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Texas Holdem Poker

BETTING THE FARM


by: Lou Krieger

A few years ago, Orange County, one of California’s wealthiest enclaves, sent shock waves through the community by declaring bankruptcy after it’s treasurer suffered embarrassing losses on speculative investments, then threw more taxpayers’ money after bad by continuing to bet that interest rates — which had been rising — would drop.

More recently, Barings, Britain’s oldest merchant bank, collapsed because its chief trader in Singapore bet $29 billion of the bank’s money that the Tokyo stock index would go up. When it dropped instead, Barings lost $1 billion of that gamble and failed.

Kidder-Peabody’s chief government bond trader didn’t learn from Barings mistake. Instead, he invented $350 million in fake profits. Salmon Brothers, an old line Wall Street firm, suffered for years from the 1991 news that its chief bond trader faked customer bids. And traders for a German metals conglomerate, Metallgesellschaft, lost $1 billion a couple of years ago betting on the oil market.

Were these lapses in judgment and ethics simply manifestations of unbridled ambition and unmitigated greed? Of course they were, but they were also fueled by traders with a gambler’s mind set and a long-range view of about 20 minutes. The lessons of these debacles ought to be abundantly clear to any gambler — and that includes investment bankers as well as poker players. Never gamble more than you can afford to lose, and if you find yourself losing, think about cutting your losses. Don’t keep upping the ante in a mad scramble to recoup.

While traders and speculators have yet to learn these lessons, neither have many of their counterparts in the poker world. Regardless of their skill level and bankroll, many poker players keep making these two potentially fatal mistakes. They play in games too big for their bankroll, and, rather than cutting their losses when the cards run against them, search for even bigger stakes in a hurried attempt to recoup their losses.

Noted poker theorist David Sklansky suggests that an adequate bankroll for most players ought to be 300 big bets. This means you need a bankroll of $1,800 if you plan to play at the $3 - $6 level, $9,000 if you play $15 - $30, and $24,000 if you play $40 - $80. And “bankroll” means just that. The rent money, your upcoming car payment, and money for groceries should never be part of this equation; only discretionary poker money counts. While you might take a shot at a bigger game every now and then, especially if it looks good and you can stand whatever losses you might suffer, a minimum bankroll of 300 big-bets makes sense.

Most players do not maintain a bankroll that meets this requirement, or even comes close. And when they play on a short bankroll and run into a streak of bad cards and worse luck, they usually commit the cardinal sin of chasing their losses in a frantic attempt to catch up immediately. Of course no one likes losing money, and it’s only human nature to want to get even. But having to get even today, especially when it’s done by jumping up to a higher limit, usually has disastrous results. Never mind that a $3 -$6 player who just jumped up to a $10 - $20 game to recoup his losses may be unfamiliar with his opponents and their skill levels as well as a bit nervous or tense and perhaps even tentative when playing at bigger limits. Here’s the real problem: By playing in bigger limits with an already depleted bankroll, he has just folded the envelope in on himself from both directions. Playing for bigger stakes with less money might reduce his bankroll from a recommended 300 big bets to no more than 100 big bets — maybe less.

When that happens a player’s in jeopardy of losing his entire bankroll. If that happens, pity him. He’s achieved “gambler’s ruin,” that point when bets become so large and losses so extended that a player no longer has a bankroll to compete with. He’s broke, busted, and on the rail. Now how will he ever get back in the game?

One option is to go to work and build a small bankroll. But even a moderate run of bad luck under those circumstances means he’s liable to find himself right back on the rail, since he doesn’t have the ability to stand any sustained losses. Or, he could build a 300 big-bet bankroll and compete with the assurance that as long as he is an otherwise winning player, he’ll be able to sustain all but the most protracted of losses. If he is able to do this he’s back in the game and won’t be playing over his head, or on “scared money,” to boot.

The fact that Robert Citron brought down Orange County with his risky investments, that Nick Leeson’s $29 billion bet collapsed Barings, and Joseph Jett punctured Kidder Peabody with his ill-advised strategies shouldn’t surprise you at all. They all thought they were investment bankers. They either didn’t realize they were gambling, didn’t know how to gamble, or reached such an extreme level of personal misery as they watched their losses mount and careers collapse that the urge to self-destruct exceeded their instincts for self-preservation — and they no longer cared.

Citron, Leeson, Jett, and the high rollers at Metallgesellschaft may never have understood the concept of gambler’s ruin, nor even realized they were guilty of gaming’s cardinal sins. But if you aspire to be a winner, think about living your life to a higher standard. After all, you’re a poker player, not an investment banker. And you ought to know better.

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