poker as an investment: the math

[ryanj247]

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First of all, poker will return ridiculously huge amounts compared to a CD if you are a winner with any reasonable bankroll.


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that is true, but not necessarily for a (relatively) short period of time.

for example, there's a decent possibility of a negative/breakeven/low "return", even for a solid winner, in any one year of playing live poker. that's particularly true if that player has a limited bankroll and goes bust before the year is up. again, that's entirely possible even for a winning player.

so i see it kind of like comparing a low risk/low return investment to a high risk/high return investment.

[eastbay]

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[ QUOTE ]

First of all, poker will return ridiculously huge amounts compared to a CD if you are a winner with any reasonable bankroll.


[/ QUOTE ]

that is true, but not necessarily for a (relatively) short period of time.

for example, there's a decent possibility of a negative/breakeven/low "return", even for a solid winner, in any one year of playing live poker. that's particularly true if that player has a limited bankroll and goes bust before the year is up. again, that's entirely possible even for a winning player.


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A winning player knows how not to go bust.

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so i see it kind of like comparing a low risk/low return investment to a high risk/high return investment.

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The comparison is silly. So you can get a probability distribution of returns for poker, and a guaranteed return from the CD.

Then what?

eastbay

[PokerBot123]

To calculate the return on your "investment" in poker you have to use number of hands or hours on the table not days and months.

If u allready know ur winrate and that your ROR is 1% then obviously ur ROI would be number of hands/100 * 2~bb, for all but 1% of the cases.

[jively]

I think the statistics formualas for this are out there, but I don't know them. Maybe try the Poker Theory forum?

If you have Excel you can do a little bit of your own Monte Carlo analysis. I just put together a spreadsheet in a few minutes (although I've done this before and I'm good in Excel).

I start with a $1,000 bankroll, play $2/4 limit with a 2.0 BB/100 win rate at 15 BB/100 SD. I play 10,000 hands. I use the RAND() formula to generate a random number between 0 and 1. I use the =NORMINV(C22,B$16,B$17) function to generate a win or loss based on playing 100 hands of $2/4. C22 points to the RAND() function. B$16 points to 8, the win rate in $. B$17 points to 60, the size of the SD in $. I copy these fomulas down 100 times, and follow the bankroll down. I can see what my low point, high point, ending point, and actual win rates are over those 10,000 hands.

Here are the results of a few trials:

Won $826.22, 2.1 BB/100 with low point of $952.01
Won $727.10, 1.8 BB/100 with low point of $1,002.53
Won $867.15, 2.2 BB/100 with low point of $206.41 (whew!)

Going through a bit more to find some extremes:

Won $2,048.09, 5.1 BB/100 with low point of $960.98 (heater)
Lost $938.82, -2.3 BB/100 with low point of $61.18 (cooler, almost busted)

Actually, $1,000 is not nearly enough for 2/4, with only 125 BBs. If you don't want to go broke, think about 250-400 BBs.

If you PM me with your email address I can send you the spreadsheet. (Not sure where I could upload it.)

-Tom

[maxtower]

If you're a winning player you can't go bust with bankroll management. Just move down if you lose half your roll, and move up when you double it.

[maxtower]

Actually even if you were a losing player, you could play for an extremely long time using the same bankroll management techniques.

[Sniper]

Ryan, unless I'm missing something, you want to calculate your EV on each "investment".

RoR will help you quantify your RISK on each investment... you should be looking to ensure that your RoR is as low as possible. In other words, whatever your investment, make sure you are appropriately bankrolled to make it.

Since playing poker also involves the use of your time, as Eastbay said, you should also take into account your "opportunity cost" of investing your time in playing poker, vs. investing your time in working a real job.

[JKratzer]

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it says that my RoR at this moment in time is y%. but when we're looking at poker as an investment, we need to analyze it for a certain period of time, right? so how do i calculate the probability that i will win/lose $x in, say, 10,000 hands?

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i might be misunderstanding, but can't you just change $/hands into $/hour by figuring out how many hands/hour you can play and plugging it into your equations?

[ryanj247]

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To calculate the return on your "investment" in poker you have to use number of hands or hours on the table not days and months.

If u allready know ur winrate and that your ROR is 1% then obviously ur ROI would be number of hands/100 * 2~bb, for all but 1% of the cases.

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that may be true for ROI, i'm not sure. but if that's the case, i think that's not what i'm looking for.

suppose in one year we plan on playing 40K hands. we're starting with ~250BB and will not move down (maybe not a realistic scenario, but still one worth thinking about, IMO).

when we're comparing that to a CD, it wouldn't make sense to assume that 99% of the time we will end up with exactly our original stake + 800BB. the RoR calculation says we have a 1% chance of going broke. it also says we have a 25% chance of losing ~185BB. but what i'm not sure about is whether that RoR forumla is helpful in determining how likely any particular result is over a 40K hand stretch.

just thinking about it, for that number of hands, losing 250BB seems like a reasonable possibility, as does losing 200BB, as does breaking even, as does winning up to, i dunno, 2000BB.

i'd like to be able to calculate a probability for all possible outcomes, and then use that "model" to compare it to a CD or other investment.

[eastbay]

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i'd like to be able to calculate a probability for all possible outcomes, and then use that "model" to compare it to a CD or other investment.

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Monte carlo is the way to do it. But say you have it. Then what?

eastbay