Saturday, April 30, 2005

Back on Topic

Variance and volatility are not the same thing.

Variance is a personal danger for gamblers. Over the very long term everyone gets equal cards. Short term, say less then a year for a frequent player, Things can run very good or very bad. This creates two dangers that gets poker players broke. We can think we are much better than we are, play at too large a table, and hit reality. Second we may lose at tables we know we can beat, and step up in size to re-coup our dwindling bank roll quickly.

volatility is the danger for speculators. volatility is a group effort, except for force majure events, historic volatility normally is calculated into any trade, with maybe a bit of a kicker for implied volatility. The danger here is that the science can be so convincing we may over leverage, and a quick move may blow us out. Second we may lose at trades we know we can beat, and step up in size to re-coup our dwindling bank roll quickly.

Understanding the real risk is the issue. A move up in size may expose our bankroll to far greater threats than we anticipate. The markets, and the players, have no rational basis for anticipating force majure events. Years of small steady, reliable gains can vanish quickly.

An option trader that skims small amounts off volatility trades with huge leverage can make large amounts of money, year after year. One big event though can wipe him out.

In investments that's called, "eating like a bird, pooping like an elephant."


Wednesday, April 27, 2005

Off topic Rant


This is on one of my other sites. It seems to have touched a nerve. I've got it here to support the growing awareness of a positive solution to a great problem.

Americans, Vote For Change!

Protest and make your vote count.

I have heard it said America has two parties, the stupid party and the evil party. I have talked to activists from both the left and the right, and all have laughingly agreed. They all thought they were in the stupid party and the other party was evil. I think they were right!

The Democrat and Republican parties are so close together they form one party. An example is the Social Security debate. The amount argued about is so insignificant it makes no difference which party "wins," the results will not solve the underlying problem. It's kind of like professional wrestling, but throwing sound bites instead of chairs. Both parties scream, moan, groan, and shout to keep the ignorant party faithful convinced they are fighting a righteous battle.

The single democratrepublican party pretends to fight, then does whatever they wanted anyway. Clinton initiated welfare reform, Bush applied Tariffs, both the other party's supposed agenda. They had argued against these actions until elected. They then did whatever served them, not the citizens, best.

Politicians frequently talk of taking from the rich to give to the poor. The government is so deep in debt, the rich and the corporations do not have enough wealth to pull it out, even if they could sell everything. As the Government continues to grow, it is not the wealthy that pay. The expense will be in a decreased standard of living for all right now, and in the future an even further decreased living standard for our children. Politicians of both parties are not robbing the rich to give to the poor, they are taking from children to buy themselves votes.

The only way to effect change is to vote for what you believe, not the lessor of two evils. I prefer the Constitution or Libertarian parties; Vote Green or Peace and Freedom if that is what you believe. Don't waste your vote on a Demon-ublican or Repulic-Rat, they are the same vile fluid in different bottles.

Half of the registered voters don't vote. Not voting is not a protest, it is submission to those who would run your life for you. If you want to move the two parties apart, and create real debate, vote third party. If just half of those who are registered and don't vote, vote third party, there will be some real changes in the ol' USA.

Someone once said if voting were really effective, it would be illegal. Let's make it more effective and find out. Thomas Jefferson felt an election should be a minor revolution, each election a chance to create something new.

We need a voter's revolution if we are not to continue expanding the errors of the last fifty years. Protest and make your vote count.

Vote third party.

Grass roots

This change of mentality to support third parties will have to be a grass roots effort. Talk it up among your friends, start a blog, post a short essay on your site, but do something. If nothing else link to or post this plea with a link to this page as a credit. It would be great if we could be noticed by the next election, and make a difference in the next presidential race.

Ignite the voter's revolution;


Sunday, April 24, 2005

A quick lesson, for myself, again

For the last couple of weeks I've been looking forward to a tournament between bloggers. There were about 80 of us that showed up, and I had the day clear.

That was my first mistake.

Once lunch was past I sat down at the computer. I have been trying to set up Bastiat Free University for a while now, and just this week had found an open source teaching program that looks like it might work. 3 or 4 hours before the tourney started I dug in. The program was written in Italian, the manuals have been translated, and I am digging my way through.

The Alarm rings, I open the online poker tourney, with about 6 other pages from BFU spread about on the computer desktop. I never even got started at poker, my mind was in SCROOM packages, or something that holds lesson objects, or maybe.....

Anyway, I was maybe third or fourth to blow out. Terrible play on my part, and then right back to BFU.

Finance or poker, its better not to play then play with your mind elsewhere. I should have let my son take the table. Probably I should have watched a movie after lunch.

Sadly, I think I will have to learn this lesson again.

Monday, April 18, 2005

steps on Party or Full Tilt

No finance in this one, except the mention that playing poker re-enforces the disciplines necessary to succeed in investments.

I've tried the step tournaments on party poker with fair success. I have trouble maintaining interest with so many maniacs at the lower levels and so much repetition to advance through to the end. The structure makes it tough on good players. You are likely to have the super loose survivors end up with huge stacks early; and then have to slowly wear them down. In a small tourny with rapid level increases, there frequently isn't enough time. No limit holdem tables at Party are still an excellent profit source due to the maniacs and loose play in general; And a few rocks to bleed at each table. If you play at Party, get Poker Tracker, the first 1000 hands are free, the extra money you make and the holes you patch in your game will endure.

Full Tilt online poker has much tougher games. I like that in small tournaments. They have a low entry $4.40 qualifier that leads to the June 19, 30 WSOP seat guarantee tourney, with just one step in the middle. I love the thought of a 30 seat guarantee, being good enough to survive to the last 3 tables is a lot easier than winning the whole thing.

I gave it a try this last week. I blew out of the first $4.40 on the first hand, KK lp in the pocket, raised pre flop with several calls. The ep raised on the J&rags flop, several calls, my re-raise was met by his all in. Everyone else folded, He had AJo, an ace hit and I was gone. Dropped another $4.40 and entered again, won this one. Went to the $24 + 2 on the token. 49 players, all fairly good, no maniacs at least. Several players were very good, probably much better than myself. The joy of not being sucked out, they knew how to fold. There were plays put on, steals made and challenged, a great, enjoyable game where I had to pay attention to survive. The final three fought long and hard for the two tokens to the $500 +50, 30 seat WSOP guarantee. I managed to double up myself and cripple the leader when he thought my check raise to half my chips was a bluff and two queens had flopped, he re-raised me all in. In his defence he had seen me caught in a similar, smaller, bluff before, and I had folded to a large re-raise that time. My trips were good enough, he was gone in just 15 or 20 more hands. The win after that was anti-climatic since I had most of the chips, and we two remaining shared the two token prize. He went all in, I called, and I got lucky. Game over.

A most enjoyable game, and I improved my game against tough opponents.

I have trouble covering the rake in the no limit games at Full Tilt. I'm just barely negitive after you figure in the slow payout on their 100% bonus. But my game is improving, and I can't just use the stratagies that work so well at Party, so my stratagy is becoming more diverse. I also don't have enough hands to be statisticly significant. I could be far better or far worse than I think I am. I look forward to Poker Tracker working on Full Tilt, that is supposed to happen soon. I will start winning at Full Tilt table games, soon, I think.

Full Tilt's short steps paid off in several ways. Not just spending $8.80 to enter a $500 +50 tournament I would have paid full pop to enter.


Saturday, April 16, 2005

Science of poker

There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.
Mark Twain

Poker, like investments, is about people. In the great book Confessions of a Stock Operator, a biographical tale told as a novel to protect the author, there is a story about the markets after the great San Francisco earthquake. It has been a few years since my last read of the book, so you will have to put up with generalities as I stumble to the point.

The market was in a bull phase, with everything going up; the stock in a West Coast railroad climbed with the market. The Author shorted the stock, and it kept going up, he was losing money, but he shorted more, it kept going up. The author couldn't see how losing huge amounts of their infrastructure could be good for the company, so he kept shorting. His friends warned him not to fight the market, he was losing lots of money, he kept shorting. One morning the stock went down, and kept going down, he made his money back, and gobs extra. Being right will pay, long term. In this case I think it was 3 very long days. If it had taken a week longer he may have "got broke."

What Happened? The markets, like the players at a poker table, are irrational because they are made up of people. Irrational in the short term. We live in the short term. Reality will always be next week, never this week.

Math, science, statistics; all are important; next week. Today what matters is people, you have to play properly for the for the people at the table, minimize the science. The cards will balance out over the long term, we will win more than players who are less skilled, long term.

Short term, at this table, it is how we play the players that counts.


Wednesday, April 13, 2005


Cheaters exist in all levels of society. Today is a disjointed rant (you have been warned) on the biggest cheat of all.

In a poker game they can drain your wallet, in finance they can drain your retirement.

The contrast is more apparent than the parallels here. In poker you are most likely to run into a rigged game in small, home environments. In finance it's the big boys that are most likely to put a bad play on your money.

“If we want to have money, it must be something that cannot be increased with a profit by anybody, whether government or a citizen. The worst failures of money, the worst things done to money were not done by criminals but by governments, which very often ought to be considered, by and large, as ignoramuses but not as criminals.”

—Ludwig von Mises, speaking at
the Foundation for Economic
Education, November 8, 1969.

Inflation is a tax. Like most taxes it is best hidden under the table. The old world rule of thumb used to be when taxes approached 50% rebellion was inevitable. Now days the taxes are hidden in dozens of hard to discover locations. real estate, gasoline, state and local taxes, sales, payroll withdrawal, VAT, etc; and lots of high fees for licenses, records, and traffic tickets. Don't forget Government seizure, a growing source of taxes, In some California cities they can take your car if you are accused of racing, and then they sell it. If you have too much cash in your pocket, they will take it, and make you prove it was not for unlawful purchases. If somebody plants marijuana in the woods behind your house, they will take your house, even if they don't accuse you, and make you prove you did not grow that grass. The compounding effects grow as these taxes, fees, and takings pile on; The guy who sells the seeds, the trucker that transports, the farmer, the trucker again, etc. All those pay taxes that go into the final loaf of bread. No wonder so many work two jobs, one job is as an unpaid volunteer contributor. Joe and Josephine Average are dropping well over 50% of their money into supporting government, and that's before inflation.

There are nice clean releases about inflation, usually with a mental picture of bucolic cattle slowly growing in size. The references are to cost of goods inflation, or payroll inflation. The reality is inflation is not prices going up, it is the value of money going down. Do you want to know the real value of inflation? Look at money supply. Money supply has been bouncing around between a growth of 5 to 20%. The value of money is dropping as more money is created by the government. We all can look at the prices for the things we buy and know they are going up a lot faster than the 2 or 3% the government claims. This is not a recent event, although the US government has gotten better at large fibs since the early 1990s.

Inflation is bouncing around at 5 to 20%, and eating up the value of your future at the same rate.

that's the big sting.


Tuesday, April 12, 2005

Bastiat Free University of the internet

Just a quick note.

There is a new free university a-building.

Bastiat Free University of the internet

We are constructing classes in separate folders right now. The University should be up and running by June 15, 2005 with a starting curriculum. Classes will be free, or a small administrative charge if you wish credit for a course.

The basic site is up and smiling, come on down.

Charity Shill


Sunday, April 10, 2005


You could be cruising along in your classic Cal25 sailboat crossing the Pacific. A Tsunami passes underneath the boat. You probably won't even notice. The boat goes up a bit more than normal, then down a bit more than normal, then it is over. At sea a swell is not dangerous unless it crests or breaks. Where the waves get fun is close to shore. Check out this great sequence of shots.

In Finance we ride waves, up and down, it is normal; two steps forward, one step backwards. These waves are closely studied. Those who study them observe long waves, short term waves, inverted waves, etcetera. Sometimes they are easy to spot on the charts, in retrospect. The hard part is to guess where you are right now and which type of raise is controlling the action.

In poker your hands come in waves, you can look back and see their pattern. The problem comes when you try to apply that pattern to the next hand. Some one wrote recently about a person who told them they were on a rush, a poker term for a large wave. The writer replied, you were on a rush, who knows where you are this hand.

Three environments, but only in one does your perception of wave perception have a chance of helping you. Guess which one.


In poker there is an advantage to playing aggressive, even if it is just in spurts. A player that believes they are on a rush will play more aggressively until the rush subsides. After three winning hands they may play 68o with a preflop raise, chasing out hands that might have hit the flop. If the flop is 3h 8d qh they may bet their middle button and chase out better hands again, that guess they might have an over pair. If they win on the river they will hear groans and complaints from those who folded. This will reinforce their faith in the power of the rush.

They have played better, and altered their table image, by playing a hand that statistically they should have folded pre-flop. Poker, like finance, is a people game. Sometimes logic doesn't win, But the waves are most dangerous just when they are about to end.


Wednesday, April 06, 2005

Inevitable, not immediate


You just shorted that stock. Your research showed the flaws in their model, reality will catch up with them.

The stock does not know you bought it. Their model may have been flawed for a long time. The stock may go up for quite some time yet.

You just raised preflop with your pocket Kings hoping to isolate the two maniacs that have played almost every hand. You flop your set and get one fish to raise, your re-raise all in makes you heads up against the worst fish, again.

You know the end to the story. His pocket 45 offsuit makes a straight on the river.

It is inevitable that stock will tank, sometime. It is inevitable that the maniac will lose all his chips. What is not inevitable is that it will happen now, inevitable is not necessarily immediate. Just 'cause you are there does not change reality.

This is the basis for money management. In investments you use stop losses and small commitments to any correlated investments. In poker, you play at limits that will allow you to survive if you run into a huge string of bad beats. In both you "get smaller" when your bank roll is shrinking, if you want to survive.

The temptation is to play too big so you can win back what is lost. What they call standing at the rail is true of both disciplines. Play too big and you may end up just watching the action.

You can't win if you don't play.

You can't play if you run out of chips.

inevitable does not imply immediate.


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