The Ceiling Concept

[warrantofice]

This is my first post in the Poker Theory Forum but i think it's the correct place to post my concept. This post is basically a copy of my recent post from NVG however I thought my idea was important enough to warrant it's own thread.

Beware it is long - but i have included my original summary for anybody that just wants a summary.

Also please note the second part was written on the NVG subject of pro's and why they go broke, so it's slightly geared in that direction.

This is an original idea so please if borrowed give the credit here.

[warrantofice]

The short of it is that poker is a game of investing money or gambling depending on how you play. But if we assume that we are playing under the pretense to invest our money intellegently than the same principles of investing in the stock market apply, however the stock market trades at a much larger level. The reason the top pro's are broke is because they have reached the poker ceiling, its similar to the investment ceiling which goes by some name. A name that i don't know.

If you talk to really good investment bankers, the best ones, they will tell that they can basically make the same average returns year after year say 15% as an arbitary number. It takes hard work but its sustainable...however, when their portfolio reaches around 500 million dollars then it becomes much more difficult to keep that 18% return rate. So i would propose that this is what has occured to the current breed of poker players. Because the poker economy is much small than the US stock market the ceiling is much lower.
So i would conclude that investing your money is good but only until say your reach 3 or so million to give an arbitary number. After that point it becomes much better to invest your money in a the stock market.

[warrantofice]

I realize that i didn't complete explain my concept of the market ceiling. The reason there is a ceiling in the stock market at around 500 million dollars is that when your principle amount of money reaches that much, it becomes to large to invest in smaller companies, because you either will end up owning the company or not allowing enough shares for the market to dictate the value of it, you also can't invest small portions in lots of companies because of the ammount of time involved in researching the companies, you'd need a very very large team of great investors looking in many different markets, which is impractical. This basically forces you into investing in large companies, though the problem with this is that, large companies are generally held by lots of people so the shares are generally very accurate in representing the company worth. Similar to sports betting on the NFL, unless your the very best, the lines are so close to the true chance of a team winning, that the average bettor can not make any money off them.

So when were discussing this in regards to poker, the pool of players obvs shrinks as you move up in limits. You can't take advantage of all the donkeys at the 10nl level when your playing but the possibility that a good portion of the 8 players you will play against at your 10nl table will suck is very high, well the proportion of donkeys at each subsequent level decreases probably to some percent, although there may be some random varation. So when you start to reach the 100/200nl (some random level i choose) then the probablity that you will sit with a donkey has dratmatically decreases, and your now happy if some of the players have even a couple of leeks. So obv everyone undstands that the variance increases as skill increases.

The next factor is that if your treating your money and time spent at poker as an investment, than you'll be looking at your entire bankroll as your principle to grow. Now lets consider a poker player who has 1 million dollars, he wants to grow it, well he plays 25/50plo table and wins $5 000 so now he has $1 005 000 dollars. Congrats he just increased your bankroll by .5% so obv its kinda pointless so he steps it up to the 250/500plo tables and win $50 000, you just increase your bankroll by 5% , he feels like he accomplished something now. However, now that 5% of his entire bankroll is on the table and when he looses it, well it works a lot different from winning obv... ever time he wins 50k 250/500plo he's not winning 5% anymore and when he looses well the next time he buy's in to the game he's risking more than 5% of his money.

(going to use smaller amounts to make it easy)
100nl $2000br
win $100 = 2100br +4.7% increase to bankroll
win $100 = 2200br +4.5%
win $100 = 2300br +4.3%

Now watch when you loose

loose $100 = 1900br -5.2% decrease in size of bankroll
loose $100 = 1800br -5.5%
loose $100 = 1700br -5.9%
loose $100 = 1600br -6.25%

So as can be seen the compounding works against you on the way up, you need to keep more money in play to keep the same size of returns, however, as you loose money you can't keep at the same level of play without threating larger and larger percentages of your bankroll each time you play.
I hope this helps answer the question at bit better though.

[Pot Odds RAC]

[ QUOTE ]

This is an original idea so please if borrowed give the credit here.

[/ QUOTE ]

Not completely original (perhaps independent) - don't expect footnotes and royalties.

That being said, interesting analysis, I'll look a little more closely at it when I have a bit of time and Brain Bandwidth.

First thing that comes to mind is "Lose <> Loose"

[warrantofice]

yah i know i got a little carried away with my whole

original idea part. but it is. well everything regarding the ceiling aspect in poker. i don't think that has ever been discussed before, i have by no means invented it in the investment sense.

i would like some feed back on this though because i think this could be a very important observation

[HaiaN]

very interesting for sure!

[Jimbo]

[ QUOTE ]
yah i know i got a little carried away with my whole

original idea part. but it is. well everything regarding the ceiling aspect in poker. i don't think that has ever been discussed before, i have by no means invented it in the investment sense.

i would like some feed back on this though because i think this could be a very important observation

[/ QUOTE ]

It is interesting, but not akin to the stock market at all. All the big boys in the market are/could act independently without any of the others, in fact the Quants would do much better without other Quant funds since they pretty much end up owning the same stocks. In the large game poker market they all need each other.

Perhaps I missed your main point, if so Sorry.

Jimbo

[warrantofice]

Jimbo could you explain your argument a little bit more. I don't have a business background so your reference to Quant is a little over my head.
And when you refere to
" All the big boys in the market are/could act independently without any of the others"
I don't understand were i discussed investing independantly or not.

(note i was going to write some sort of a response to Jimbo but it turned out as another summary of my previous points. But i love it to much to delete it)

My point originally was about earning such a large amount of money that it become difficult to invest it properly in a given market. So for some arbitary ceiling's i would say that if you were investing your money (i'm from canada) in the Montreal stock market, once the amount of money that you managed grew to, say 100 million dollars, you have basically outgrew that market, but you could move to the NYSE and begin to invest your money there. Because there are more people and larger companies, your investment becomes much smaller as a percent of the entire exchange, thus its easier to make 'smaller' strategic investments. But when the money your investing excedes 500 million dollars then you run into problems again. Not to say you can't still make the same returns as you did with 100 million dollars, it just become much more difficult. You have to be even better at investing that money and your going to be looking at companies that generally will generate smaller margins because there so large and heavily traded.

Tying this back to poker though, the point i am making is that the same principle that occurs in the stock market, occurs in poker aswell. Obv. the poker base is much much smaller than the stock market, so the ceiling becomes much lower because of that.

I think you are wrong if you think that the stock market and poker are different. I think they are very much the same, obvs they have huge differences but the principle of both is similar. Very similar

[Jimbo]

[ QUOTE ]
I think you are wrong if you think that the stock market and poker are different. I think they are very much the same, obvs they have huge differences but the principle of both is similar. Very similar


[/ QUOTE ]

versa but not visa, in other words stock traders seem to be able to become good poker players, wheras there is a lot of evidence that the converse is not as true.

I think you skipped my main point. If there was only one Warren Buffet type guy in the stock market he could make all the money he would ever need, if there was only one Doyle Brunson who would play in the big game he would be lonely and make nada.

Quant funds buy and sell based on math formulaes, unfortunately it turns out most of them using different formulaes come up with the same stocks to buy and to sell at about the same times. So they drive prices up higher for each other when buying and drive them down faster and lower than normal when selling. So they would rather be alone thanhave others at the big boys table and like I said in Poker this will not work without other major players in the game as well.


Just one more thing, a billion dollars is small these days, so 400 million isn't hardly noticed on the major exchanges. This doesn't change your point, just your decimal places.


Jimbo