Stockholm (HedgeNordic) – In the eyes of many, trading is viewed as a fancy label for pure gambling. Indeed, most players within the financial community surely feel dishonored when they are named “gamblers” instead of “traders.” During a brief stint at a day-trading proprietary trading firm, I came to the realization that no one in the office was inclined to call himself or herself a gambler, even though what we were doing at the time was pure madness (money-losing trades that involved riding intra-hour trends). They would rather have called themselves clowns, than gamblers. The reason is simple: gambling has negative connotations within society – connotations such as illegality, thoughtlessness or an advanced degree of desperation.
But if trading was really gambling, then perhaps gaming authorities should have regulated equity markets, instead of the U.S. Securities and Exchange Commission or other financial market-focused regulatory bodies. Maybe the gains earned by investment managers should have been taxed as gambling profits instead of capital gains. Although the more respected “investing” activities do differ from the more speculative trading activities, there are a lot of similarities between investing activities and professional gambling. There is, for example, a growing consensus that success in poker can be translated into success in financial markets, as a number of professional players have successfully made the transition into finance from the world of poker.
It is also no accident that many high-profile hedge fund managers – such as David Einhorn of Greenlight Capital – love poker. Poker resembles a fast-paced game of risk management, unknown variables and attractive payoffs. The game has great similarities with the never-ending day-to-day opportunities in financial markets. “In the past, poker was something that people left off their resume,” says Aaron Brown, a former professional poker player and current head of risk management at AQR Capital Management, the company of the renowned quant hedge fund manager Clifford S. Asness. The increasing popularity of poker and the financial industry’s affinity for the game, however, have made poker a viable qualification that can enrich anyone’s resume, as traditional game theory remains an educational requirement for both traders and poker players.
The connection between poker and the “smart money” industry has therefore been a hot topic of discussion in recent years. Several years ago, the Los Angeles Times reported that all new employees at quantitative trading firm Susquehanna International Group were required to read the books “The Theory of Poker” and “Hold’em Poker” by David Sklansky, as well as spend one day a week playing poker. A great deal of individuals have successfully entered the financial industry after enjoying lucrative careers as professional players, but why, after all, would companies be interested in hiring poker players? Experts believe game theory explains the strong linkage between financial markets and the gaming world. Legendary quantitative thinker and blackjack whiz Ed Thorp reckons that “Poker illustrates game theory a great deal. So, I would imagine that financial companies are hiring individuals well versed in game theory, who understand risk and how to make business decisions.”
Some Ivy-League universities, such as the MIT Sloan School of Management, have started to offer Poker Theory and Analytics as a graduate level course. The course is meant to provide students understanding of matters ranging from basic poker strategy to game theory and decision-making, with the purpose of the course being to develop skills for future management and leadership positions in finance, trade and global markets – careers requiring high-pressure decision-making skills.
Harvard professor in behavioral science and poker player Brandon Adams identifies a strong linkage between the education of a poker player and the set of skills of someone kick-starting a career in finance. “In theory, poker should be a qualifying skill set because successful poker players have survived a ferociously competitive ecosystem that requires intense study, analytical skill, risk control and clear thinking under pressure,” said Adams. And the Harvard professor isn’t alone in identifying common links between poker and investing. More importantly, both poker players and successful traders share a common trait: an inquisitive mind. “Traders and poker players both ask a lot of questions. They don’t take the world as it is presented to them. They are constantly tearing things apart and analyzing problems in new ways,” says Adams.
Last, but certainly not least, one of the most crucial features or strengths a successful poker player can bring to the hedge fund or finance industry in general is the ability to move on from the past. It is of utmost importance to have no memory in both trading and poker. The emotional strength to forget a lost hand or bad trade and continue to maintain a forward-looking perspective are essential skills prevalent in both domains. While investing embodies logic, foresight, measured reason and prudence, in contrast to gambling’s negative connotations of illegality and thoughtlessness, both disciplines have a great deal of similarities between them. And this explains the current trend of professional poker players transitioning to the world of finance.