If you want to write a long or short article in July, please post it here. Anything PLO related will do, from repping the missed check-raise to balancing check/folding range and anything in between.

Have a look at the old Digest threads and see if you get an idea.

If you are relatively new to 2p2 SSPLO, it's a great way to introduce yourself to the community and leave your mark here.

Don't be afraid if not everything you write is not 100% correct, we are all here to learn.


Previous Digests:

January 2011

February 2011

April 2011

November 2011

December 2011

April 2012

June 2012

gonna post 2 pieces that i wrote about a half year ago but they never really got published. hopefully they are of value to some of you.

Poker players finances – Bankroll management

On the second part of the Poker Players Finances article series we go through an important concept called bankroll management. You can often read posts on forums or blogs how players have lost their entire bankrolls. Most of the time this has happened because the player has taken too big risks, i.e. he has played “underrolled” which means that he hasn’t had big enough bankroll for the games he has been playing. Just like a carpenter needs his tools to earn a living, a poker player cannot earn money playing poker if he doesn’t have enough capital to sit at the tables. Bankroll management is guideline how to move up and down the stakes given how your much you make or lose money.

Bankroll management depends on many factors; are you a casual player or is poker your main source of income? How much money do you have outside your poker bankroll? Do you buy play deep tables or do you buy in short? Do you play heads up or 6max?

It’s good to keep in mind that no bankroll management strategy will ever be sufficient if you are losing player, so you better turn up your sleeves and work on your game. Bankroll management is there to guarantee that you will never go broke if you are disciplined enough to follow the guideline and to work on your game. The game evolves and players improve, so you need to be one step ahead of them.

I heard an experienced trader say once: “you will only learn when you go broke three times!”. Most of the poker players will lose their entire bankroll at some point of their career. For some it will happen many times and some never recover from it. A smart person not only learns from his own mistakes but also from other people’s mistakes.

In this article we will provide you with a general guideline for bankroll management and discuss several factors related to it; liferoll vs poker bankroll variance, psychological considerations, cashing out, moving up/down limits, among other things.

Liferoll and poker bankroll

It’s common sense to separate the money needed for rent, food, bills and other things from your poker bankroll. This money we will call “liferoll” and whatever money you have reserved for playing poker is called “poker bankroll”. While a casual player can deposit $100 to play a few hours every now and then, a more serious player should keep the two rolls separated. If you are a professional poker player and your main source of income is poker, it’s advicable to have at least one year’s living expenses on your bank account to cover for the bad times. While a casual player can get away with loose bankroll management since his income is in no way tied to poker and he’s playing mostly for fun and entertainment, a professional player should be really careful with his poker bankroll. Having 100 buy-ins for the main game is the minimum requirement for a professional player, although some players choose to play with even smaller rolls.

Generic guideline for bankroll management

Since each player manages his/her bankroll in a different way, I decided to provide you with my own guideline which something between conservative and aggressive. While some players will say that 30 buy-ins is enough, the next player might say that even 100 buy-ins per level is not adequate. The guideline provided is also more suitable for a casual player, who still plays decent volume on a weekly basis and buys in for 100bb at 6max tables. All the numbers in the table are in USD, i.e. how much cash you should have in your poker bankroll to move up or down



As mentioned, the guideline is more of a suggestion for you to base your own bankroll management strategy on. If you are a beginner with $10.000 to play poker with, it might not make sense to start at PLO200 even though you are rolled for it but rather at PLO25 or PLO50 and then gradually move up as your skills and winrate justify it. Also if you deep games games and buy in for over 200bb to a table, your roll needs to be bigger than presented on this guideline. Same goes for heads up games where variance is even bigger than in 6max games since you play more hands and you are all in more often.

It takes a lot of discipline to follow such a guideline when you are running hot at the tables and feel invincible. It also takes a lot of courage to swallow your pride and move down to play the lower limit when variance shows you it’s ugly face. Chasing losses at higher limits rarely proves to be a smart bankroll decision, it’s much more wise to stick to the bankroll management plan you have created for yourself.

The bankroll requirement gets stricter the higher up you go in the limits. At PLO10 you can get away with 40 buy-in bankroll because it’s not a very significant sum of money in absolute terms and most of the time you can easily deposit more. If you can’t, you should probably consider playing a lower limit instead. The players at lower limits are generally not very advanced and a hard working grinder should learn to beat those games quite quickly. Going to mid-stakes games were the skill differences between players get gradually smaller and smaller, also the egde anyone can have on the games also gets reduces. This will lead to increase in variance and the need for more conservative bankroll management since the swings are expected to be larger.

Taking shots at a higher limit and cashing out

Taking shots to higher limits is one the most exciting things about poker: new set of skills might be needed, new player pool, games get gradually more aggressive etc. The best time to start taking shots is when you see weak players sitting at the table, possible the same players that you have already played in your main game. Obviously you should plan for taking shots as well and good rule of thumb would be to start taking shots when you have ~70 buy-ins for your main game. You should plan ahead and set a stop-loss for the shot, let’s say at 5 buy-ins. If you lose these 5 buy-ins you go back to lower level but if you happen to win, you can progressively start playing more at the higher limit. You might still want to mix in some tables from the lower limit.


Cashing out from your poker roll depends a lot on your life situation. If you have other income, such as salary from a regular job, you don’t necessarily need to withdraw from your poker roll. When this is the case, you can move faster up the stakes and take advantage of rakeback helping your poker bankroll. In any case whether or not to cash out, when to do it and how much, all this is good to budget beforehand so that you always know your financial situation and don’t play outside your risk tolerance in case you need money for real life expenses.


Basics of variance

Even though poker is a game of skill, there is still an element of chance involved brought about by the random shuffle and distribution of cards. Variance is a measure of uncertainty and it plays an important role in poker in general, but especially so in PLO. In PLO where the hand equities run close and you are rarely a big favorite to win when all the money goes in. This means that your actual winnings will deviate from your expected winnings and the bad players can have long periods where they win money even though their expected winnings are zero or negative. This keeps the fish coming back and the games juicy. On the flip side, any player can at any time hit a bad strech of cards even though he would be constantly playing his A-game and this is were well-planned and executed bankroll management comes in.

In order to get a basic understanding of PLO variance, let’s have a look at a simulation where a break-even (winrate = 0) poker player plays 100.000 hands with a standard deviation of 150 bb/100, which about an average standard deviation for a tight-aggressive PLO player. Standard deviation is a measure of variance and it shows how much variation exists from the expected winnings.





In the first picture you see 10 different simulations/runs, all are possible outcomes for the above-mentioned player. With an expectation of 0 winnings (the dotted black line), the possible outcomes vary from making 75 buy-ins to losing 60 buy-ins in 100.000 hands. On the second picture is illustrated the frequency and severity of downswings in the simulation. The largest downswing was over 92 buy-ins. While these kind of extreme swings are rather infrequent, they should be taken into consideration when formulating up a bankroll strategy.

These numbers can be quite surprising to new PLO players and sometimes even the most experienced players are caught by surprise how brutal the downswings are. So what is the best protection for your bankroll? Rakeback will soften the downswings to some degree, but the best security for your bankroll is to consistently work on improving your game. Let’s do another simulation, except this time the player is a solid 8 bb/100 winner.






Now we notice a solid uptrend on the expected winnings, ending up at 80 buy-ins for 100.000 hands. All of the simulations finish the sample making a profit (although this will not always be the case if you run the simulations multiple times). From the second picture we can observe that the worst downswing was over 52 buy-ins even though the player is expected to win with a winrate of 8 bb/100! This is why bankroll management plays such a big role in succesful PLO player’s strategy; the variance should not be underestimated under any circumstance.


Psychological effect

The psychological effects of solid bankroll management are very clear-cut; if you don’t have to worry about money, you’ll play more relaxed and your mind will be more peaceful which will lead to better decisions at the tables. Being constantly under pressure to perform bankroll-wise, i.e. playing underrolled and having to win money, will lead to frustration and eventually tilt. This doesn’t mean that you should overdo it and keep a 200bi bankroll available for your main game at all times, your job is to find the optimal balance between securing your capital, moving effectively up the stakes and having peace of mind throughout the process.

PLO can be a brutal game in the short-term because of the variance. It can destroy a badly managed bankroll in very short time and it can take a toll on you mentally. As with any business, the first steps are often not profitable especially when entering a new market, e.g. learning PLO after playing NLHE before. You should plan all your decisions with long-term goals in mind and not worry too much about short-term variance. This is best achieved by working on your game constantly and well-planned bankroll management, which you also should have to discipline and mental toughness to execute.

Poker player’s finances – savings and investments

So you have come to the point where you have earned enough money from poker and no idea where to invest and what to do with them? In this article we will go briefly through different investment possibilities and other things to consider when dealing with extra money. Then it’s up to you to continue exploring the possibilities and finding out what is the most suitable option for you. The article will be rather generic, since many issues depend for example on the country you live in, your personal investment time frame and risk tolerance. For example taxes differ from country to country and so do investment possibilities and tools.

There are many things to consider when handling your finances and planning investments, such as

• Taxes
• Debt
• Income
• Time frame for investment
• Risk tolarance

The tax issues are highly dependent on your country of residence, so we are not going into great detail regarding these issues. As a general advice it’s essential to find out the tax treatment for poker winnings and capital gains in your country of residence in order to avoid unpleasant surprises. Once you know that you will have a winning year and have to pay taxes on the income, it is advisable to set the tax money aside to another account so they will not get mixed up and you know exactly where you stand financially.

It’s good to bear in mind that any finance professional who is selling you his services is doing it to make money. In other words, there are always costs involved with all the savings and retirement plans and other investments. If you have the time and energy, you will make your profit potential greater by doing the research or investing yourself, since all the investment tools are readily available for you. One great example is ETFs which offer wide variety of underlying assets to invest in a very cost-efficient way.


Debt

Your first priority should be to eliminate debt, if you happen to have some. This mostly applies to credit card debt and not so much on e.g. mortgages, since mortgages are backed by the house you have financed. If you have a lot of debt and in multiple forms, you should start paying it off from the one where the interest payments are the highest. Normally the highest interest rates are on credit card debt whereas student loans and mortgage normally bear smaller interest and therefore you should pay them back once you have gotten rid of the credit card debt. Also, if you can get better return on your investments than what is your mortgage interest rate, it makes sense to invest whatever extra money you have after paying the monthly installment for mortgage.

Income

For the purposes of this article we will assume that your main sources of income are poker winnings and rakeback. As discussed in the previous article on Bankroll management, it is recommended to keep your poker bankroll separated from the money you use to pay for rent, food etc. This ensures that you are always on top of your financial situation.

It’s always smart to keep a monthly budget on a spreadsheet to see how much you are spending. You don’t need to add every cup of coffee or book you buy, just to keep track of bigger expenditures and regular monthly costs, such as internet, phone, utilities etc.

Depending on how much money you are making monthly on average, you should decide a balance between how much you want to cash out every month and how much you want to keep in your poker roll so you can climb up in stakes.

Diversification

One of the most important factors in all of investing is diversification, i.e. don’t put all your eggs in one basket. Diversifaction means that you are reducing risk by investing in a variety of assets and asset classes. As an example, if you are investing in stocks, it’s advisable to not only buy technology stocks, but also other sectors like banks, energy etc.

You can also diversify your portfolio by time, e.g. investing a certain amount on a monthly basis so you don’t have as much pressure to time your buys perfectly in volatile markets. Obviously if you have time and energy to follow the markets and buy when the markets are low, you should be doing that and not stick blindly to the monthly investment plan.


Planning for retirement

Retirement is not the first thing that pops up in the discussion when talking to a 20-something professional poker player about his finances. However this should be an important consideration especially if you are not working a regular job and gaining retirement benefits that way.

The best way to save for retirement is to save e.g. on a monthly or bi-monthly basis, so you diversify the investments not only by assets classes but also by time. With an annual expectation of 7% (average annual stock market return) your initial savings will have increased heavily in value over time. You can start with as little as $50 or $100 on a montly basis. It will not have a big effect on your well-being, but will pay off handsomely in the future.

Also the earlier you start, the better. There are many retirement plan calculators available on the internet, I suggest you find one of them and find out how much of a difference it makes whether you start saving when you are 25 or 35 years old. The difference in the end result is huge. You should not count on anyone else when you think about your retirement money, you should start saving now. In the best case you can retire much earlier than you could have ever thought of!



Investment possibilities

Let’s go through different kinds of savings and invesment possibilities one by one and look at them from the perspectives of investment horizon and level of risk.

1) Savings account

Savings accounts are safe invesments with low returns. They offer a little bit less return than the risk free interest rate which currently is on low levels, making this investment not very attractive. The time frame for savings account can be anything from 1 month and more. They normally also very easily transferred to cash, in case you need your investments to be readily available in cash money.


2) Mutual funds

Through mutual funds you can invest in various different asset classes, such as stocks, commodities, different kinds of bonds etc. The value of the fund is updated daily and a buy and sell quotes are normally once a day for you to trade. The investment horizon depends a lot on the underlying asset class but can be anything from medium term to long term investment. Also the risk profiles vary, stocks and commodities are the most risky investments whereas investing in government bonds through mutual funds is less risky.

If you want to invest in mutual funds, you should inform yourself about the fee structure of the fund. Management fees can be quite high depending on the fund, eating up the earnings potential. You should also carefully choose in which asset classes and sectors you want to invest in.

3) Stocks

Stocks are the most traditional investment vehicle and they entitle you to a part of the profit of the company’s that has issued the shares. The profit is normally paid out as dividends. Not all companies pay dividends but they rather invest the money themselves into the company and hope that it pays out to the shareholders as an increase in the value of the share.

Stocks are medium to long-term investments (unless you are a trader and want to benefit from short-term movements) and their upside potential is high. This also means that they are risky investments, as risk and return go hand-in-hand.

If you want to invest in stocks, you should do thorough analysis on the companies you want to invest in and make sure that they have long-term profit potential. Diversification is essential when investing in stocks, meaning that you should be looking at companies from different sectors.

4) ETFs

ETFs are one of the most popular investment tools at the moment; they are transparent, cost effective and easy to trade. ETF stands for Exchange Traded Fund, which means that the fund is always listed on an exchange and you can trade via your broker from the comfort of your home during the exchange opening hours. The prices for the ETFs is updating all the time, constantly reflecting the price changes of the underlying asset (an index, basket of shares, commodities, bonds etc).

ETFs are flexible investment tools because you can also benefit from falling markets with them. You just need to find an ETF that gains in value when the underlying asset value drops. There are also leveraged ETFs, for example offering two times the return an a certain index.

Compared to mutual funds, the ETFs are more cost-effective as the management fees will not be as large. When you find an ETF you want to invest in, make sure that you know exactly what costs are related to purchasing and holding an ETF. Investment horizon depends a lot on the underlying asset, as does the risk level.

5) Trading

Trading is a more advanced form of making money in the financial markets. Traders normally try to take advantage of short term movements in the financial instruments, whether it’s stocks, futures, options or FX.

Traders are normally professional investors that have been in the industry for many years. Their trading pattern differ vastly depending on their style an a trade can last anything from a few seconds to a few weeks or months.

Poker players and traders share a lot of same characteristics so a seasoned poker player might find it interesting to learn trading and learning the ropes of “normal” investing.


6) Real estate

The most long-term investments is normally real estate. They require a lot of capital and effort if you are renting out the flat(s) you have bought, but in the best case they provide you with a nice flow of passive income.

A good investment is to buy yourself a home. You might not get income for renting a flat out, but you’ll have the pleasure of living in an apartment/house that you own and in the best case it will increase in value if you plan to sell it later on.


There is plenty of information available on the internet about all these points discussed in this article. Unless you are well-informed about investment and savings issues, we recommend you to talk with a financial professional to find the most suitable options for you.

1st lol. Well, I've read them on NutBlocker (RIP), so they've got published, by that I mean being indexed by Google . Thanks for introducing them to the masses.

You're reading my thoughts again. After spewing away e470 out of e612 that I was able to ship to the net without painful verification procedures, I was hesitating whom to hate more. Now that I know that a -20BI downswing is more likely to happen than not over 24K hands even with a 5bb/100 winrate , I know I should hate e-wallets that put obstacles to uploading money, not the poker gods or myself, though upon session analyses I should obviously hate myself too.

The passage about retirement that should be considered at the age of 20 is golden, I wish we all had this opportunity by the age of 35 (I have 10 years remaining ).

Pretty sick post... don't think I cba to read it thoroughly as I've been exposed to so much of this information already,, most obvious thing I noticed was that less buy ins required for 400 than 200 in this mix limit thing which is uncharacteristic of say 25 jump to 50..

at plo5 and plo10 I think that you can just play 20 buy ins... for plo100 I would want 75 at a minimum for long term grinding - and for 400 I would want a ridic amount of buy ins like 200- the volume of 100 is already mega sufficient if u play can play 8+ table and crush relative to average hourly wages of the world so there is jsut no need to rush... whatever the goal is it will come at any stake- if only we live forever.

basically the point is that a 50 BI system uniform throughout stakes is not wise,,, amount of buy ins required should go up as you move up due to a higher risk of busto due to tilt effects and stronger player pool. You need to play at a level where stress is just high enough to make you focus and feel the drug of life.

Nice post on finances. I think advantages outlined the ETF section are applicable for vanilla equity ETFs. Commodity / short / leveraged ETFs are different beasts, require far more caution, and are more suitable for trading than investment over a long time horizon.

Great job napsus.

Very informative.

Skimmed through, will read more thoroughly soon when devising BRM plan.

Not sure if this was brought up, but what if we assume that the player is making a transition from NLH to PLO and capable of making $40/hr playing holdem with 1/3 the variance of PLO.

Assuming a 2BB/100 at PLO10 and ~.5-1BB/100 WR at PLO25 with likely WR increases over the next 100k hands... is it worth starting at PLO25 and using aggressive BRM to offset the opportunity cost of $40/hr at NLH?

I think your aggro BRM plan is good. The WRs you assume are negligible in comparison to 10-15bb/100 in RB that's not uncommon if you play (esp. bonus w***e) at euro sites forgetting about game selection, so basically you need just not to fail completely to make the same hourly somewhere at PLO100 (assuming 300 hs/hr).

Thx. I'm thinking about doing the following;

Deposit 20BIs for PLO10, once I get to 25BIs, take 5BI shot at PLO25.
Once I get to 25BIs for PLO25, Take 5BI shot at PLO50.

Risk of ruin is obviously high, but its learning the game that is of primary importance.

I think the time used playing PLO10-25 has such a high opportunity cost both is relative (playing NLH) and absolute (living life) terms that spending any substantial time in the micros is horrible.

You mean that you have to earn 5BI for PLO25 (a single session stoploss), i.e. 12.5BI for PLO10, to move up, and so on. I fully agree with you, but net win calcs in your scheme should be RB-adjusted, otherwise you'll be too disappointed by your results. A 20BI siteroll can be burnt by variance very fast, as in my case, esp. if the RB is monthly, so be psychologically ready to redeposit a lot. Gl!

When you say you say BR adjusted what do you mean by that?

At the moment I have 50BI for PLO4 and 20BI for PLO10 with another 20BI in RB so far which is due at the end of the month.

I'm playing PLO4 and mixing PLO10 into my game and plan to play PLO4 exclusively if BR drops to 30BI for PLO4.

You misread my post, it reads 'RB-adjusted', where RB is an abbreviation for rakeback.

I've written in my 500th post that you should think of your rakeback as if it was already paid into your account, even though it's paid weekly or monthly. I mean you should mentally add an amount of rakeback based on your current rake stats to your balance. I painfully starve for rakeback payments, but when I think of it as a continuous flow, it makes me feel much better.

E.g. you're twice richer now than what your cashier balance says, you should probably move up, congrats!

Didn't misread. That's a typo

Have moved up/mixed in