Texas Holdem Poker

THE LAST WORD ON MONEY MANAGEMENT

by: Lou Krieger

Old paradigms, like old soldiers, never die. Some never even fade away. They creep so far into our consciousness that we cease to critically evaluate them.

Once people believed the Earth was flat, and the Sun revolved around it. Some of us still “knock wood,” whistle by a graveyard, avoid walking under ladders, believe black cats bring bad luck, and patiently await the next harmonic convergence.

Money Management is one of those concepts that should have died long ago, but didn’t, and still makes its way into far too much gaming literature. “What,” you ask “is money management?” Part of it, the up side, is based on the timeless adage, “Quit while you’re ahead.” Once you’ve won some predetermined amount, get up and leave the game a bit richer and happier than when you walked in.

The down side tells you, “Set stop loss limits.” Once you’ve lost, for example, $500 at one session, it’s time to quit. “Give it up and go home,” say the high priests of money management, “you won’t make it back that day. Come back tomorrow. Lady Luck cold shouldered you, and you ought to know better than to chase your losses.”

Does this make any sense? Is it correct to quit while you’re ahead? Should you quit once you’ve lost some predetermined amount? If you quit when you’re ahead as well as when you’re losing, do you only play when your results are banded between your stop-loss and stop-win limits?

Even money management adherents will usually acknowledge that a poker game never ends, and it makes no difference whether you play four hours today and four hours tomorrow, or just play eight hours today. If that’s the case, what is the logic behind money management theories.

Let’s look at each money management component individually. First, we’ll examine the quit while you’re ahead theory. Proponents say that quitting winners lets you take your profit out of the game, and not give back money you’ve already won. Actually, this makes sense only if you decide to quit poker entirely. If you plan never to play again, and you’re ahead in today’s game, quitting does allow you to permanently put today’s profit into your pocket.

But if you quit winners today and lose tomorrow, are you any worse off than if you simply played on, and lost what you had won earlier in the session? The answer, quite obviously, is no. You’re not worse off. You simply pocketed those winnings for a few more hours.

The same logic applies to stop loss theory. If you are losing and leave the game, ask yourself whether you plan to play tomorrow -- or even next week, for that matter? If you answer “yes,” then ask yourself this. Do you think you can win? If you plan on playing again and believe you can win, is there any real difference between quitting now or continuing to play today?

I don’t think so. If the game is so tough that you don’t think you can win, you shouldn’t play in it. If you regularly play in a game where you are not a favorite, you can expect to go broke -- and it makes no difference whether you practice money management. But if you are a favorite, it pays to keep playing, regardless of whether you are ahead or behind at any given moment.

Here’s the only facet of money management that’s true. If the game is good and you are a favorite, continue to play. If the game is bad and you are an underdog, quit! Never mind whether you’re winning or losing.

Of course, the game can be terrific and you may not be a favorite for any number of reasons unrelated to the relative difference between your skill level and that of your opponents. You may be tired, emotionally upset from an argument with your spouse, kids or boss, physically ill and not able to concentrate, stressed out from work, traffic congestion or any other threat to the sanctity of the human condition which might put you off your best game.

You will save yourself a lot of money over the course of your poker playing career by following this simple rule: If you’re not playing up to your best abilities, go home. The game will still be there tomorrow. If you don’t quit, the game will still be there, but your bankroll might not.

Consider this. Gambling successfully is predicated on putting yourself into situations where you have a positive expectation. That’s why there aren’t any professional craps or roulette players. In the long run there is no chance of winning when the odds are not in your favor. You’ve chosen to play poker because you believe you can find games where you are favored over your opponents. While you realize that favorites can and do get beaten, favorites show a profit over the long run.

Since one of the key concepts to winning at any form of poker is game selection, why would you voluntarily take yourself out of a good game, simply because you have won or lost some arbitrarily predetermined amount of money? Now I understand that if you’ve suffered a number of bad beats, and it’s one of those nights that nothing seems to be going right, you might want to quit even though the game is good. That's O.K., but only if you’re quitting because you are no longer in the right frame of mind to assure yourself you’ll continue to play to the best of your ability. Never quit just because you’ve reached a stop-loss limit.

What if you’re in a good game and you’re $1,000 ahead? Should you really quit when you’re ahead? If the game is that good, and you have no other pressing commitments, why not go right on playing? After all, you’re a favorite. Chances are you’ll win even more money.

But whether you win or lose from that point on, those results were not predictable in advance. Your future results are always up for grabs, regardless whether you keep playing or pack it in, and return to the game tomorrow. The game goes on, and the segments of time during which you’re playing are only arbitrary measures.

Here is what I hope will be the last word on money management. To paraphrase the poets, “This is all ye know, and all ye need know.”

1. Money management, as a strategy for maximizing winnings or limiting losses, is meaningless.
   
2. Stop loss limits, and quitting once you’ve won a predetermined amount of money, will neither stop your losses if you are a losing player nor protect your profits if you are a winner.
   
3. Poor players will go broke no matter what they do.
   
4. Good players will establish an expected hourly win rate regardless of whether they quit after they’ve pocketed a certain amount of winnings.
   
5. Playing fewer hours by quitting when you’re ahead only makes the process take longer.
   
6. If you’re playing in a good game, and you are playing your best, stay in the game unless you have other obligations.
   
7. If you’re in a bad game, get out of it now -- never mind if you’re winning or not.
   
8. If you’re emotionally upset, stressed out, fighting the flu, or otherwise not at your best, you’re better off not playing, since your condition will ultimately take itself out on your bankroll.

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