Book Review: Gambling For A Living by Mason Malmuth and David SklanskyI thought that I'd share a little something that I have been reading 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. If you plan to become good at any of them, a firm understanding of using 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 his understanding of bankroll management. To a poker player, the bankroll 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 therefore the winnings must stop and the income ends. It seems that many poker 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 a bankroll of 200 to 300 times their big bet in the size of games they 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 play another 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 financial world? Of course, we know as individuals what we feel comfortable with. But in a world where money is the tool of your trade, running out of 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 favourite trading sayings, which is simply: "Stay small. Stay alive." As if to prove the link between gambling, poker, investment and trading, this article from May 2010 suggests that investment banks are looking for traders from among the ranks of poker players. To read more of my book reviews, please follow this link:
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