GTO Poker Theories -The Barbell Strategy
Nassim Taleb has sage advice for investing which also could be applied to shot taking in the world of poker.
One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.
The barbell strategy, widely popularized by author and former Wall Street trader Nassim Nicholas Taleb, presents an unconventional approach to investing. This tactic diverges from traditional investing strategies and instead focuses on extreme diversification as its primary risk management tool.
At its core, the barbell strategy involves splitting an investment portfolio into two distinct extremes, hence the term 'barbell.' The investor allocates a large portion of their portfolio, typically around 80-90%, to extremely safe, low-yield investments. This might include Treasury bonds, cash, or money market instruments. The goal here is to protect the majority of the portfolio against market volatility and unexpected downturns.
The remaining portion, usually 10-20%, is then invested in high-risk, high-return assets. These could include high-growth stocks, options, futures, or even emerging market investments. This part of the portfolio is aimed at generating significant returns and compensating for the low yields from the safe investments.
The unique attribute of the barbell strategy is that it minimizes the risk associated with medium-risk assets, which are perceived to provide neither sufficient protection in a downturn nor significant upside in a boom. By focusing on the two extremes of the risk spectrum, this strategy offers a better chance of preserving capital while still exposing the investor to potentially high returns.
The right way to take shots
Spoiler alert - nobody is bankrolled to play the WSOP Main Event. In most cases even when they sell a significant share of their action.
Everyone is taking a shot in the Main Event and the Barbell Strategy could provide a useful template for doing it well.
A sensible approach might be to allocate 10% of your bankroll for a once-a-year shot at a big profitable event like the WSOP Main Event. Also, sell action to the event. Then play softer, lower stakes, lower variance games the rest of the year.
If you only take one or two shots a year, there is no risk of ruin. You could not go broke if you made, say $50,000 a year, and your only shot outside of your bankroll was the WSOP Main Event. If you play low-variance games the rest of the year you protect yourself from massive downswings, but you expose yourself to the potential asymmetric upside of a deep run in the Main Event. Not only is a 'bucket list' event like this softer because of the once-a-year element, but it also has other benefits like potential sponsorship if you do well.
The wrong way to take shots at big events is to just keep doing it until you take enough of a hit to your finances that it hurts you. A Barbell Strategy where you protect yourself for the rest of the year is a good way to manage the extremes of variance.
What theories from outside of poker have helped your game? Let us know in the comments.
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