Book Review: Gambling For A Living by Mason Malmuth and David SklanskyI thought that I'd share a little something that I have beenreading and may relate to trading. The book I have been reading is called 'Gambling For A Living' and was written by Mason Malmuth and David Sklansky. If I am honest, I am fascinated by gambling rather than being much of a gambler. I know how to play poker and understand a little of horse racing form on the flat, but otherwise it is a mystery. However, there are many similarities between gambling - especially poker - and the worlds of investment and trading. Firstly, gambling / trading / investment are all maths based. Ifyou plan to become good at any of them, a firm understanding ofusing numbers would be a real help. These numbers are mostly based around probability. This translates to: If you play these cards 100 times, you should win xx percent of the time - or - if you invest in a company with this profile, the stock price should increase by xx percent within a reasonable timeframe. Something that Sklansky is renowned for in his books is hisunderstanding of bankroll management. To a poker player, thebankroll is the money with which he plays. Money and knowledge are the tools of the poker player's trade. Trading and investment are exactly the same. If the money runs out, so does the ability to play and thereforethe winnings must stop and the income ends. It seems that manypoker players mess this element up and end up broke. A parallel can be found in the trading world, in which most traders have lost all their money within the first year. There are probably similar statistics for poker players too. In their book, they recommend that a poker player maintains abankroll of 200 to 300 times their big bet in the size of gamesthey play. This way, should the player hit a poor run of cards, he or she will be unlikely to be wiped out and can live to playanother day, week or month. 200 to 300 times is quite a size of bankroll isn't it? I think that most of us would suggest (guess?) at a lower number.But it is this added protection that lowers the risk of playing.Does this sound like it might translate across to the financialworld? Of course, we know as individuals what we feel comfortable with.But in a world where money is the tool of your trade, running outof it is a very serious situation to find oneself in. It would be a little like a carpenter breaking a saw - and a new one costs $5,000. On this note, I would like to end by sharing one of my favouritetrading sayings, which is simply: "Stay small. Stay alive." To read more of my book reviews, please follow this link:
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