Play your percentages
Ok, the title is a bit misleading. What I want to talk about is a subject that seems to be misunderstood both in finance and poker. I'll use simple numbers and rounding, check the figures more precisely if you wish. Playing with interest and percentages can be misleading, and a con game for some. Figures don't lie, but liars sure can figure.
You lost 50% of your bankroll. It was over three sessions, years or months, 30% in one big hit, then 10% in two less painful hits. Sadly it ain't that easy, although in this example the pain is diminished compared to a single 50% hit. Lets use 200 as your starting bankroll.
30% of 200 is 60, you were down to 140; 10 % of 140 is 14 you now have 126; 10% of 126 is about 13, you now have 113. That's a total loss of 87 from the original 200, or about 43%, not 50%; you are a bit better off than you thought.
I've heard economists on TV say things like "This market was down 20% last year, but we are up 20% so far this year and are even again." Not counting inflation and the lost opportunity costs of the year, and not knowing how he calculated the 20%, he is still wrong. A simple 20% loss from 200 is 40, leaving 160. A 20% gain on the 160 you had left is 32, you now have 192 and are not yet even. You would have needed a 25% gain on 160 to be back at the 200 where you started.
If you lose 50% of your bankroll in a bad run on the tables, you will need a 100% gain on your remaining roll to get back to even. If you goal is to push your 200 to 600 so you have the cash available to play bigger; an equal win or loss is not equal. If you lose 100, or 50% of your roll, you now have to double through with a 100% gain to get back where you started. If you gain 100, or 50% pushing your starting roll up to 300, a subsequent loss of 50% puts you back smaller than you started at 150.
Be cautious moving up in size, too soon and the bigger hits can drain you quickly.
Perhaps next blog: Optimization hinders evolution.