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I’ve been looking for the proper metaphor for the stunning (and still continuing) crash of the stock market over the past two weeks and I’ve finally found it: ‘The Stomach Punch.’

‘The Stomach Punch’ is a term coined by Bill Simmons in his ‘13 Levels of Losing‘ column. As Simmons puts it, the ‘Stomach Punch’ is:

Any roller-coaster game that ends with A) an opponent making a pivotal (sometimes improbable) play, or B) one of your guys failing in the clutch … usually ends with fans filing out after the game in stunned disbelief, if they can even move at all … always haunting, sometimes scarring

I think every poker player I’ve ever met has had at least one such ‘stomach punch’ moment in his/her time playing. It’s the sickening feeling that comes from being blindsided with a horrific loss, usually following an extended period of good fortune. The suddenness and degree of the stomach punch are its hallmarks. Maybe it’s a sick beat (“The guy had two outs with one to come… Two OUTS!”). Maybe it’s a cold deck. Maybe it’s getting outplayed/trapped. Whatever the case, there are two common ways to deal with it (in a cash game):

1. Feel your stomach knotting up while you slowly stand and stumble away, legs wobbly, head in a complete daze. You have a sudden urge to call loved ones just to hear the sound of humanity, or
2. In an opaque mental haze, reach into your wallet/clip and peel off a suddenly very uncomfortable stack of bills to put onto the table in a macho effort to win back your pride.

Neither feels good. One is, almost certainly, destined to feel worse in the morning.

The most real and human result of a ‘stomach punch night’ is to wake up in the morning and question everything about your play. There is little that is more humbling than the continuous replaying of a hand gone wrong from the night before. It is a pure, introspective analysis, backed by the brutal honesty of big bills missing from your wallet. It is a sickening truth.

That’s how I feel about the market crash of the past week or two.

As a young man who only started making a salary four years ago, I’ve really never known negative results from investing in the market. Take a quick look at the Google Finance chart of the Dow from August 2004 through the beginning of this calendar year below:

In retrospect, it’s clear that a correction was probably in order – perhaps not to the upcoming degree, but it was inevitable. And sure, in hindsight it’s simple to label its timing as obvious. But when you’ve never personally seen a downturn like this, it’s no different than seeing your opponent spike a 2-outter on the River for a large sum of money. You get that knot in your stomach as you count the basis (or, actually, percentage) points leak out of your portfolio.

Sure, more seasoned/experienced investors may have warned you it would come, but the reality doesn’t humble you until it happens.

Like the ‘stomach punch’ in poker, the perspective I’m taking to this crisis is humble and reasoned introspection. I’ve found myself being very honest about my own lack of knowledge and particular mistakes. I’m re-evaluating my appetite for risk-reward and questioning every assumption. It’s a healthy process, but it’s also brutal.

I’m certainly not a pro in regards to the stock market and personal investing, but as I learn more I constantly find myself thinking, “Hmm, that’s exactly like poker.” (In fact, there’s actually a ton in common between investing and gambling. And when I say that, I don’t mean investing in a stock is like putting $500 on 31 at the Roulette table, though there’s a corollary for that in investing too.) Read more

… that it’s:

1) Still gambling
2) Capable of leaving us dumbfounded
3) Not a game for the weak of heart

If you can’t laugh off hands like this, go play chess or dominoes .

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the buzz of the poker world yesterday was the computer program Polaris playing heads-up limit hold’em against phil laak and ali eslami (nytimes article here). the humans came out ahead in a close match.

to me, building a computer program that can beat pros at their game of choice is a really great academic and intellectual endeavor. i’d love to read more about it. just sounds like a lot of fun.

that being said: 1) there is a reason they chose limit hold’em, often the most mechanical and simple form of poker, and 2) there is a reason they chose phil laak, much more well-known as a no limit cash game and tournament player.

i saw a really sick hand while playing in the 5-200 spread limit game at garden city this past weekend.

a loose-passive player (player A) raised it under the gun to $25. i called in the cutoff with AhTh. the small blind, a REALLY loose aggressive player with no ability to lay a hand down, thought for a while and then just called (SB). now at this point, as i looked back to player A, and saw him exuding enough confidence to topple the world, and thought about SB’s “wait-and-call”, i knew i was pretty much done with the hand unless AT, two T’s, or 2+ hearts flopped. the hand really isn’t about me, but the passive player A definitely had AK, AA, KK, and SB definitely had some hand in the range of (77-QQ, AQ, AJ, AT, KQ). goodbye, hand!

the flop came T64, with two diamonds. SB checked and player A, bet out $100, a really large bet into a $65 pot. before he even finished counting out the chips, my cards were in the muck; i couldn’t see him firing out $100 into a $65 pot with AK. SB thought a while and coolly called the $100. at this point i started getting interested: SB must have a bit of a large hand. my thoughts were TT, JJ, QQ, or maybe AdTd ?

the turn came with a complete black blank and SB checks. player A, starting to look nervous now (“please get out of my pot!”), fired out the max bet of $200. now SB goes into the tank, which causes (i think) everyone else to go into the tank and start thinking things like “holy crap, did this guy just call from the SB with QQ or KK? i mean, player A clearly has AA or KK.”

finally SB calls and player A stands up, clearly frustrated and praying for a blank on the river. he doesn’t get his wish, as it hits 9d and SB puts player A all-in with a $200 max bet. SICK. player A immediately starts yelling, “j**** c*****, did you just hit your f***ing flush on me?!” and, as if to show how large his penis is, he stands up and throws his $200 into the middle and flips up his AA angrily.

SB, ever the reverse-justifying pay-off artist, says, “no, but i did river you,” and flips up 99 for a rivered set. player A grabs his cards and flings them across the table at SB, stomping out angrily.

============

now i think everyone can see what a complete moron SB is. he tried to explain himself by saying, “well, i put him on a lower pair than me.” oh really? he pumped it to $25 preflop and fired two huge bullets into a T-high board with 88 or 77? i don’t think his poor play is up for debate (note: any time you’re trying to justify your play in a hand while you’re stacking chips, it probably means you’re coming up with that justification on the fly). but the really terrible play in the hand is the last call by player A.

if you look at it objectively, what possible hand could SB have played that way that is worse than a single pair of aces? KK or QQ could not possibly fired on the river after thinking so hard on the turn. a busted flush would be insane to bluff at the pot with player A obviously so committed.

basically player A made the terrible sin of the angry call. the “see? i had friggin aces. this guy totally sucked out on me.” basically he paid $200 to show everyone his great preflop hand and not get shown a crazy bluff. you end up seeing this a lot in these crazy action games; players that think no one has any right to ever run down their aces. it’s a sick game and if you can’t dissociate your ego from your play, you’ll never play well.

like doyle said, “this is poker, not solitaire.”

haven’t had a chance to write since i came back from vegas, so here i am! i spent the weekend doing (pretty much) nothing but playing poker, which is always a nice way to sit around for a few days. mostly i played no limit (cash and tournament) with some interesting hands, but probably the most intriguing hours spent were in a 10-20 mixed game (HORSE + omaha high) at the venetian. why was it interesting? well, first of all, i was the youngest player at the table by, oh, about 20 years (which, by the way, is pretty standard when you sit at these low-limit mixed games).

but as i sat there playing for about an hour, i started to figure out the actual reason the game was so interesting. i got an inkling of it early on, when i found out the rake was only $1 max. why only a buck? well, as i proceeded to get smoked in several of the games, i realized that i wasn’t playing against some random old people. the lady in seat 3 was actually linda johnson, one of the only women to ever win a WSOP bracelet (razz, 1997). another player at the table was jan fisher, who is a pretty well-known player. it turns out that they and their friends had come up with a deal with the venetian.

it was a fun game (old people know some dirty jokes) and i’m glad to have enjoyed it for an afternoon. it also reminded me of how purely fun poker can be. usually i come back from vegas thinking about either packing up and moving there for a while or swearing off the game forever. but playing in that game reminded me that there’s a middle ground of “just plain fun”.

i was playing in an online tournament the other day (a tiny $10 400-person tourney) and played a hand that gives a very interesting demonstration of how tournaments vary from cash games and the concept of ‘fold equity’.

so what is fold equity? it’s a concept that represents extra value that you have in your hand because the opponent might fold. so let’s say that your hand is 50-50 against another player’s. if you put pressure on your opponent by betting or raising, your hand gains additional equity because the other player may fold and, if he folds, you have 100% equity of the pot.

so the hand: i was in the cut-off with AsKs, with the blinds at 100-200. a player in early position, who had about 3100 chips, moved in immediately, a large overbet. he had done this a few times in the past couple of orbits, but he also hadn’t played any hands outside of those and no one had called him. i think the mistake a lot of players make is thinking, “well AK is an awesome hand. i should totally call here,” without thinking through the math and mechanics of the actual play.

here’s where tournament strategy varies wildly from cash games. i had a lot of chips at the time, but there were still around 250 players left in the tournament: winning the pot would increase my chances of winning the tournament imperceptibly. losing the pot could be pretty damaging. given the range of hands that he could possibly have:

• AA or KK: i’m screwed
• QQ or smaller: coin-flip
• two undercards: i’m only 5:3 to win
• dominated hand (AQ, KQ, etc.): i’m 3:1

i think when you think through those equities, it’s clear the right decision at this point of the tournament, with little information on the player, is to fold, which is what i ended up doing.

but here’s where the concept of fold equity comes in. let’s say that the villain had only raised to about 700 instead. now the hand can probably play out very differently. first of all, he has stuck 700 into the pot (making 1000 chips in there), but he still has 2400 left, which is a reasonable amount of chips to fold with (he’s not entirely pot-committed yet). if i move in on him, i have this extra “equity” or value in the hand, which is: he might fold.

if he has a hand like 88 or 99, he could very reasonably fold here. if he has two undercards, he will probably fold. those are both reasonably positive outcomes because i pick up 1000 without having to take a 50-50 or 5-3 situation.

the point isn’t that the correct decision is to move-in in such a situation, it’s just that by being the one to push (as opposed to the one to call) is advantageous because you have this extra ‘fold equity’.