Hangzhou, China, just past midnight. As we are having drinks in a whisky joint called Half Half with a group of wai guo ren (foreigners) who are attendeding the Global Domain Summit, I call Mr George Hong, the CEO of Guta and ask if we can meet to discuss about a deal. He says that he is meeting a group of domain investors in a poker game which I am welcome to join. When I was younger, I was pretty good at poker, so this was a no brainer for me. I quickly get on a taxi and reach the playing room.
As I sit down and watch the action, I immediately recognize the type of game. It is a loose game, with people constantly inflating the pot with marginal hands like King Six unsuited. For a poker player, this is a fantastic game. To win in games like these, you just need to follow a simple strategy: wait for premium hands like Aces, Kings, Queens or AK suited, and when there is a raise before the flop, isolate the most aggressive player by going all in. If you play this strategy correctly, you will get into situations where you are at least a 2:1 favorite, which in my book is a pretty good position to be in. The trickiest part of this type of games is maintaining strict discipline – as the good advice from the book called Zen and the Art of Poker: “If you’ve been folding a lot, for a long time in the game, and you’re starting to think that maybe it’s time you got in and played a few hands again—that’s not a good enough reason. Keep folding“. Waiting is so difficult because you keep seeing the player at your right constantly raise with 3-6 suited, who rakes pot after pot. It is so easy to slip into the: “oh, come on, let’s play just one hand“.
But that’s what I did. I sat tight and waited for a good hand. And, after about one hour, the moment finally comes: I get a pair of Queens. As expected, someone raises aggressively before the flop, and with the decent amount of chips I was left with, I go all in and get quickly called by the raiser. The dealer turns the card slowly. A few high cards come up, but nothing that looks too dangerous like a an ace. We show down our hands: the raiser holds a pair of Aces which beats my queens. My stack is all gone.
I wait patiently for another good hand, and there it comes. Ace and Jack of hearts. I just call the blind and one of the players at my right raises without even looking at his cards. My hand, although not great, is so much ahead on the range that the other player might have. So I make a move, and after the buyer raises, I bravely go all in with my AJ suited. The blind raiser debates shortly, and, after a while, he calls with a “screw it, let’s do it” look on his face. An ace shows up on the board, and I get to win a nice pot.
As I am counting the chips won, the dealer gives the cards. I slowly look at mine: a black king paired with another red king. I am the first to talk, and decide to slowplay my hand expecting a raise down the road. I just call. As expected, once again, an agressive players raise way too high right before the blinds. Without thinking too much, I shove all my chips in. The dealer once again turns the cards. Nothing dangerous. No ace, just a jack. My opponent asks me to reveal my cards. I flip them over showing my pair of kings. He looks unpuzzled, and he flips his cards showing a pair of aces. It’s game over for me.
Needless to say, I was not feeling too good about it as I lost two stacks . I feel though that there are many analogies between the game I played and the recent market. Investors that have been in the game for a decade, and who monitored the auctions daily for good .com keyword domains with end user potential, watched fair weather investors making 10x plus on their money by just jumping in the action of a market they barely understood. In a market that keeps going up, it is extremely hard to lose money: you just need to hold on a bit, wait for the market to go up, and, presto, you made yourself a nice profit. But both as an investor and as poker player you make money by consistently making quality decisions. If you are affected by the outcomes generated by luck, then you are in trouble. Warren Buffett, Ray Dalio and the few investors who made billions on the financial markets, will tell you that you can become a smart investor by getting rid of your cognitive biases before making decisions. While the emotional part of your brain wants to jump in the action because of the fear of missing out (commonly knows as FOMO), the rational part of your brain knows that carefully analzyzing before jumping in, is the smart thing to do.
They say the biggest challenge in the path of becoming a professional poker player, is being able to stay emotionally neutral when you experience a downswing. It is hard not to question your strategy when you have been losing money for weeks and people around you are raving about all the money they are making. But that’s the short term. In the long term, you can thrive only by consistently making good decisions.
Was it the same for you? How have you done during the Chinese boom of last year? Wether you joined the action or not, how do you feel now in retrospect? Let me know in the comments below. And, if you want to reduce the luck factor on your investment decisions, here is my personal invitation to join my free neswsletter by clicling this link. If you do, you will get a free chapter of our investing guide.
