Why are so many poker players bad at money management?
Why do so many poker players struggle to keep the money they make and are they naturally bad investors?
I'm as much a fan of Rampage as anyone, he is a breath of fresh air, fun to watch, and seems like a good guy. He also seems like his own worst enemy a lot of the time.
Last week he tweeted outing a player who owed him over $450k and it looks like he is not getting it back:
This “deal” occurred early January this year after I won the Wynn $25K. Had too much money in my bank account for my own good and decided on a risky “investment”. Lessons learned, should be a fun process trying to recoup as much funds as possible
— Rampage (@rampagepoker) July 15, 2023
Aab is the one at fault here, but in hindsight, this looked like the riskiest investment in poker history. There are so many red flags that Aab was not to be trusted, and in Rampage's own words, he was looking for a 'risky' investment. This is not the first time Rampage has been scammed and he has somewhat made his name by taking huge bankroll risks.
It's not very often I'd turn to Phil Hellmuth for advice, but one thing I have always noticed is that Phil is very quick to highlight how poor money management has been the downfall of many of his peers over his long career:
The financial perks of going pro are undeniably attractive. But without the money management, all those dollars will just be flushed down the drain. @phil_hellmuth
Watch the full video here. â–¶ï¸ https://t.co/czlMBFEMDJ pic.twitter.com/0kiNv49geE— Ben Reinberg (@realbenreinberg) April 30, 2023
Rampage is the latest in a long line of stories of poker players making bad investment choices. This time last year we were all talking about how Espen Jorstad won the Main Event a year after losing most of his net worth in Crypto. Good poker players are sometimes terrible investors.
Speculation vs discipline
There is a difference between getting rich and staying rich. Successful poker players have the first trait but not necessarily the other. Getting rich is about speculation, and staying rich is about discipline. Being a success at poker is about strategic risks, not going broke is about risk aversion.
Keeping onto wealth often requires people to do nothing. A famous study by Fidelity found that the top-performing investment accounts were either owned by dead people or customers who had forgotten about the account. Dead Guys beat the majority of active investors in the market.
The reason for this is that buying and holding a well-diversified portfolio with global equities will beat the majority of active traders. Just letting it naturally recoup the gains it would make would not incur the 'frictional costs' that come with active management like brokerage fees and taxes, not to mention human error.
This is an unpopular thing to say in the poker world because so many poker players trade stocks and/or crypto, but most people lose money making speculative investments and would be better off in a tracker fund that doesn't beat the market, but instead just reflects the market. There are famous examples of poker players who have made great investments, especially early crypto investors, but they are outliers.
The problem poker players have specifically is that the advice for holding on to wealth is the complete opposite of what they have to do to earn it. Poker players need their funds to be liquid and money is the tool they use to make more money. Letting it sit somewhere where they cannot have access to it is completely alien to them. Especially when they could, in theory, use that money to play at higher stakes.
Are poker players bad investors? Let us know in the comments:
