The 2+2 Hedge Fund

[illiquid]

Wasn't Jeff Yass an options market maker? Point being, the typical market maker would most likely make a horrible investor. Making markets and investing are just two completely different animals, and it's likely having experience in one is actually a disadvantage when attempting the other -- Warren Buffett would make a horrible short-term trader due to his prior success in long-term investing, not despite it.

Along the same lines, intelligence and prior success in one's profession does NOT by any means provide an edge in the markets, and may actually prove to be quite detrimental (and if you need to wonder why that is, you haven't tried trading full time). Anyways, I'd imagine that the most intelligent of poker players would have entered the markets a long time ago if their talents could so easily translate, the rewards are just magnitudes greater than anything that can be consistently achieved at the card table.

[Bataglin]

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They would be where the real money is.

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Not necessarily. You assume that people always will pursue the hunt for money, to the full extent of their capacity.

First, not everyone is obsessed with making as much money as possible. There are other value scales. Second, to excel at a field you need motivation and dedication. Without genuine motivation (whatever it might be), you can't become a top notch expert in any field - even though you are capable to.

[David Sklansky]

Maybe I'm not making myself clear.

1. Firstly, the main reason I posted on this was to defend against those who thought the best poker minds of the non instinctive variety wouldn't do better than the average professional investor if they set their minds to it. In other words beat the S&P nicely.

2. I do not believe, as Leonardo claims, that many mutual fund managers would do significantly better if they could stick to five stocks. I might be wrong about this but I base that thought on how I'm told individual recomendations by so called experts, do in the long run.

3. I went to Wharton. My classmates were in many cases the same guys who a 2+2 fund would compete against. It may be different in the Wharton graduate school but in undergraduate school there was not one student that I ran across who was as sharp as the top twenty in my high school. Yet many of these Wharton guys are do well. Of course we could do better.

4. When I said Yass and Resnick do better than Buffet, that might have been unfair because Yass trades options and Resnick is a short term trader for the most part. I don't think they could beat him simply by buying and holding. In any case, Buffet is a bad example to use make my point. He is a good bridge player.

[David Sklansky]

"Anyways, I'd imagine that the most intelligent of poker players would have entered the markets a long time ago if their talents could so easily translate, the rewards are just magnitudes greater than anything that can be consistently achieved at the card table."

That's only true if you have a few million to play with. Otherwise poker is better.

[J_V]

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3. I went to Wharton. My classmates were in many cases the same guys who a 2+2 fund would compete against. It may be different in the Wharton graduate school but in undergraduate school there was not one student that I ran across who was as sharp as the top twenty in my high school.

[/ QUOTE ]

Was it some sort've prep high school? This has to be a little bit of hyperbole.

[David Sklansky]

"Was it some sort've prep high school? This has to be a little bit of hyperbole."

No hyperbole but no big deal either. Teaneck High School had 700 seniors so the top twenty in this New Jersey public school figured to be smarter than almost any University of Pennsylvania undergraduate.

[DesertCat]

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That's only true if you have a few million to play with. Otherwise poker is better.

[/ QUOTE ]

This is exactly true, and I've been thinking a great deal about it lately myself. A good private investor with a few million and the right approach should be able to knock down at least 20% per year.

But a strong poker professional who is well funded, say has a 500BB bankroll, and a reasonable expectation of even a half BB per hour, would earn about 10% per month, or 120% a year, playing only 100 hours a month. There's no comparison. Skilled professional poker playing is a much better use of a smaller bankroll than investing.

The real edge of investing is in the compounding of returns it provides. A poker professional is eventually going to hit a ceiling where he can't play any higher (or win at any higher) stakes. Assume for the sake of argument $1K/$2k is that limit. That would cap your annual earnings earnings at $1.2M, with a minimum sized bankroll of about $1M.

Pretty nice. But if your bankroll is $6M, suddenly an investor will only have to earn 20% to match poker winnings. And if that 20% is after tax and after living expenses, next years portfolio will be 7.2M and things get even easier then. Compound at 20% for four years and you'll more than double your porfolio size. Do it for 20 years and your portfolio should be somewhere in the region of 40x bigger (or $240m from our example). Of course high returns like can't be sustained forever as your portfolio grows, but with a $40M portfolio you only need a 3% return to equal your max poker earnings.

Investing offers the opportunity for virtually unlimited long term rewards. Poker offers surer short term rewards to the skilled (and frankly, is much more enjoyable), but unless Andy Beal comes back to Vegas, will always have an upper limit.

The obvious solution is to combine the best of both approaches since they aren't exclusive options. Focus the bankroll on poker until it gets too large for your best limits, then divert your profits into strong long term investments.

[J_V]

If you gave me 2 dollars. I would be a heavy favorite to make it 20k before the years out.

That's good ROI.

[nycfish]

O.P.M.

[nycfish]

L.T.C.M