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Take lots of small losses for some big wins
Monday, 24 April 2006
Poker strategy contains many good lessons about dealing with the world. The best of all is that you have to be willing to take lots of small losses in order to hunt out a few big gains.
For those unfamiliar with the game of poker, here's a quick overview:
Usually, people will play a large number of these games in one sitting. Each game lasts a few minutes.
A group of people place bets into a pot to secure their place in a game. Only one person can win the pot, either by having the best hand of cards when the game finishes, or by being the only player left.
Cards are dealt out gradually, so no player can be sure of what their final hand will be until right at the end of the game. As a card is dealt, each player gets an opportunity to bet. If someone bets, all the other players have to either match that bet, or drop out of the game and forfeit all the bets they've made up until that stage.
There are whole books and magazines dedicated specifically to poker strategy. It's a complex game, but there is one basic strategy that pretty much every experienced player agrees on - you should be losing games much more often than you're winning them.
If you drop out early in a game when very few bets have been made, you will lose money but only a little. The longer you stay in a game, the more money you have to risk losing. By the time the game finishes, the pot is usually quite big, and the winner does very well.
Most experienced players will drop out early more often than not. Frequently they will forfeit their bet when only two out of a possible seven cards to make up their hand have been dealt. They haven't got much information on which to base their decision at this stage, but they can figure out whether they have a good chance of winning or not. It's not uncommon for them to lose money twenty times in a row before securing a win on a big pot and making their losses back with interest.
Inexperienced players, meanwhile, will try to lose money as seldom as possible. They'll stay in a game even if they don't think they have a good chance of winning, just because they can't stand to lose anything. They throw good money after bad.
This is an excellent analogy for many parts of life. Most people will go to any length to avoid a loss, no matter how small, and because of that they'll give themselves few chances at making a big win. Meanwhile, the successful players are taking small loses on a regular basis, holding out for the rare big gains they know will set them up.
Let me give you a couple of examples.
About ten years ago, I decided to change careers and move into information technology. There seemed to be a lot more opportunity and money in that area than where I was working at the time. The problem was, I didn't have a lot of experience, and I had no qualifications.
Regardless, I polished up my resume to highlight the experience I did have and started sending it out to employers and recruitment agencies. Most of them rejected me outright, or never got back to me, but some offered me an interview.
I must have gone to ten different interviews where I was made to feel like an idiot because I didn't have as much experience as they were looking for, even though they already knew that from my resume. It was almost as if they were calling me in just to humiliate me. This was obviously very disheartening.
This went on for six months. I applied for around a hundred jobs and they all ended in rejection. My friends and family started to think I was some kind of lunatic. Many of them were blunt in telling me what they thought of my chances. What kind of moron keeps setting himself up for disappointment?
But I knew better. I have a pretty thick skin, and being ignored, rejected, and humiliated doesn't really bother me that much. Sure I'd prefer not to have it happen, and sometimes it really stung, but I knew that these were small losses to endure in pursuit of my ultimate goal.
One day, while I was at home watching television, the phone rang. It was a recruitment agent asking if I'd be interested in an IT job with an investment bank. Of course I would!
Once again, I went in for an interview expecting to be rejected, but this time something amazing happened. They seemed to be impressed with me. I got called in for three more interviews over the next month, expecting to be dropped like a hot potato at any moment. But it didn't happen and they offered me the job!
I worked there for a year to build up my experience before moving to an IT job in London paying four times as much money. Just a year-and-a-half after everyone told me I was an idiot for putting up with so much rejection, I was earning more money than anyone I knew.
Some of them thought I was just lucky, but there was more to it than that - I was willing to endure the many small losses in order to secure a big win.
Another example is how my relationship with my wife began. Like many young people, I struggled through my early encounters with the opposite sex. I was rejected, ignored, and humiliated. The relationships that I did have were often disastrous (I won't bore you with the details).
Just one month before meeting my wife, I was feeling fed-up with the entire process. I'd taken so many hits that I'd almost resigned myself to believing I was destined to be alone.
When my wife arrived on the scene, I was prepared for the worst, but decided to give the relationship a try. Things turned out well, and we've been together now for nine wonderful years.
All the difficulty I was having early on hurt a lot, but in retrospect these were small losses. The big win that I eventually secured was all that really mattered.
This lesson can be applied to all sorts of areas in life - business, relationships, careers, philanthropy, investment and so on.
If you stay out of the game, because you're afraid of taking a loss, you're denying yourself the chance of a big win. More subtly, if you bet too long on a losing hand, you're wasting time, money and effort which could be directed to more productive ends. It's better to take the loss and move on in search of that big-gain opportunity.
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