Boaz Weinstein was a former hotshot trader who until recently worked for Deutsche Bank. He was a well-respected poker player (and was also excellent at chess) and often hired poker players into his trading division.
He organised poker tournaments with his trading team and, one suspects, felt that his skills in such risk-reward games like poker and chess gave him an advantage in the markets.
Unfortunately, Weinstein has recently exited Deutsche Bank and left behind a massive trading loss of $1.8 billion.
It seems that Weinstein and his team had been making serious money up until mid-2008. However, from that point on, up to and after Lehman Brothers went bust, things started to go wrong. Weinstein ended up wanting to stay in a number of trades, and perhaps do some hedging to manage the exposure. But the investment world had changed drastically after Lehman Brothers went bankrupt and so had the “rules of investing”. Movements in security prices that could never have been imagined before, happened. Trading methods and systems that had worked for a long time stopped working.
So how can we look at this episode using TexasHoldemInvesting.com and learn something about investing.
One of the key elements of TexasHoldemInvesting.com is that you learn the rules of how Texas Holdem works very well. When you have learnt them well, then you should be able to operate in Texas Holdem games effectively. However, just because you know the rules of Texas Holdem doesn’t mean that you will know how to play if you are put into a game of Omaha Holdem. The Lehman Brothers wipeout had the effect of changing the “rules of investing” – like changing from Texas Holdem to Omaha Holdem. Weinstein and his team kept investing as if the world had not changed. And they were punished for it.
Weinstein and his team should have tried to”fold their hands” as quickly as possible when Lehman went under. Then they could have sat on the sidelines and spent some time figuring out the new rules.
Therefore, TexasHoldemInvesting.com shows that if you are invested in particular security or market and the rules by which returns are generated and risk is assessed, you should stop investing, fold out of there, and spend some time getting to know the new rules.
Of course, maybe when you attempt to learn the new rules, you will discover that you are not as good at playing with them than under the old rules. Just like a great Texas Holdem player may not necessarily be as great at Omaha Holdem. If this is the case, then you should start to look for other investments that operate by a set of rules that you are more comfortable with.
You can read about Boaz Weinstein in more detail at the Wall Street Journal (subscription) and the UK Independent.
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