned that studying before actually playing is really important. So I started to find some sources (books, smart people to follow, Macro Ops) and find knowledgeable people I can actually learn from. The next 1-2 years is a learning phase for me. Where when it comes to trading, I won't throw a lot of money at it right away. You have to slowly grow into it before you can say "OK now I can take bigger risks". You need to develop some kind of intuition for the markets. And intuition comes from experience. And I don't have enough experience yet. So I tell myself, "OK in the next couple years I will develop my knowledge and my intuition." Were there any strategies that stuck out to you in investing/trading? Anything resonate with you? When I was looking into trading and different styles -- short-term trading, day-trading, etc. -- I realized it's important to find an edge and reduce variance in the end. Variance is what makes you emotional. I can't handle variance in emotions. But it's something you want to reduce. That's what I've learned over the years. You have a better win rate if you can reduce your emotions. I want to go in the direction of value investing. Where it goes more of a long-term outlook. Looking for an edge in the long-run and reducing emotions. I like that, obviously as a value investor I'm biased in your answer -- but no, I definitely enjoyed that. When did you start to feel comfortable enough to go from paper account to real money? Did you have initial success or did you blow up? Oh I definitely blew up. I'm also involved in crypto-trading. I had a small trading account and my crypto account (two-three years ago). That's actually how I got into trading. And I realized that trading wasn't easy. In poker, we call it game selection. If you don't have an edge and aren't sure what's going on -- just step back and don't engage. In poker if it's a good game -- players who are worse than us will sit down and play. If the game is with players that are better, there's no reason to play that game. That's when I started just trading a paper account -- when it came to finance. I was actually making money on it. That's when I decided, "OK now I can throw a little money into the real account." My trades are still really small. I only take 50bps risk for my trades. What was the one skill that you learned from poker that made you think "Oh, this is going to help me. This will give me an edge."?I think game selection for sure. To understand when you have an edge or not. Number 2, definitely mental strength. Being able to go through drawdowns and bad days, weeks, months, etc. They happen. That's part of the game. You're in for the long run. That's definitely something I think helped me the most. What I see many poker players struggle with is that they give up their decision making process when they have a bad day in poker. Or even a good day in poker. They change their decisions. That's not something you should do. You should always stick to your process. In the long run, your win rate will go up if you stick to your process. What's your favorite market to trade? That's something I'm still figuring out. Right now I trade (or look into) a lot of futures. That's something I enjoy. And also something I think I have some talent for. As well, I'm slowly but surely looking into small-caps. Currently I'm working on two portfolios. Number 1 is a trading portfolio. But the second one is kind-of like a long-term deep value portfolio. Where I'll look into sectors. Let's take energy for example. Beaten down for ten yeras now. So many companies are dirt cheap. Then looking into companies out of cheap sectors and investing into small caps for the long run in these sectors. That's the reason I really enjoy your letter (Value Ventures). They're funny and educational at the same time. They're really good for learning. Let's change course. Where should people start if they want to learn more about poker? What you should do is have 80/20 study to play ratio. Where most of the time you study content. There's a lot to learn. You need to learn about game selection, hand selection I mean. Bet sizings, all these things. And apply them while playing. In my opinion that's the best way to learn for beginners. Study deep -- have a lot of study time. Then try to apply these new concepts -- what you're actually learning -- on the smallest table possible. These games won't be challenging. At these smaller tables, you will have an edge. Trust me. The other players at these tables don't study. You'll most likely win. That's how you grow into it. The better you get, then you reduce the studying time to, let's say, 50/50 and play more. I'm at a point where studying is not that helpful anymore. I have my strategies. I still learn new concepts, but at that point, I'm not trying to go any higher. I'm just trying to maintain poker skill. Now I'm down to 90% playing 10% studying. I love the concept of this learning and application, where it's really this spectrum of percentages. You start off and its 80/20, and then as you get better, that spectrum shifts more towards more practice. Then every incremental minute you spend practicing is more valuable. I liken it to Geoff Gannon and Andrew Kuhn. Geoff Gannon said this, and I'm paraphrasing it, "There's only so much you can learn about investing. If you read a couple base-level, foundational level book ... Every incremental book you read won't have as much of an impact as if you go to an annual report, a 10-K or an investor presentation.In my opinion, that's how you learn best. Because nobody likes losing money. It's the best motivator to become better in things. when I see I'm not profitable in something -- that's how I get motivated. Losing money is not the right place to be. I have a few good sources I can recommend for you. Staying with this poker theme -- what are some similarities between hands you get in poker, and how does that thinking correlate with getting dealt a bad hand in a stock (invest in a stock and company releases poor earnings). How do you react? That's actually a very good analogy. Let's take for example the US stock market right now. Yes its going up right now. Maybe it's going to go up 1, 2, or 3 more years. But that's for example, a high risk, low probability example. We are really at the end of a cycle. And do you really want to throw a lot of money at this scenario? Or do you decide, "OK, I'd rather invest into a low risk, high probability set up" for something like energy -- which has been beaten down for years. And it's cheap. It can't really go down much more. But the downside potential for large-cap stocks is huge. So it's something where it's like, "are you choosing the aces? Do you want to play Ace-King? Or are you deciding to play 3-4 suited because it looks good?" Yes the return can be there. But in the long-term, most of the time you won't have that return. Let's get a bit of background outside markets, outside poker. Is there anything you do that you think gives you an edge? Oh yeah, for sure. I'm really big on optimization. In poker we have a concept called GTO (Game Theory Optimal). You want to look at everything as a game. You want to make the best possible decision within that game. For example, I'm really big into mental work. I meditate a lot. I do hypnotherapy. There's a great app called BrainMind. It's a great app -- shoutout to them. These little things add up. Also, my diet is really important to me. I fast usually between 16-20 hours a day. I think this gives me a little edge because I'm really not getting tired anymore. My insulin sensitivity is a lot better now.What I noticed in poker sessions, where other players struggle and breakdown -- pretty much have a meltdown -- these little things add up. Especially meditation and hypnotherapy. I was dealing for a long time with anxiety while playing. For years I had that problem. Meditation was the only thing that helped me. To let go and become better. Hypnotherapy as well. I would recommend looking into these if you don't do it already. I've been doing daily meditation -- at least ten minutes every morning before I open my laptop. It's not important how long you do it. It's a practice. If you do it five minutes, that's fine. As long as you do it daily, you will get something out of it. You'll grow into it. I'm seeing a lot of benefits in terms of not feeling rushed to open my laptop and write. During the mornings I write. Usually what I'll do is I'll wake up, take a cold shower and then sit down and listen to a 10-minute meditation practice. Then when I'm done, I don't feel amped up, but prepared. Then when I open my laptop, the writing comes easier that day. When I skip my meditation, I have the day come at me instead of me proactively taking on the day. I haven't tried hypnotherapy. I haven't heard of many people doing that in the trading/investing world. Why did you start? What are the benefits?I got in touch with it in Vegas two or three years ago. I go once a year to Vegas for the WSOP (World Series of Poker). I play a lot of tournaments and cash games. That's when I struggled the most. Someone recommended hypnotherapy and it sounded a little bit weird at first. But he said, "Listen, just try it out. If you like meditation you'll like this."I was getting the app and was blown away. What it does (hypnotherapy) -- you get your body and mind into a calm state, where you can connect to your subconscious. The majority of our problems (issues) are in our subconscious. We don't know it -- but the stuff is in there. I can tell you. The app has five minutes to calm you down, then it's like he's trying to connect to your subconscious to improve your intentions. They also have ones for real day traders where it's like "trade with confidence". He tries to give you that confidence in yourself on a subconscious level. For me, it makes a huge difference. I mostly use it in poker where I know it's going to be a long session. I want to be focused and mentally prepared. He's basically preparing you for those situations. Be focused, be prepared for tough situations. You remember these things while playing when you're actually in that tough situation. When I don't do it -- my mind goes in all directions and I don't remember the things that are Important. It brings to you a point of focus where you remember the important things -- the things that make you succeed in the long run. It was a huge game changer. I mostly play pot-limit Omaha. The variance is much higher because of the four cards. You get your money in so much more often. I have days like yesterday for example. As normal, I did my hypnotherapy in the car before playing and went into the session. Literally the first hand I get stacked, first blind down. What does stacked mean? Stacked means I'm sitting down, buying chips -- that's your stack. The first hand being stacked means someone took all your chips. So three hours later I was four and a half blinds down. These sessions, they happen. I don't have many of them. But they happen. Now I have a choice to make. You have to decide -- are you going to break down and go crazy? Or do you stick to your process and play your game? Maybe I don't get breakeven today -- but maybe I win one or two more buy-ins. But yesterday I finished breakeven -- which in that situation was an absolute win. I see so many players struggle when they get emotional because of the results. It's really similar in investing. When people invest into a single company, and they did the fundamental research, it's a good company to invest, and the first month the company loses 20%. Well, now you can decide -- are you actually going to break down and get emotional? Throw everything overboard and sell? Or are you going to stick with your decision and your process? Because you did your research. Now just stick to your decision. It will go back up if your decision was correct. People struggle letting their results influence their decision making process. Before I wrap it up here -- I do want to get to one thing before asking last questions ... One of the things I didn't realize about poker playing is how long you guys play. Sometimes deep into the night. Poker players are almost these nocturnal creatures. How do you stay sharp and work on staying sharp during those late hours? It comes down to preparation. Eating healthy, work-outs -- you need stamina, mental preparation as well. Taking breaks is really important in my opinion. Your mind is only able to focus for 90-120 minutes at a time. You need to step back and find some peace for a little bit and then you can go back. These are the things that I've learned over the years. In the early part of my poker career, I was playing 24 hour sessions. I'm sorry to interrupt -- but take me through non-stop, 24 hour sessions. In the early days where I was so motivated. I had such a passion for the game. I still have that, but life balance is more important now to me. Back then it was ALL about poker. That's the wrong thing. You need some kind of balance. Otherwise you go crazy if it's not going well. I remember that. The first few times I came to Vegas, I played the whole night until the morning. I loved it back then. But, over the years you pay a fault. It really sucks you out. I don't know how to say it better. That's why I have to be more mindful. It's more about quality than quantity. Now, for example, I don't play anymore at night. I have a family, my wife and my dog. I want to spend time with them. That's more important -- or at least equally as important -- as playing poker. So I play 6-10 hours and then I just leave. Even if the game is great, but it's late. There are other things that I want to enjoy life. I think that's how you ultimately become a really good poker player in the end. When you're able to have other things around it, and it makes you a lot sharper in your game. That's how I feel at least. I love that. I love that. Last question: Are there any two books that you have loved over the last year that you would gift to somebody else? Uhh -- let me think. I read a lot of books this year. That's good!I think the best book I've read in a long time was Principles by Ray Dalio. I truly love him. He's one of the greatest minds of all time. Such a humble person and his process and principles are a great way to improve everything! It helps you in every way. Number 2, I pretty much just finished and I think it's a great book -- and he's a big hero nobody really talks about. Edward Snowden's biography. I think I'm around 80% done, I read it on my kindle. And it's a great book if you're interested in how the government (and how life around us as citizens of our country) is actually changing. 

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