What is the magic number for JohnnyHumongous?

[Mr. Zero]

[ QUOTE ]
I don't think this is true. If Johnny could make $20 million a year like Phil Ivey does, I think it's pretty obvious he should be playing full time. There is a "magic number" somewhere between 180K (or lower) and 20M... now what is it?

[/ QUOTE ]

The figure you want is actually pretty easy to ascertain. The difficulty is the assumptions you choose to make regarding the numbers you plug in to some pretty basic financial formulas.

Basically, the "magic number" will be an annual salary made playing poker, added together and discounted to a present value, that equals what JH would make by taking the job, also discounted to a present value.

So let's make some very broad and inaccurate assumptions just to illustrate. Assume that JH will start off at 70k at his job. This includes base salary and benefits. Also assume he gets a 8% raise per year to cover COL increases and also merit raises. Let's also say his maximum salary is capped at roughly 500k. He also works for 39 years at this job, and makes no additional money playing poker on the side.

Now we also need to pick a discount rate. Again, out of thin air, I'll pick 8% - a figure less than what the S&P 500 returns per year, but still a nice rate on an investment.

Ok, now with those figures in mind - plugging them into Excel - JH's net present value of taking the job is $2,238,449.50.

Now all we have to do is treat that number as an annuity and determine what the annual payment needs to be on a 39 year annuity returning 8%. In this case, it's $188,444.19 per year.

This means JH needs to make $188K every year for 39 years playing poker in order for poker to be the "right" decision for him.

Now, this result means pretty much nothing, since I've made so many assumptions, the bulk of which I think aren't particularly accurate. But if this was a finance 101 exam, that's the answer I'd give.

[TimM]

This can't be right. Let's say he earns $150K after tax playing poker every year. He invests the difference between this and his first year after tax salary in the 8% annuity, and the 8% is also reinvested every year. After about 15 years, the income from the annuity would exceed what his pretax salary would have been. Now he can sit on his ass for the rest of his life and have an income always exceeding what his salary would have been had he taken the job, and have a big lump of principal left at the end of the 39 years.

The real question is, will he be able to make $150K at poker for the next 15 years? Who knows. Also he would have to live on a fixed amount of income for that first 15 years, which is a long time.

But what if it were $300K after tax. Now he gets there after only 6 years.

[lehighguy]

I think the amount of time he has to play is more important. If you can make six figures playing 20 hours or less a week there is no need to get a job. And there is plenty of time for him to fulfill himself in other ways if poker ever gets boring. But that's just me. I'd rather do lots of things that require time away from work.

I still can't understand how business or law or insert technical job here can be rewarding or fun. Your being paid alot to do your job because no one else finds it interesting. When I here someone say they want to go into corporate law or something like that I really have to question the "want" factor. That being said, the OP sounds pretty happy about the offer (I just wish he'd elaborate on wether he likes the work or the money/security). Because if he only wants the money that might be why he is considering poker.

[tac252]

I don't really think you can answer a question like this by just giving a "magic number." I know it sounds corny, but it really depends oh what he WANTS. If I had the option to make 500k per year to work 60 hours at a steady job, yet be a miserable workaholic and not enjoy life or make 100k playing poker and loving it, the answer is easy...playing poker for a living.

I just don't think you can sum this up in a simple number, there is a larger human element.

Tom

[MicroBob]

[ QUOTE ]
If I had the option to make 500k per year to work 60 hours at a steady job, yet be a miserable workaholic and not enjoy life or make 100k playing poker and loving it, the answer is easy...playing poker for a living.

[/ QUOTE ]



me too.


but the arguments about whether he will be limiting his career options for the future are EXTREMELY relevant.

And he has already stated that this is pretty much a dream-job type of opportunity for him so lets at least assume that he isn't going to be COMPLETELY miserable if he does this.

[JohnnyHumongous]

Just to elaborate a little, yes the job is about as good as I could want straight out of college. It is basically the best I could have hoped for and had this poker thing not appeared out of the blue, it would have been easily all that I could ask for in a job. The people are of extremely high caliber, the work is extremely relevant and interesting, I will be interacting with senior management of Fortune 500 companies from my first day in the office. Where I'm from, the high school I went to, people don't get jobs like this. This is a path they will never have access to.

And I know that taking the job is the right decision. But it's hard when you think that I would do very well to pocket $25K cash at the end of the year from this job (when you sub taxes and cost of living from $75K). But making $200K playing poker in my home country or elsewhere, assume same cost of living (it would be lower but still let's assume it's constant) I would be able to pocket around $160K!!! That's more than I could expect to pocket in the next FOUR or FIVE years on the 'fast track' in consulting. And I feel my hourly income will only increase. I first played poker for real money last June, and started playing seriously online in October, so I feel there is a lot more runway there yet.

Of course, as many have mentioned, it is possible to have the best of both worlds by playing poker in my spare time. This would lead to many fewer hours of poker and probably less improvement of my game, but these are acceptable tradeoffs in order to have a job like this and the possible payoffs it will bring down the road.

The replies in both threads have been absolutely fascinating and have revealed a lot of insight to me. Thanks so much. I hope others will be able to take something out of value from these discussions as well.

[Punker]

[ QUOTE ]
I first played poker for real money last June, and started playing seriously online in October, so I feel there is a lot more runway there yet.

[/ QUOTE ]

I would be very surprised if you have enough data to support the statement that you can make 6 figures per year playing based on this level of experience.

[JohnnyHumongous]

[ QUOTE ]
I would be very surprised if you have enough data to support the statement that you can make 6 figures per year playing based on this level of experience.

[/ QUOTE ]

You tell me what you need and I'll tell you if I've got it. Caution obviously needs to be taken when predicting these matters, but at the same time there needs to be a balance between statistical rigor and overlooking very lucrative opportunities.

[Punker]

Other posters who do play full time could probably tell you better...I'd guess that until you have at least 100,000 hands played at the limits you plan to make 6 figures a year playing, you shouldn't be too confident in your results.

[Mr. Zero]

[ QUOTE ]
This can't be right. Let's say he earns $150K after tax playing poker every year. He invests the difference between this and his first year after tax salary in the 8% annuity, and the 8% is also reinvested every year. After about 15 years, the income from the annuity would exceed what his pretax salary would have been. Now he can sit on his ass for the rest of his life and have an income always exceeding what his salary would have been had he taken the job, and have a big lump of principal left at the end of the 39 years.

The real question is, will he be able to make $150K at poker for the next 15 years? Who knows. Also he would have to live on a fixed amount of income for that first 15 years, which is a long time.

But what if it were $300K after tax. Now he gets there after only 6 years.

[/ QUOTE ]

No - I made no assumptions as to his investment of any of the funds. Essentially, he spends everything he earns under my model.

I guess my point was really that a "magic number" is pretty easy to come up with, but the assumptions you make behind it are fairly complex - as you've pointed out by coming up with something I didn't even factor in - making it nearly impossible to come up with a "right" answer.

But FWIW - take the job, and it's not even close.