Poker-Playing Hedge Fund Managers Have an Edge (Bloomberg) Do poker players make good hedge fund managers? On one hand, there’s skill overlap. Both activities demand aggressiveness, accurate calculations under pressure, keen behavioral insight and shrewd risk-taking. On the other hand, poker seems like a risk-seeking activity, suggesting reckless and overconfident managers. Poker requires deception and gamblers are often considered untrustworthy. Also, time spent learning and playing poker is time taken away from investing.
FFS. A real game of poker involves reading the players at then table. The human beings. You base your decisions on the input in those moments that you can read those players. When the hand is done in another min or two, everything resets. THAT DOES NOT HAPPEN IN MARKETS. Stop with the poker/investing/funding ANAL-I-SEES
I can draw some parallels as a poker player myself. Poker players have a unique way of managing risk that is very similar to trading equities: the ability to "get your money in when the odds are good". Additionally, reading a chart is more-or-less akin to reading a table. It's psychology. Why do S/R points exist? Humans. Your last sentence belies your experience in poker. The game doesn't reset. The cards do. If I know I can bully a guy across a table I will open my range WIDE when I have position on him, and tighten up when he has position on me. You might find me shoving on a tight passive player all day because I know my odds of getting called down with anything less than the nuts is basically 0. Poker is a game of imperfect information no different than the markets. They have the same overarching strategy - bully the guy across the table when the odds are in your favor. I know if I have a weak hand and three barrelled a guy in position, and he's sweating trying to decide what to do, I got him. My probability of success is very high based on the weak-mindedness of my opponent. On a more basic note, good poker players regard money as points. If you listen to Jack Schwager's books (audiobooks...) you'll find the prolific traders in leveraged instruments (futures, options, etc) think the same. Here's an example. A speculative hand might be a suited 10/9 or a one or two gapper. I may, in position, raise a small amount in order to get my money in and make the table sweat a little. This is no different than betting directionally on the ES when you have a hunch. You put some cash in but aren't committed, you'll fold immediately if you are re-raised (by the market). It was just a hunch, you aren't married to it, and damnit if the table gives you some free play for a few rotations why not get in? You're just going to check anyway. But if you hit a good hand by the river you're going to bet in a little deeper because now you've got the odds in your favor against the (hopefully) smaller table. Investing and poker are not the same. Speculation and poker are the same. It's a game of imperfect information, against other imperfect humans, in order to extract profit. I played poker most of my way through college. I don't see much difference in speculation.
Did Your Hedge Fund Manager Just Win a Poker Tournament? It Might Be Time to Cash In. Hedge fund managers who win at poker tend to have better returns leading up to their games — but after the win, alpha declines, new research shows. Alicia McElhaney May 31, 2019 Illustration by II It's no secret that hedge fund managers love betting — on the markets and at the poker table. Options trading firm Susquehanna International Group gives its new hires copies of The Theory of Poker and Hold ’Em Poker, Point72 founder Steve Cohen called the game the “biggest determinant” in his learning to take risks, and Greenlight Capital founder David Einhorn once placed third in the World Series of Poker tournament. Hedge funds have even hired talented players: Former poker pro Vanessa Selbst was recently recruited by Bridgewater Associates for her prowess. Now, though, it’s official: better poker players make better hedge fund managers, according to new research published on the Social Science Research Network. According to the paper, entitled “Hedge Fund Hold’em,” hedge fund managers who do well in poker tournaments have significantly better fund performance. Investors know it, too, as funds with poker-winning managers tend to have higher inflows, the research showed. Researchers Yan Lu of the University of Central Florida and Sandra Mortal and Sugata Ray from the University of Alabama hand-collected data on hedge fund managers’ poker winnings from The Hendon Mob website, a poker database, then merged that with flow and performance data from commercial hedge fund databases, the paper showed. Their findings revealed, importantly, that the non-poker and poker funds, as the researchers dubbed them, had “identical” characteristics apart from their poker skills. They had very similar management and incentive fees, and their risk profiles were also identical, the paper showed. Despite this, the poker funds — or funds with managers who have won at least one poker tournament — had average monthly raw returns of 0.67 percent, as compared with 0.58 percent for non-poker funds, the research showed. The researchers called these returns “statistically significant.” Poker funds have better longevity, too, existing for 3.72 years on average, compared with 3.02 years for non-poker funds. Next Edition II [/paste:font] Investors have responded to this success by funneling more capital into the poker hedge funds, the research showed: poker funds had 1.6 percent to 1.9 percent higher monthly net inflows following wins. The numbers were even better for those managers that receive media coverage for their playing. They saw a 3.3 percent to 3.8 percent increase in monthly net inflows, the paper showed. Funds with managers that won larger cash prizes than the median tournament win saw 2 percent to 2.1 percent higher monthly net inflows, while those managers that won before the 2012 passage of the JOBS Act — which lifted the restriction on hedge fund advertising — saw a 1.6 percent to 2.1 increase in monthly net inflows. [II Deep Dive: A Hedge Fund Manager Who Drives a Ferrari Will Probably Underperform] Despite all this, poker winnings do not determine whether hedge funds perform better following the win, the research showed. Returns were not significantly different for hedge fund firms after poker wins, but alpha decreased significantly after those wins, the research showed. Winners underperformed their peers by between 40 and 60 basis points following the wins, the research showed. That's because the influx of capital following a manager's poker win can actually strain a fund's capacities, thereby reducing alpha, the authors found. So, while poker wins can make hedge fund firms more appealing, they actually can be detrimental to the firm. “Put another way, in this case, investors in hedge funds do not know when to hold’em,” according to the paper.