Bankroll Management IV - My Bankroll Requirements

And here we are again, and this time I've brought along my old PokerOffice stats. For those of you unfamiliar with the program, it is basically a tracking software that keeps track of your exact statistics (as well as some information on your opponents) in real time as you play. I've tried a number of different calculators and tracking software, and I've yet to come across anything that has as much data available. This post will give you an idea of how the data from PokerOffice can be used, but won't provide you with a view of all the features it provides. However, as my project progresses, I'll be using PokerOffice to keep track of my stats, so you'll be seeing a lot of it if you're reading this, I promise.

The screen from PokerOffice we'll be dealing with to calculate my bankroll requirements is the screen entitled "Level Performance Summary." I'll be looking at my last 11500 hands of $5 max NL Hold Em, and calculating my bankroll based on the numbers that I've posted. Below is a screenshot of this view from PokerOffice:



I've blocked out some of the other information about my playing at other limits, as it's not relevant for this posting. This is the data for my last 11,000+ hands. Now we will look at this data, and apply it to Malmuth's bankroll formula that we discussed a few days ago:

B = (1.64sigma)^2/4u
where:
u is the hourly win rate
sigma is the standard deviation per hour
B is your required bankroll

B = (1.64*2.07)^2/4*0.24 = 12.005

In other words, I would only need $12 to compete at this level according to Malmuth's formula. However, I would need at least $20 to buy in with the minimum $1 and have it be 5% or less than my bankroll. This means that, as long as I am following the 5% rule and occasionally check my bankroll against Malmuth's formula, my poker bankroll should be easy enough to manage allowing for a 5% risk of ruin. (I will actually cut my risk of ruin to zero by following the 5% rule, as long as I always move down when necessary.)

However, this formula may turn out to be more useful when I look at my horse betting strategy. Which brings me to the topic for next time--why it is possible to win in the long-term when betting on horses, and bankroll managment strategies specific for playing at the track.

Until then, happy gambling.

Bankroll Management III - The 5% Method

OK, so I lied a little bit. I'm going to be doing these next two posts out of order, because I'm not writing this from home and don't have access to my PokerOffice database. So instead of looking at my numbers and trying to determine what bankroll I need based on Malmuth's formula, I'll be looking at a different and much simpler method of bankroll management. This method is not based in mathematics, does not have a formula, and is much easier to understand. You won't need to buy a book and read up on theory to understand this one.

The method is what I'll call The 5% Method, and is the method of bankroll management that supposedly helped Chris "Jesus" Ferguson turn $1 into $20,000 playing online poker. (I actually used this method and no other bankroll management to turn $25 into close to $600--which I subsequently had to use to pay credit card bills, doh!--over the course of a year. I have no proof though, so you'll just have to believe me.) The main idea here is that you never have more than 5% of your total bankroll on the table at any one time. Additionally, if you double the 5% you sit down with at the table, you then leave the table with your profits and buy back into another game with only a 5% stake. This way, even when you get your money in preflop with AA and lose to the 72o caller, you can only lose so much. Only 5% of your bankroll can be lost to the worst of beats. Additionally, if you are buying in with only 5% of your bankroll, as long as you are willing to move down in limits if the going gets rough you should NEVER manage to go broke.

Now, this is a very easy concept to understand. However, my proposed solution is to use Malmuth's formula to determine the bankroll I need to play at a given limit, and then use Chris Ferguson's method to determine the exact amount I will buy in with at any given table. This way I will be able to play at stakes appropriate for my bankroll, while at the same time ensuring that my bankroll never takes a huge slide even when I get hit with a terrible beat. By combining these two methods, I should be able to keep my poker money intact for as long as humanly possible while playing at the correct limits to allow me to win as much as possible.

Now, next time I promise I'll be introducing PokerOffice and looking at some of my own numbers with Malmuth's formula. Then we'll take a look at money management as it can be applied to horse betting. I promise we're eventually going to get to gambling and taking a look at my results for the project, but I want to give everyone a chance to understand exactly where I'm coming from before I start making bets.

Until then, happy gambling.

Bankroll Management II - Poker Bankrolls

Master gambler Mason Malmuth is the source of a large bit of my knowledge on the idea of bankroll management and using mathematics to very specifically calculate bankroll needs. In his book, Gambling Theory and Other Topics, Malmuth actually gives us a formula based in mathematics that can help to determine our minimum bankroll necessary to play at any particular stakes. This formula is described below:

B = (1.64sigma)^2/4u
where:
u is the hourly win rate
sigma is the standard deviation per hour
B is your required bankroll

This formula assumes you have a 5% risk of ruin tolerance. So, say for instance, we win $15 an hour on average, but can win or lose up to $300 an hour in any given hour. This gives us the condition of:

u = $15/hr, sigma = $300/hr
B = $4035

In other words, we would need to have a bankroll of over $4000 to successfully compete at the stakes where these are our statistics. This obviously means that I will be starting my project at stakes where the numbers are much smaller. In my next post, I will take into account my own numbers from the last 10,000 hands of $0.1/0.2 NL Hold 'Em that I've played on PokerStars and plugging them into this formula to see what kind of a bankroll I will need to play even at this super-micro limit. I will also be introducing PokerOffice, my preferred poker tracking software and discussing some of the features that I'll be using for my poker betting throughout this project.

However, until then I recommend that you get your own copy of Gambling Theory and Other Topics and read the much more detailed description and derivation of this formula for yourself. Malmuth's book is a must-own for anyone that intends to gamble seriously with any sort of theoretical or mathematical background knowledge.

Is it possible to win in the long term? - Bankroll Management I

The quick and dirty answer is yes.

The secret is not great bluffing skills, great bluff reading skills, horse selecting skills, or ESP. The real secret is bankroll management. Therefore, my first series of posts will be on this important topic.

Maybe you're asking, what is bankroll management? Your bankroll is money you have set aside specifically for gambling. This means you won't be gambling with the rent money or your kids' college funds. This is a responsible way to gamble. However, if you lose all of this money, your gambling will be done. Bankroll management is the way that a gambler can ensure that there will always be money available for gambling in the future.

For instance, my starting bankroll for this project will be only $250. I will need to practice very careful bankroll management to ensure that my $250 doesn't disappear. Sure, I could put all $250 down on the Pass Line at a craps table and hope that I walked away with $500. But were I to lose, I would be down my entire bankroll, and my gambling career would be over. To be successful in the long run, we must successfully manage our risk of run--the risk that we will lose our entire bankroll.

In my next post I will be discussing the mathematics of risk of ruin, and how we can select gambling options that expose us to the least possible risk of ruin.

Until then, happy gambling.

Introduction

"Money won is twice as sweet as money earned."

Why would any reasonable person choose to gamble with hard earned money? The above quote—uttered by Paul Newman as pool hustler Eddie Felson in Martin Scorsese’s “The Color of Money”—gives us a pretty good idea of one reason. Sure there’s the lure of easy money. Sure there’s the excitement of putting your money on the line, trying to increase your fortunes in practically no time. Sure there’s the thrill of victory. But in most forms of gambling there’s also the house edge—the money that the house will always take away from you in the long run.

But there’s more to it than that. There are forms of gambling where you don’t play against the house. There are forms of gambling where people are pitted against each other. This is the type of gambling that interests me. This is the type of gambling where I think I can win.

I’ve selected two specific forms of gambling to begin my professional gambling career with. These two forms of gambling are poker and horse racing. Maybe you’re wondering, of all the forms of gambling available, why these two? The answer is, that in these forms of gambling you are not playing against the house where the odds are fixed against you. Instead, you are playing against other players, and their mistakes lead to your profits. Every time you bluff someone out of a pot, another poker player has made a mistake and you have profited from that mistake. Every time you pick the winner of a horse race, you have profited from the mistakes of those who selected a non-winning horse. People make mistakes, and if we can correctly exploit these mistakes we should be able to profit from them.

How, you might ask, can we make sure that we are the ones making the profit and not the ones losing to other players? The answer is hard work, study, and mathematics. Through these tools we can increase our edge over the other players. In both horse racing and poker there is information available to all of the players. However, only those with the knowledge to properly use this information can exploit it profitably.

It is for this reason, I intend to begin this blog by sharing with you some of my philosophy of gambling, some of my favorite sources of gambling knowledge, and some of the techniques I intend to use to grow $250 into as much money as I possibly can. Then I intend to keep everyone updated as to my wins and losses, and my progress in the field of making money through gambling.

Look soon for my first entry on poker, and the strategy I intend to use to make as much money as possible via online and live poker.