00:00:00
We are inherently risk takers.
00:00:01
If we don't take risks,
00:00:02
we don't make money.
00:00:04
In my seven years reporting for the Wall Street Journal,
00:00:07
countless traders and investors have brought up the game of poker telling me that
00:00:12
the game has actually taught them a lot about investing one of the biggest and most
00:00:17
successful trading firms out there.
00:00:19
Susquehanna International Group actually uses the game to train its
00:00:23
traders.
00:00:25
Yeah,
00:00:25
I know.
00:00:26
So this year I decided to learn the game and invited Susquehanna executive
00:00:31
Todd Simpkin.
00:00:32
Thanks for having us and Jeremy Ween,
00:00:34
founder of Moot Point,
00:00:35
capital management and a long time poker player,
00:00:38
Jeremy Wein is your champion to the Wall Street Journal studios to play a
00:00:43
game of no limit.
00:00:44
Texas hold em.
00:00:45
The only thing at stake was our pride.
00:00:48
So let's get started.
00:00:50
Susquehanna uses poker to train its traders.
00:00:54
Tell me a little bit about that.
00:00:55
There are a lot of parallels between poker and trading.
00:00:58
There's the difference between making the right decision and having the right outcome.
00:01:02
So even if you made the right decision,
00:01:03
sometimes you lose and sometimes you make the wrong decision and win both happen at the poker table and in trading,
00:01:08
you have to get comfortable with the variance in your outcomes.
00:01:11
Poker has helped you think about risk and how much risk to take in certain
00:01:16
positions when you're trading.
00:01:17
Absolutely.
00:01:18
Absolutely.
00:01:18
I mean,
00:01:18
poker came first for me.
00:01:19
It taught me patience because I was not a patient child and risk management.
00:01:24
The very first hand of poker that I ever played in no limit in college.
00:01:27
I had pocket two s which is,
00:01:29
I was like,
00:01:29
oh my God,
00:01:29
I got a pair.
00:01:30
I thought that was so good.
00:01:30
When we perceive ourselves as being in the losses,
00:01:33
we are willing to,
00:01:35
to do riskier things to get back to even.
00:01:38
You'll see the same thing in the market where,
00:01:39
where people will chase losses because they're in the,
00:01:43
in the mindset of being in the losses and want to get back 100 more
00:01:48
that 150 I will fold.
00:01:53
And this is like a 32nd comment on this hand if that is.
00:01:56
So this would be in my view,
00:01:58
the equivalent of buying a really inexpensive option.
00:02:00
I was already in for 50.
00:02:02
You raise it 100 more in the context of our stacks.
00:02:04
That's not a lot.
00:02:05
If I hit my set.
00:02:06
If I hit another three,
00:02:07
it's unlikely.
00:02:08
But if I do more than likely I'm going to win.
00:02:10
Not just the pot,
00:02:11
but probably a big pot or at least,
00:02:12
at least something more than that.
00:02:14
And if I don't,
00:02:15
it's just very easy for me to fold.
00:02:17
And so,
00:02:18
you know,
00:02:18
whether it's in an index or in a stock or a currency or whatever,
00:02:21
you buy a really low,
00:02:23
a low delta,
00:02:23
low premium option.
00:02:25
Um you know,
00:02:25
again,
00:02:25
spend a little premium,
00:02:26
that's your max loss.
00:02:27
But if things go your way,
00:02:29
you can really make a lot.
00:02:31
I like how you put that and an inexpensive option.
00:02:34
This is what I had.
00:02:36
Yeah.
00:02:36
So it was good.
00:02:37
That was a good buff.
00:02:37
I thought you were ahead of me.
00:02:41
Raise a 375.
00:02:42
I might have an exciting hand here for the first 375
00:02:53
check in the race six morning.
00:02:58
So I have hock and kings there.
00:03:00
And so my,
00:03:01
that's the kind of hand I thought you had.
00:03:02
So my thought process was that first of all,
00:03:05
if you have a hand like pocket tens or jack or queens and we get a low flop,
00:03:08
I'll get more from you.
00:03:09
The flop is this which players use to gauge the strength of their hands?
00:03:14
And also if I re raise there and you have a hand like ace queen and you call and an ace comes on the flop,
00:03:19
I probably have to fold.
00:03:20
Maybe I pay one small bet.
00:03:21
And so again,
00:03:23
this is kind of a risk reward perspective,
00:03:24
you know,
00:03:24
kind of concept is let me keep this quick call,
00:03:28
pot control.
00:03:28
Let me keep the pot a little smaller and see what happens.
00:03:30
Are there parallels between bet sizing and trade sizing?
00:03:34
To me,
00:03:34
this is like the two most important things,
00:03:37
especially between tournament poker and,
00:03:38
and,
00:03:38
and,
00:03:39
uh,
00:03:39
and trading our patients and bet sizing.
00:03:42
Right.
00:03:42
And you know,
00:03:43
if you've got pocket aces,
00:03:45
you don't want to have your life savings at risk a 4 to 1 favor because one out of five times you're bankrupt.
00:03:50
And the same thing goes in trading,
00:03:52
you can,
00:03:52
there could be a great trade,
00:03:54
but I promise you can always go to a warps scene level.
00:03:56
And so you want to make sure that,
00:03:58
you know,
00:03:59
that you're not in a position where if it moves against you more than you think that you
00:04:03
are,
00:04:04
you know,
00:04:05
stopped out,
00:04:06
you know,
00:04:06
blowing up whatever you want to call it where,
00:04:09
you know,
00:04:09
where you're done.
00:04:10
If I were to join as a new trader tomorrow,
00:04:13
fresh out of college,
00:04:14
what would I go?
00:04:14
One?
00:04:15
We'd love to have you.
00:04:16
We spend a lot of time talking about the basics of poker,
00:04:20
but importantly,
00:04:22
in a situation like this,
00:04:23
we would get to a point where you might have a difficult decision and we'll stop and talk about all the
00:04:28
things that would factor into that decision.
00:04:29
But frequently what we have to do in trading and what we have to do in poker is put somebody on a
00:04:34
hand or put them on a distribution of hands,
00:04:36
try to figure out what they might be thinking what given the actions that they've taken.
00:04:40
So,
00:04:41
if you were to check here,
00:04:43
um,
00:04:44
and then I bet.
00:04:45
What,
00:04:46
what have you learned about what I have if you bet and I raise,
00:04:50
you learn something very different about what I have.
00:04:52
Um,
00:04:53
and we talk about kind of the value of the information and the quality of the information that you get in a poker
00:04:58
hand and,
00:04:59
and in trading.
00:05:00
And there's certainly some things that are very different in trading and in poker,
00:05:02
it's not a perfect model,
00:05:04
but it's a very good model for making decisions wither information.
00:05:08
If someone's not a good poker player,
00:05:09
are they fired?
00:05:11
No.
00:05:11
Um,
00:05:12
being a good poker player is a constellation of skills and what we wanna talk about are
00:05:17
how to improve the skills where they're deficient and how to take advantage of the skills,
00:05:22
uh where they're strong to make sure that they,
00:05:23
uh they continue to hone those check.
00:05:27
Uh I'll bet 100 and 25 on call
00:05:36
225.
00:05:41
What are the biggest mistakes?
00:05:42
You see,
00:05:43
rookie investors making one of the dangerous things?
00:05:48
And Jeremy alluded to this earlier is assuming that whatever the current state of the world is,
00:05:52
is going to be the future state of the world that we're going to continue seeing.
00:05:56
Well,
00:05:57
what we've seen with every basis trade that has that has blown up in the history of the markets.
00:06:02
Right.
00:06:02
You know,
00:06:02
you don't have to go back terribly far to get to the
00:06:07
financial meltdown in the late in the late aughts to see,
00:06:12
you know,
00:06:12
the trades between credit default swaps and,
00:06:15
uh,
00:06:16
and underlying bond prices,
00:06:17
which would normally move within maybe two basis points and you would fade the move if it got to five
00:06:22
basis points and then it blew out to 304 105 100 basis points.
00:06:27
It was like this is not a normal situation and it is entirely because too many people
00:06:32
thought that that the tie between these two assets could not be broken
00:06:39
about 50.
00:06:42
And what about in poker?
00:06:43
Because there is so much noise in poker,
00:06:45
it's really easy to walk away and say that I don't have enough skills to be able to evaluate
00:06:50
how well I played when I won.
00:06:52
I must be really good.
00:06:53
I should keep doing what I was doing.
00:06:55
And when I lose,
00:06:56
it's because I got unlucky.
00:06:57
Like,
00:06:57
you know,
00:06:57
I can't believe,
00:06:58
you know,
00:06:58
if that club hadn't come,
00:07:00
I wouldn't have lost all my chips.
00:07:01
Like,
00:07:01
well,
00:07:01
you didn't have to lose all your chips.
00:07:02
You only lost it because you put in the call after that club game,
00:07:05
right?
00:07:05
So the combination of the self serving bias and dunning Kruger effect,
00:07:08
I think leads people to,
00:07:09
to not do a good job of critically evaluating their their skills.
00:07:13
150 they're the best players in the world spend
00:07:18
the most time,
00:07:19
you know,
00:07:20
analyzing their hands and not just because that's how they're improving,
00:07:22
but they're predisposed to know that they might be doing things wrong and,
00:07:25
and,
00:07:25
and,
00:07:25
and want to improve that and,
00:07:26
and think about that where it's like the person who just like,
00:07:28
plays casually and they're sitting at the end of the bar telling about their bad beat,
00:07:31
they're just less likely to,
00:07:33
as I said,
00:07:33
you know,
00:07:33
less likely to think that that was the reason I love being at a table with people who are talking about their bad beats.
00:07:37
That's,
00:07:38
it's such a great indication that,
00:07:39
that they are not going to take the feedback appropriately from the table.
00:07:43
What do you mean by that?
00:07:44
So if they're talking about their bed beats,
00:07:46
they're saying here's how unlucky I got as opposed to,
00:07:49
you know,
00:07:50
maybe I made a mistake.
00:07:51
They don't have the humility and for the introspection to say,
00:07:55
you know,
00:07:55
uh I'll bet 500 to say here,
00:07:57
here's the feedback from the marketplace that,
00:07:59
that I was not playing as well as I could have been playing.
00:08:01
It's not a good use of time because even if they,
00:08:04
they probably did get a bad beat,
00:08:05
they probably did get unlucky.
00:08:06
It happens,
00:08:07
it happens every single time you sit on a table.
00:08:09
Uh it's just not gonna,
00:08:11
it's not gonna benefit you in any way 2000.
00:08:16
Do you want to hear about my bad beep?
00:08:18
How do you think about ego at the poker table?
00:08:20
If someone lacks humility,
00:08:21
they are going to miss important information.
00:08:24
I love playing with the big ego player.
00:08:27
They are going to undervalue you and like,
00:08:31
and,
00:08:31
and I want to be undervalued.
00:08:32
So I really like it when someone thinks that they can push you around because thinking that they can push you around is
00:08:37
going to expose themselves at times when you want to get more chips in.
00:08:42
But you also have to be careful because someone,
00:08:43
you know,
00:08:43
that person may be less likely to fold,
00:08:45
even if you,
00:08:46
you know,
00:08:47
think that they're bluffing or you have a,
00:08:48
you know,
00:08:49
a pretty good hand,
00:08:49
you may not wanna,
00:08:50
you know,
00:08:51
re raise them because they may go all in.
00:08:52
And so just to be careful with those people and,
00:08:55
and again,
00:08:56
if you're taking that information and you're making use of it,
00:08:58
you're doing,
00:08:58
you know,
00:08:59
you're doing the right thing and making use of it doesn't necessarily mean that,
00:09:02
that you'll be able to take advantage of it right away or,
00:09:03
or,
00:09:03
or that you have to,
00:09:04
that you'll be more aggressive,
00:09:05
one more path of it.
00:09:05
It just depends on right.
00:09:07
It does mean that,
00:09:08
that you have an opportunity to change the way you play against that person.
00:09:11
And anytime I have an opportunity to play differently,
00:09:13
it's because there's an advantage to playing differently.
00:09:16
And I like that.
00:09:17
Turn over a bluff,
00:09:18
please recheck your cards and throw on a bet.
00:09:20
Let's just say a bluff.
00:09:22
You're bluffing with the best hand.
00:09:24
It comes from some sort of cultural underpinnings of the firm,
00:09:27
which is that we are inherently risk takers at the end of the day.
00:09:31
If we don't take risk,
00:09:32
we don't make money.
00:09:33
It is really easy to play poker and in,
00:09:38
in a game without a rake,
00:09:39
in a game without blinds,
00:09:40
it's really easy to play a poker and never lose,
00:09:43
which is that you never play a hand,
00:09:44
right?
00:09:45
But that is not a really good way to win at playing poker.
00:09:48
So we are inherently risk takers and importantly,
00:09:50
in order for us to take risk,
00:09:51
we have to take risk at the appropriate price,
00:09:53
whether we're long or short,
00:09:54
we have to be buying it under its fair value,
00:09:57
it's expected value or selling it over its expected value.
00:09:59
And the other thing that really comes out of poker is that in any single session and certainly
00:10:04
in any single hand,
00:10:05
it is not going to necessarily be the best player that won that hand,
00:10:09
right?
00:10:09
It is entirely,
00:10:11
almost entirely down to the quality of the cards that you have on a single hand.
00:10:16
There's a little bit that's not in the quality of the cards,
00:10:18
but for the most part,
00:10:19
it's the cards.
00:10:20
So then over the length of a session,
00:10:23
the cards kind of even out over time.
00:10:25
But even then you,
00:10:27
it's the variance that comes from the randomness of the way the cards turn out
00:10:31
over the course of a lifetime,
00:10:34
a career of playing.
00:10:36
It is certainly the case that good players come out ahead and bad players have lots of
00:10:40
excuses about bad beats that they've had lots of stories about why it's not their fault,
00:10:44
but they ended up not winning.
00:10:46
Our philosophy is to get our traders to make positive expectancy decisions where they're putting capital at risk
00:10:51
and getting inappropriate return on it.
00:10:53
And if we are good at doing the evaluation,
00:10:57
which is an important part and then good at managing the bank role on
00:11:01
when,
00:11:02
when there are big opportunities to,
00:11:04
to put capital at risk,
00:11:05
then we're going to come out ahead and are you using that framework in all the different markets
00:11:10
that you guys are at?
00:11:11
I know you are providing odds to sports books and applying for sports gambling
00:11:15
licenses.
00:11:16
Um We've talked about how you entered the event contract market.
00:11:19
Is that the same framework for every market or does it vary?
00:11:22
It is absolutely that framework and sometimes there are um
00:11:27
exogenous factors to that we have to consider,
00:11:30
you know,
00:11:30
we can lose,
00:11:31
you know,
00:11:32
X million dollars and that would have an impact on your solvency and your ability to support the markets that you
00:11:36
support.
00:11:37
So we want to make sure that you limit that Susquehanna has gotten into.
00:11:41
Yes or no bets.
00:11:42
And you know,
00:11:43
I think the most popular example is like yes or no.
00:11:46
Will Taylor Swift be the top artist on Spotify this year?
00:11:49
Yeah,
00:11:49
that's on,
00:11:49
on Calci.
00:11:50
We are providing liquidity on,
00:11:52
on Calci event contract,
00:11:54
binary event contract.
00:11:55
Well,
00:11:55
it's so interesting because we talk about poker and the reason it's some of these skills are
00:12:00
transferable is that it's a game where you have to navigate having incomplete information.
00:12:04
And that's a scenario where it seems like to me,
00:12:06
there's even more incomplete information than there typically is.
00:12:10
So how,
00:12:11
how do you navigate that?
00:12:12
So there is a lot of incomplete information,
00:12:15
but then just like in poker,
00:12:17
there's also a lot of common information.
00:12:18
It is not that hard to see how many concerts she has had
00:12:23
and how many,
00:12:25
yeah,
00:12:25
back out how many unique visitors you think there are to her concerts.
00:12:28
It's not that hard to uh uh to see video clips from the concert and see how many people are singing
00:12:33
along.
00:12:33
In order to sing along.
00:12:34
You have to have heard the song before,
00:12:36
in order to have heard it before,
00:12:37
you must have streamed this couple 100 times,
00:12:40
right?
00:12:40
So it's like,
00:12:40
ok,
00:12:41
we can start figuring out that given when she's released her albums or,
00:12:44
you know,
00:12:44
whatever it might be,
00:12:45
how many people uh have listened to it up to now,
00:12:48
which is again a publicly available figure.
00:12:50
And then we can look at who's expected to release albums over the course of the rest of the year,
00:12:55
how popular they've been historically,
00:12:57
how,
00:12:57
you know,
00:12:57
if they are touring,
00:12:58
you know,
00:12:59
kind of what their tours looks like.
00:13:00
So there's a lot of common information that's available as well.
00:13:04
One thing that,
00:13:04
that doesn't happen in the event space with the Taylor Swift being
00:13:09
number one on the on the charts that does happen in poker is that somebody else
00:13:14
has really relevant nonpublic information
00:13:19
and I'm not saying this in like an insider trading way but Taylor,
00:13:24
no,
00:13:24
no,
00:13:24
I'm saying there's not,
00:13:25
that doesn't happen in that market in that market.
00:13:27
It's not like somebody is sitting there saying I know that Ariana Grande is about to
00:13:32
drop a banger of an album that is guaranteed to be better than Taylor Swift.
00:13:37
That's so interesting.
00:13:38
Hadn't thought of that actually being an advantage rather than a disadvantage.
00:13:42
They are making the best decision that they can with the information that's available and they are doing
00:13:47
it in a way that is going to be efficient with their time.
00:13:50
So it could be that even though this is a fun contract to talk about
00:13:55
that,
00:13:56
the amount of money uh on either side of it on CCI is,
00:13:59
you know,
00:13:59
$8 and we don't want to invest in having somebody,
00:14:04
you know,
00:14:04
read through the lyrics to see if there's something in there that's gonna,
00:14:07
you know,
00:14:07
really give its staying power,
00:14:08
love it,
00:14:13
Jeremy.
00:14:14
When you're in tournaments.
00:14:15
Do you do the sunglasses?
00:14:16
The hat,
00:14:17
I,
00:14:17
I don't think sunglasses do anything.
00:14:18
Uh,
00:14:18
I don't want to be constant,
00:14:19
like reading someone's eyes.
00:14:20
I'm not a big fan of,
00:14:21
I,
00:14:21
I do wear a hoodie that I,
00:14:23
I pull up and at this point it is totally useless.
00:14:25
You probably haven't noticed this because you've been looking down at your cards.
00:14:28
But every time I've been in a hand with you,
00:14:29
I have not looked at the flop,
00:14:31
the flop will still be there after it comes.
00:14:33
I've watched you watch the flop.
00:14:36
I think that I'm going to get less information from Jeremy watching the flop because he's seen more
00:14:41
of them like he's just,
00:14:42
you know,
00:14:42
but I think that I'm going to see and this isn't,
00:14:45
this isn't an assault,
00:14:46
right?
00:14:47
Like this,
00:14:47
like I should be paying attention to the,
00:14:50
the idiosyncratic aspects of the people I'm playing with.
00:14:52
I think that you're more likely to give up information about how you feel about the flop
00:14:57
physically.
00:14:58
When you see it,
00:14:58
then Jeremy will.
00:15:00
So if the two of you were in a hand with me,
00:15:01
I'm gonna watch you and when I'm watching you,
00:15:04
I'm watching you watch the flop,
00:15:06
I get to see your reaction.
00:15:07
So like there are things that you end up being good at without knowing why you're good at them.
00:15:12
Um,
00:15:12
so like it could be that I pick up on something in the eyes and I don't even realize that it's in the
00:15:17
eyes.
00:15:17
But if I don't have that pathway,
00:15:19
then I can't,
00:15:20
I can't have made that decision.
00:15:21
To me.
00:15:22
It's,
00:15:22
it's not as much about,
00:15:23
kind of like quote unquote reading people when you think of that as physical tells as it is about psychology
00:15:27
and,
00:15:28
you know,
00:15:28
some things and for yourself,
00:15:30
I mean,
00:15:30
for me,
00:15:30
the biggest tournament strategy I have is building up a certain image for myself.
00:15:35
And then trying to capitalize on that.
00:15:36
Playing 10 to 20 big blind poker is so important.
00:15:41
You're almost never going to be able to win a tournament without at some point,
00:15:47
I,
00:15:51
you're almost never going to be able to,
00:15:52
to,
00:15:52
to it without being down to 15 or 20 blinds at some point.
00:15:54
And if you panic,
00:15:55
uh that's not good,
00:15:56
but you still have to be taking risks.
00:15:57
You're going to have to pick some spots to,
00:15:59
to,
00:16:00
to go all in and knowing that if you get called,
00:16:01
you will be behind.
00:16:02
Um,
00:16:03
you just have no choice when you,
00:16:03
when you're short of ST and,
00:16:04
and knowing how to do that and when to do that is its own skill.
00:16:08
And I can say personally,
00:16:09
that was a big step function up for me in,
00:16:11
in results.
00:16:12
When I really learned that right around 2017,
00:16:14
I was,
00:16:14
I think a decent poker player before that.
00:16:15
But my live tournament results just got a lot better after I really got better at that aspect of tournament
00:16:20
poker.
00:16:21
Um,
00:16:22
ok.
00:16:25
It's called,
00:16:27
ok,
00:16:34
ch,
00:16:36
and you can use that to your advantage too.
00:16:38
You think that the person with the bigger stack always has the advantage?
00:16:40
But they don't want to be there.
00:16:44
No,
00:16:47
we would have chopped,
00:16:48
we would have chopped.
00:16:49
We're both of a king.
00:16:51
Uh,
00:16:51
10,
00:16:52
9.
00:16:52
Uh,
00:16:52
but,
00:16:53
uh,
00:16:53
but I folded the all in on your,
00:16:55
uh,
00:16:55
on the last one was,
00:16:56
uh,
00:16:56
I was,
00:16:57
I want to know what you had a,
00:16:58
I had a queen jack suited around a big,
00:17:02
yeah,
00:17:02
I know.
00:17:03
But it really good.
00:17:04
Now,
00:17:04
if you wake up with a big hand and do it,
00:17:06
you're more to get called and,
00:17:07
yeah,
00:17:07
exactly.
00:17:07
Right.
00:17:08
Like,
00:17:08
like here,
00:17:08
here's where you're really hoping for pocket kings toward the end of the game.
00:17:13
I started picking up chips and feeling bold.
00:17:15
There are a lot of amateur players against whom I won't bluff because the bluff isn't going to do what I
00:17:20
wanted to do the sooner you realize that the better.
00:17:23
You are.
00:17:27
Cool.
00:17:29
Oh,
00:17:31
there's the kings though.
00:17:32
Yeah.
00:17:35
But my bold bet didn't pay off.
00:17:37
Ok.
00:17:39
I bet all of my chips and ended up losing to Todd who had a full house
00:17:43
that left me with nothing.
00:17:45
But what I learned,
00:17:46
of course,
