Bankroll Management & Shot Taking (essay/long)

[TStoneMBD]

Many people seem confused about bankroll management. I am not an expert on bankroll management but I do think I have some insight to help those that feel lost on the subject. Maybe this thread will help rid of some of the bankroll questions in the future.

I think the key to bankroll management is that you want to make sure your risk of ruin remains low at all times.

Let's say for instance that your main game is 15/30 holdem and you play for a living. You don't feel comfort having less than $30,000 in cash playing in this game for a living, so you dont want to go below 1000BBs. Some people are more comfortable than others about having less money, so 500BBs might be enough for you. Realize however that if you play with a smaller bankroll there may come a time in which you are forced to move down and rebuild. Moving down will likely mean a lower hourly rate so you want to keep this from happening at all costs.

So you have your original $30,000 (1000BBs) for 15/30, but you're doing well and your bankroll has grown. You now have $40,000 after a $10,000 month. You take a look at some of the bigger games online and you think that if you had a bankroll to play in those games, you would be making more money per hour then you are now. This is the time to take a shot.

You have $10,000 in spare money that you can afford to lose. If you lose that $10,000 you still have enough bankroll to maintain playing at 15/30 and your risk of ruin is still very low. With your $10,000 you could take a shot in a bigger game. However, I really only recommend taking shots in bigger games where you feel your hourly rate will be higher then your current game. $10,000 in this situation is more than enough to take a 50BB shot playing as high as 100/200. That's right, with a $40,000 bankroll I am advocating playing in the "big game".

Making the decision to take a shot at 100/200 is pretty simple if you conclude that the 100/200 game will yield the highest hourly income that any game could bring for you. However, there is a better question to be answered. Would taking a shot in a lower game with a lower hourly rate be better than taking a shot at 100/200?

With $40,000 you now have enough money to take a $10,000 shot playing 30/60. You think that you would make less in the 30/60 then the 100/200 but your risk of losing the $10,000 is substantially less because you are playing with a 160BB bankroll in comparison to a 50BB bankroll.

This is where advanced math comes in, but I really couldn't do it on my own and I would have to ask someone to contribute the math to this thread. The math also probably won't help many people in situations like this because it's complicated and somewhat overkill. What's important is that you understand the concept of money management well enough to make relatively accurate decisions on bankroll management.

So let me throw some numbers out there for you.

-You are currently making $100/hr playing 15/30.
-If you move up to 30/60 you approximate that you will be making $150/hr.
-If you move up to 100/200, you feel that you will be making $200/hr.

Now if you asked a novice money manager what the best way to increase your hourly rate would be in this situation, he would immediately say to play in the 100/200 game. Well that is actually not necessarily true. Here is why;

With a 50BB bankroll for 100/200 you will often go broke. This will send you back to 15/30 where you are making $100/hr again. With a 160BB bankroll for 30/60 you will seldomly go broke and you can continue making $150/hr for a long time.

If you go broke in the 100/200 game with a 50BB bankroll 60% of the time, your hourly rate would be $100/hr 60% of the time and $200/hr 40% of the time. 100(.60) + 200(.40) = 140. This means that your hourly rate is $140/hr based on risk of ruin.

If you go broke in the 30/60 game with a 160BB bankroll 10% of the time, your hourly rate would be $100/hr 10% of the time and $150/hr 90% of the time. 100(.10) + 150(.90) = 145. Your hourly rate for moving up to the 30/60 game would be $145/hr.

Therefore according to these (arbitrary) numbers, based on hourly expectation alone, it would be correct to stay in the 30/60 game until you have a lower risk of ruin (more than 50BBs) in the 100/200 game. However, some of you may prefer to sacrifice the $5/hr edge you have in the 30/60 game by moving up to the 100/200 game where you will develop as a player faster. That is a very good arguement. Some of you are more conservative then others and don't want to risk $10,000 on a high risk endeavor.

Some of you may be wondering how it's possible to have a 60% risk of ruin with a 50BB bankroll if you are the favorite in the game. Well, if you were an average player in the game with 50BBs, half of the time you would turn the 50BBs into 100BBs, the other half of the time you would go broke. Then, with your 100BBs, half of the time you would turn it into 200BBs and the other half of the time you would go broke. To continue, half of the time you would turn your 400BB bankroll into 800BBs, and the other half of the time you would go broke. A risk of ruin for an average player with 50BBs is way, way over 50%. For a winning player it goes down substantially of course, but it is dependant on winrate and standard deviation, something I definitely do not feel like discussing today as things get really complicated and arbitrary.

I certainly haven't covered everything in bankroll management or shot taking for that matter. For instance, because your risk of ruin is much smaller in the 30/60 game then the 100/200 game, you could argue that the 30/60 game actually has a larger winrate than the $145 expressed above. Why? Because you will be able to build a bigger bankroll faster at 30/60 then at 100/200 (with the $5/hr difference) which allows you to decrease your risk of ruin at 100/200 exponentially faster since your bankroll grows faster by playing at 30/60. Confusing, I know.

Lastly, alot of bankroll management and shot taking has to do with your ability to recover your losses in quick order. Many people say that you need to have a 50 buyin bankroll to play in multi-table tournaments, which is a fair assessment. However, if you were making $30,000 a month playing poker and only had $100,000 to your name, it is perfectly reasonable to buyin to a World Poker Tour $10,000 tournament every couple of months or even every month! Your risk of ruin is virtually 0% with this form of shot taking because your income far exceeds your risk.

To conclude, I hope I've helped some of those who are confused on bankroll management. I might have just ended up creating more confusion. I certainly hope that wasn't the case. The intent of this essay was to show that shot-taking is an excellent approach to increasing your hourly rate while maintaining a very low risk of ruin. I recommend that you guys take shots on a regular basis, but my personal (yet controversial) opinion is that you only take shots in games where your hourly earn increases.

[sthief09]

go delete this and get mason to pay you $100 for putting it in the 2p2 magazine. this would be one of the best articles ever in there imo

the problem though is that if you go to 1/2 where your hourly is highest, you will possibly, at some point, lose that 50 bb before you get up to 500 or 1000 BBs. you could've used that 10k and played 20/40 and made a slightly higher earn consistently, rather than taking a super high variance shot with an earn slightly higher than 20/40. i think the future money youd make at 20/40 is more than the expected value of the future money youd make at 15/30 and 1/2

[B Dids]

I have a slightly unrelated thought.

Sometimes the gods of variance bless us and we're able to go on a run where we suddenly have a sum of money that can be really life changing for a 21 year old.

At some point there's something to be said for realizing that you've likely out preformed your earn and ability to the point where you know this won't last, and rather than continuing to try and move up, it might be a wise idea to turn that newfound money into something tangible. If a shot means that suddenly you can pay for 4 years of college, maybe it's time to bank a win instead of pressing an edge that might not even exist.

[Losing all]

[ QUOTE ]
I have a slightly unrelated thought.

Sometimes the gods of variance bless us and we're able to go on a run where we suddenly have a sum of money that can be really life changing for a 21 year old.

At some point there's something to be said for realizing that you've likely out preformed your earn and ability to the point where you know this won't last, and rather than continuing to try and move up, it might be a wise idea to turn that newfound money into something tangible. If a shot means that suddenly you can pay for 4 years of college, maybe it's time to bank a win instead of pressing an edge that might not even exist.

[/ QUOTE ]


Great post! Nothing wrong with taking a shot at 1,000 shares of GE.

[ghostface]

[ QUOTE ]



Great post! Nothing wrong with taking a shot at 1,000 shares of EOL.L.

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[stigmata]

Interesting post.

There are obviously many approaches to this problem. Personally, I think there is something to be said for moving up the ladder slowly. This way you can get used to the skill differntial gradually whilst improving your game. I would doubt that my hourly earn is higher at 100/200 than 20/40. It's a much tougher game and the massive variance may well affect my game. I think moving up through the 30/60 and 50/100 is a safer approach and is a more natural proggression for a poker player.

[TStoneMBD]

youre basing this on your assessment that you cant win more money at 100/200 then 20/40. there are many players who can and who dont have large bankrolls. a good example of this is the good players who are still playing at 3/6 and dont want to take shots at 15/30 where their hourly rate would be significantly higher.

[stigmata]

OK thanks for clarifying that.

I guess what I was getting at is that bankroll manegement is "horses for courses" and that the correct strategy for many players may be to never "take shots", but just build up the required bankroll & experience before moving up.

[Justin A]

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If you go broke in the 100/200 game with a 50BB bankroll 60% of the time, your hourly rate would be $100/hr 60% of the time and $200/hr 40% of the time. 100(.60) + 200(.40) = 140. This means that your hourly rate is $140/hr based on risk of ruin.

If you go broke in the 30/60 game with a 160BB bankroll 10% of the time, your hourly rate would be $100/hr 10% of the time and $150/hr 90% of the time. 100(.10) + 150(.90) = 145. Your hourly rate for moving up to the 30/60 game would be $145/hr.

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I think your math is off here. In the first example, if you lose $10k and go back to making $100 an hour, you can't say that's your winrate for the time period, because you just lost $10k in however many hours.

[TStoneMBD]

I want people to understand that I am not offering a strict model of how you should practice bankroll management. There are alot of people who are more conservative with money then others and that is fine. Every situation is unique and telling people that you need (x)BBs in order to play a limit isn't accurate because it varies from person to person. If you don't feel comfortable playing 100/200 with 1/4th of your bankroll then you shouldn't. I just want you to realize that you are probably sacrificing long term earn and development for the sake of being risk adversed when you already have a very low risk or ruin if you are playing on a 1000BB bankroll. The purpose of this thread is to help people who have trouble deciding how to manage their bankroll come to better conclusions about good bankroll management practice, not to tell people how they should be managing their money. The overall message I am trying to send is that taking shots in games where your hourly earn is greater is a great model for building your bankroll. Whether you want to take a shot in the 100/200 game or the 30/60 game depends on alot of factors other than your hourly earn and it's up for you to decide what is right for you and what you feel comfortable doing.