Bill Gross (PIMCO), Kevin Fong (3Par) and Learning to Invest with Card Games

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The Masked Financier has been out of the game for some time owing to many interesting things going on in the “work” sphere.  I have finally managed to negotiate an amicable exit from my long-term employer and am in the process of setting up a new venture in the financial services space.  Hence the hiatus in my postings here.

However, some interesting commentary on the relevance of card games (blackjack and poker) to investing and mergers and acquisition strategy appeared recently in the financial press which gave me cause to put finger to keyboard again.  In addition, having received some positive feedback on my ebook from some respected online financial authorities I would like to start a buildup to its launch in the near future.

Bill Gross, PIMCO, Investing, and Blackjack

Firstly, the FTfm supplement published an interview with Bill Gross, of PIMCO fame whereby Gross revealed his investing lessons learnt from playing blackjack (subscription may be required).  Gross has become one of the most respected bond fund managers in the world and he currently manages over $1 trillion in his famed Total Return Bond Fund.  Gross publishes regular letters describing his investing thesis and they are well worth a perusal.

Gross describes how his blackjack career in Las Vegas (where else) provided him with many of the concepts and tools necessary to become a good investor, the first concept being that a combination of hard work and mathematical analysis can help an investor outperform.

Gross maintained that playing blackjack developed his risk management skills which was a unique skill in the 1970s relative to many other investors because quantitative risk modelling had not yet become commonplace.
Blackjack taught Gross the folly of betting too often or at stake levels that were too large.

Notwithstanding the lessons about the benefits of a mathematical approach to investing, Gross did also discover the limitations of over-dependence on modelling and leverage to increase returns.  He realised that even when odds appeared to be in his favour over extension could result in large losses.

The drawback of reliance modelling became apparent to Gross when he realised that economics and investments involved people, which created inherent instability that could not be modelled completely.  Therefore, Gross appreciates the need for models to assist in understanding investment decisions but ultimately relies on his own experience to make final decisions.

Ironically, although blackjack can be good at helping investors to learn all of the above concepts, poker is better.  Blackjack teaches discipline and strategic thinking, but poker teaches it at a much higher and complex level with far more possible scenarios.  But most importantly, in blackjack the only real emotional enemy is yourself, whereas in poker you much contend with the emotions of your competitors also – invaluable training for being able to deal with that emotional beast which is the market.

Kevin Fong, 3Par, Merger & Acquisition Tactics, and Poker

PEHub reports how Kevin Fong, the chairman of 3Par, thinks that M&A negotiations are very similar to poker.  Clearly Fong knows what he is talking about in this respect since he has just become a very wealthy individual after HP acquired 3Par in a bidding war with Dell which had all the hallmarks of a high stakes poker “heads-up”.

Fong notes that in M&A negotiations one is trying to maximise one’s own benefit and at the same time attempting to read other players and discern their strategies and whether they are bluffing.

Fong commented that poker is all about knowing your limits and then folding when you reach them.  HP apparently had set a limit which they had not reached when they won the bid, and Fong states that HP played a mean game of poker throughout.

As always, for the creator of the Texas Holdem Investing concept and methodology, it is inspiring to see two people at the top of their games talk about the benefits of gambling and poker in terms of teaching fundamental investing concepts.

The ebook will be out soon so stay tuned.