Thursday, November 12, 2009


In his book The Poker Face of Wall Street (Wiley, 2006) Aaron Brown adopts the term “riskers” from a 1921 study on poker by Ethel Riddle. Riskers are also known as action players or gunslingers. In poker “riskers play the most hands, make the largest raises, and lose the most money. They are often good players . . . evaluated one hand at a time. They may know probabilities and tactics; they are often very good at card games other than poker.” But “risker strategy guarantees long-term failure, even if it works most of the time. Riskers lose more money than even the bad players.” (pp. 285-86)

Since riskers are doomed to failure, it’s important to know how to avoid becoming a risker in trading. The easiest way is not to be one of the richest players at the table. If you are a risker by temperament and very wealthy, big bets don’t have the same financial and psychological impact as they do on the rest of the players.

Okay, now that we’ve all passed the first hurdle, let’s move on to other characteristics of riskers that might doom us. We know that riskers overtrade, and overtrade in large size. Moreover, they keep repeating this activity. Why? One reason is that riskers are inflexible. “They cannot adapt their strategies, they cannot read other players or the mood of the table.” Second, riskers don’t care. They have ice in their veins. “They aren’t distracted by fear or greed or any emotion whatsoever.” It’s only their wild betting, Brown suggests, that keeps them from falling asleep.

So it’s okay to sweat, it’s imperative to be flexible, it’s often wise to sit on your hands, and it’s always important to size your position appropriately. Let someone else be the risker.

And that should be the end of the story, save for the fact that Brown has a “reluctant admiration” for riskers. He claims that “there’s a risker behind the greatest triumphs as well as the greatest disasters.” (p. 288) In the financial world, however, the hugely successful are not riskers pure and simple. They have managed to meld “the best aspects of riskers with the best aspects of poker players, and, yes, there has to be some unusual wiring to do that.” (p. 289)

Personally, I remain more than happy to let someone else be the risker.

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