Comment by dharmon | Hacker News Reader

Comment by dharmon | Hacker News Reader

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I also started playing poker a lot in college for "fun money", and was looking to step up my game.

I went a different route, though. I did the math and realized that even at a very good hourly take, I would never make very much money, and that by going up to higher stakes tables if anything I would do worse. I didn't have much hope for tournaments either.

A few years before this I had worked at a day trading firm. I don't recommend technical trading (I never could find an edge there), but then it finally "clicked" and I realized the obvious connection between the stock market and poker: you are trying to find mismatched bets where the odds are tilted in your favor.

Once I made this connection I promptly switched to the stock market and never looked back (this was over 12 years ago). It took me a while to figure out a "system" (what kind of bets to look for, how do you figure "odds" with stocks, etc.) but it has been quite profitable, even counting the Great Recession, and now I do it full-time.

So anyways, if you think you really "get" poker and are willing to put in the time it takes to get good, you may be better off switching to a game that pays much better, assuming you have an interest in business.

Depends on your definition of money I guess. At my peak before I moved to heads-up I was playing about 4-8 tables of 10/20 shorthanded at a time and averaging about 1.5 BB/100 hands after the rake. 4-8 tables online is about 400 hands an hour so that's a take of approximately $120/hour. Granted they were grueling hours and no way could you really do 8 in a day. I could make more contracting programming now I guess, but at the time it was an unreasonable amount of money for someone in grad school to be a social worker.

I know a lot of people that went the poker - day trading route, some who love it and make money. I'm not much interested in business enough to learn anything beyond P/E, and I'm still not 100% convinced that people who make money trading are doing anything but ending up on the good side of the random walk, but I accept that it's possible ;)

I also know some people that went from poker -> day trading -> fantasy sports because there's a lot more casual sports fan playing fantasy sports and making bad bets than there are traders making bad bets.

Yeah, I figured the best I would ever do was around $100k / year, and with a huge time commitment.

I would not recommend day trading either. A long time ago you could find arbitrage opportunities, but those have been essentially squashed out for quite some time. I have seen technical traders who claim to have a read on things, but to be honest I don't see it. (There are a number of long-term successful commodity traders, but there are not many day traders in stocks who last)

I actually do longer-term fundamental-based investing (my average holding period is probably around 2-3 years). Initially it was way less money than poker, but had the huge advantage that it scales up pretty well (at least to numbers people actually care about) versus poker where I would've been stuck making the same amount. It also has the advantage that I can do it anywhere.

Long term investing is also a lot less work, meaning you can do it without taking time away from other money making activities.

Curious if you can share any more about your approach to fundamental investing. What stage/size companies do you focus on and how do you find an edge?

I looked into fundamental investing for a while but came away with the impression that you're trying to guess what the consensus of the market will be rather than finding some "right" answer. ie you can think the price should be x but if nobody else will buy/sell at x then you're wrong.

I've instead been subscribing to the notion that price movement can be thought of as random and selling option premium accordingly (the whole tastytrade mantra) but haven't been super successful and would be interested in hearing other approaches.

Sure. I agree that in the short-term (daily, weekly, even monthly) it's largely random, or at least effectively random, as in its no use trying to predict it.

My starting point is what I call the Fundamental Theory of Value Investing, the well-known belief that price eventually reflects value. Or, rather, they tend to move in tandem. You can't really prove this, but it has been observed empirically. Really internalizing this is important for sleeping well during volatile times. :)

So that means you need to find places where price doesn't currently reflect value. There's the usual list of places to look where the big players can't go, including micro and nano cap companies, low-priced companies, companies not followed by analysts, troubled companies, 52-week low companies, spin-offs, etc.

As far as fundamentals, I like reliable FCF, or better yet, what Buffett calls "owner's earnings" (slight difference from FCF). "Reliable" being a key word, and where experience and clear thinking are important. I spend 90% of my research time looking for things that will threaten cash flows.

I stay away from growth companies. The market just bids them up way too high. FB may be a wonderful company, but the current price is priced for perfection; any slip-up and down it'll go. Everybody is chasing growth, and institutional investors want to tell their LPs that they are in on the hot thing, so they buy in at any price.

You can't know the exact probabilities and odds, so the most reliable way to make money is to buy good earnings for cheap, check your downside very carefully, and let the upside take care of itself. Obviously there's a million variations on this, but they all generally require going against some consensus, which can require testicular/ovarian fortitude. For me, the most common thesis is of the form, "this too shall pass". Some sort of temporary disruption that doesn't permanently harm the business. Sometimes the dust settles in a quarter, sometimes 3 years. If I start getting a clue that I was wrong in my analysis, I get out.

I can go in more detail if you want but maybe should take it offline as people here to read about casino betting may not want their thread cluttered with this stuff. :)

It's super interesting and collapse threads is in beta so please?

If you have some specific follow-up questions I'd be more than glad to answer. A general overview could get pretty lengthy. :)

I'd be very interested in reading it if you decide to post it somewhere. I'm working on honing my own skills by reading a lot of books, through my main portfolio, and various paper portfolios.

Do you primarily manage your own money?

How difficult is it to achieve long term advantages over indexing?

Definitely interested in continuing the discussion. My email is in my profile, otherwise I'm not sure where you want to take it offline (just realized HN doesn't have private messaging).

That's what Edward O. Thorp[0], the inventor of the modern Blackjack counting system, did. He devised a way to beat the dealer, tested it on a computer at MIT, went to Reno and made a bunch of cash. But instead of following that path, he wrote a book which was boon to the gambling industry, and started a hedge fund.

[0] https://en.wikipedia.org/wiki/Edward_O._Thorp

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