Traders And Poker – Scorpions And Frogs

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What is it about high stakes poker that appeals so much to Wall Street’s alpha males?

David Einhorn and Carl Icahn – of the Apple no-show – are two peerless examples. Both are equally famous for their trading expertise as well as their ability to make the most from a hand of cards, and they are by no means the only serious businessmen to regularly return to the tables once the working day is done. Icahn – the king of ‘greenmail’ – has even talked about business as analogous to the game.

Perhaps not surprisingly Icahn is regularly cited as a force to be reckoned with at the tables. Einhorn too is famous for competing at the highest level of the professional game, including the annual World Series of Poker.

The motivation question

From afar, you might wonder why someone who spends his working day balancing high-stress calculations would spend his spare time doing the same thing. Standing outside the febrile world of high finance’s high rollers, you might imagine that in order to relax and enjoy their leisure time, the last thing these guys would turn to is something that is, in so many respects, so close to their day jobs.

But, like the scorpion in its fabled river crossing with the frog – incidentally an analogy well used elsewhere – it seems there is a certain type of trader that just can’t do anything but play for high stakes. It’s simply in their nature.

So much for the motivation. But there is more to be discovered here than simply the fact that the competitive and calculative instincts that make someone well qualified to trade on a day-to-day basis are the same ones shared by successful poker players.

A telling tale

There is a tale that concerns Icahn; the story goes Icahn was playing in a $40,000 game with professional poker players. Icahn found himself one of the last two players in a game of seven card stud – the other was a noted pro. As the game reached a decisive turn, the pro suggested that he had seen Icahn’s cards. The obvious thing to do was to fold. How could Icahn possibly win in such a situation?

Of course, Icahn didn’t fall for the bluff. He didn’t fold and he won the whole tournament. His commented to the effect that he’d learned long ago that in cards as in business, you shouldn’t expect anyone to keep their promises, which points to the symmetry between his day job and the satisfaction he took from the poker table.

It’s not about the money – well, not entirely

There is a point, after all, when the money is not the object – or at least not in the sense that $40,000 makes a material difference to someone with billions in the bank. Instead, the money begins to stand for something else. Divorced from its conventional value, it becomes instead a token for a player’s competitive status. Amongst men who pride themselves on their ability to work the odds, the competition is more about being more right more often than the next guy than it is about the winnings.

Despite appearances, it is not the money that is key to the contest. Dollars may be the superficial currency in play, but the real stakes are more a matter of the egos involved. A winning play represents a psychological win as much as a public affirmation. And just as the scorpion needs to sting the frog, these alpha males are hard wired to seek out that affirmation.


The key distinction

In contrast, when the rest of us are figuring out the odds – whether that is on an online poker site or face-to-face over a table scattered with chips – a big pot can be a major distraction. For those alpha calculators, however, the stakes are always the same; the amount of money is secondary to the psychological need to win. Those guys always have the same “skin in the game”, whether they are playing for a couple of bucks or a couple hundred thousand. That’s one of the reasons they are so good when the chips are down – for those guys, the chips are never anything else.


More than the math

There is no doubt that being able to read the person opposite you at a poker table is every bit as important as it is across a boardroom table. That tale of Icahn’s refusal to be intimidated is doubly illustrative. What was it in the professional’s behaviour or demeanour that gave him the clue he needed? Was it just the clarity of mind to realise that any pro worthy of his salt would never divulge his winning edge, or was there something more subtle in play? Was there a ‘tell’ that the pro let slip? As you would expect, Icahn kept his cards close to his chest on that one.

As in business, so in poker

The real story is the one that explores what happens in the margins, and precisely where and how some sort of an edge can be identified and exploited. From a mathematical point of view, what drives a person to poker is very similar to what leads a person to a career in finance in the first place: a delight in the winning calculation.

The list of those who bridge the divide extends well beyond Icahn and Einhorn. , Chamath Palihapitiya (Social+Capital founder) and many others are following (and winning) in the pair’s illustrious footsteps.

It has been suggested that poker is simply a sport for guys whose brains are too big and whose pockets are too full for them to be able to run fast. There is no doubt that the competitive mano a mano quality of the game allows for precisely that sort of trial of strength. And it is perhaps in the nature of the beast that successful traders can’t help but want to flex their muscles every now and then. It’s only indirectly about the money.

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