Fortune's Formula and Bankroll Management

I love to read Card Player, as I'm sure many of you love to do as well. Around March of last year, there was an article by Phil Laak about a book called Fortune's Formula. Phil outlined a basic bankroll management strategy based upon the information that he found in this book, and the information is very useful. Mostly, it is important that you play at a stakes level that:

• minimizes psychological stress because of the amount at stake at any given time
• minimizes the effect of downswings in luck and variance on your bankroll
• maximizes long-term profitability when you have a measurable edge
  

It works out that at any time, when you are a profitable player, that you should be risking no more than 2-5% of your bankroll if you are a decent amateur. Poker is not a game that can be purely dominated in any given instance; it is a game with swings and luck that must be factored into the equation. If Tiger Woods were to bet that he could beat me in a game of golf, he could bet 100% of his bankroll against me, as unless he dies midway through our game, he is a sure winner. No one, not even Phil Ivey, has more than a 10 or 15% edge in a poker game, and thus the stakes at risk must be smaller.

All this adds up to one thing: Get rich slowly, but at the quickest pace that you can without the possibility of gambler's ruin (look this phrase up if you don't know what it means).

Ultimately, I decided to read this book, and I must say, it is the best non-fiction book that I have read. Ever. I read the entire book in a week. I can't remember doing that since high school. It was very thought-provoking and compelling. I recommend that anyone interested in becoming wealthy should definitely read this book, as the ideas apply to nearly any discipline with an edge, whether it be blackjack card counting, the stock market (especially arbitrage opportunities), horse racing, sports betting, etc. Of course, it is very important that you have an edge, as the book describes the Kelly criterion, named after John Kelly formerly of Bell Labs, that explains that when you have no edge, you must not bet.

Rather than explain all of the different convolutions in the book, I'll just say that the subjects range from the mafia to roulette prediction gadgets, and the people range from professors to street thugs. The book is very well tied together, and reads like a novel, while simultaneously teaching some very important life concepts.

I don't recommend books much, but please read this one, no matter who you are:
Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street, ISBN: 0809045990