I’m staring at two diamonds in my hand and two on the board, with one card still to come. My opponent just placed a bet and is staring daggers across the table at me, as if his scowl could affect my decision. I consider the situation: if a diamond comes out next I will hit the flush and win, otherwise my hand is a steaming pile of crap. Should I call his bet and take the risk, or is the smart move to walk away with what remains of my money and live to fight another day?
Luckily there’s a clear answer to this very common situation, and (surprise!) it’s math.
Time for some quick mental calculation while everyone’s staring at me. There are 52 cards in a deck and I can see exactly six of them: two in my hand and four on the table. Of the 46 cards I can’t see, some are in my opponent’s hand, some have already been folded or mucked, and the majority are still in the deck that’s being dealt. Since I don’t have any information whatsoever about any of these cards, it doesn’t help me to think about these different categories. I just know that there are 46 possible cards that could come out next and exactly 9 of them are diamonds. A roughly 20% chance of making my hand. Not worth it, right?
Hold on a minute. Knowing the odds of success is extremely helpful because it tells me that I’ll win this hand about 1 out of every 5 times I play it (or 4:1 odds against). But there’s one more piece of information I need before either pushing my chips in or licking my wounds. How much did the sucker across from me just bet, relative to the pot? If he made a large bet, I’ll happily fold. Risking a lot on a slim chance of victory is just dumb. If, however, my opponent has made a blunder by betting too little, well then we might just be in business here. Let’s say the pot was already $500 and he just bet another $100. I’d be looking to risk $100 to win $600…and I’d win 1 out of every 5 times. I walk through five example hands in my mind: lose $100, lose $100, lose $100, lose $100, win $600. I come out ahead in the long run and I’m going to take that bet every time. Come on, diamond!
Stressful situations like this at the poker table are rife with opportunity — especially if you’re playing with my friends. Most of them just ‘play from their gut’ or some ridiculous nonsense. It makes it especially satisfying to see that last diamond come out and to hear them marvel at how I knew it would happen. But I didn’t know. I just played the odds. More often than not, a useless card comes out and they guffaw at how dumb my move was as they are scooping up all of the chips and I’m excusing myself to go puke. Regardless of the outcome, I sleep well at night knowing I made the smart move. Over time the chips eventually find their way home to me.
My relationship with the stock market is much the same, really. I place a large number of reasonable bets, knowing that they won’t all pan out. As in poker, the point is not to win hands but to win money. I continue to collect a bunch of small losses and large gains, watching my portfolio get larger and larger as the years march on. It’s no different a feel than ‘gambling’: I’m still putting my money down on the table because I think I’m observant and astute enough to come out ahead, and I still don’t sweat the inevitable dud.
Due to my good “luck” in the stock market during my early thirties, I found myself in a position to make an even larger bet. I started my own business. As always, I analyzed the odds and carefully considered the risk/reward topography before committing my proverbial chips to the pot. This one was worth a shot.
What came next wasn’t a diamond. It was more like a club.
I’ve struggled for two years with the fallout of that decision. Anger, self-loathing, despair. It’s so easy to retroactively question my decision or to invent reasons to blame myself for circumstances out of my control. At the end of the day, we have to own our choices and play the hand we’re dealt.
Today I started my second business. This one is worth a shot. Knowing that a play like this might work out about one in five times is enough to make it worthwhile. It was basically my entire dating strategy, before I won that whole damn game (2016 champ).
Like poker, life is a game of both skill and luck. All you need is a chip and a chair, and you can start to climb your way up the ladder one decision at a time. Fortune comes and fortune goes. Just because you get a bad beat, it doesn’t mean you made the wrong move.