Great Players Change Their Minds

"Being wrong is acceptable, but staying wrong is totally unacceptable. Being wrong isn't a choice, but staying wrong is."

- Mark Minervini, investor and president of Quantech Research Group

My friend Doc was playing $20-$40 seven-card stud and was dealt rolled-up aces. Doc rarely takes the time to calculate how much money is in the pot, except when he's got a monster hand. With rolled-up aces, he was using his mental energy to think about how big the pot was going to be while doing everything in his power not to let his opponents see him gloat.

His next card was a 10, as if he was even paying attention. If he had been, he would have seen that the other three tens were dead. He caught a 4 on fifth street, and the fours were also dead. Sally was showing the 8 9 10, which would have concerned some players, but not Doc, who hadn't even noticed.

Sixth street brought the J for Sally, a deuce for Doc, and the case ace for the third player in the pot. While Doc was busy counting the pot, he bet $40 and Sally raised him. The pot had grown to more than $400, and Doc's mind had wandered to that new Movado watch he was going to buy. "She's raising into my rolled-up aces," Doc said to himself as he saw the bet and raised her again. A few more of these raises and maybe he could upgrade to a Rolex. It wasn't until Sally raised him again and they were heads up that Doc bothered looking at her hand.

Sally could have been bluffing, trying to represent a straight flush in order to get Doc to fold. But even if he wasn't drawing dead, a good player in Doc's situation would have had no problem laying down three aces, especially with only three live deuces available to improve.

Doc would have none of that folding stuff. He was dealt rolled-up aces and was not going to go down without a fight. When the dealer dealt the last card facedown, Doc peeked at it long enough to see that it wasn't a deuce. Without a full house, it was almost certain that he couldn't beat Sally's hand, but he still called Sally's $40 bet. "Just a flush," she said, as Doc's fist slammed on the table. "You ran down rolled-up aces," he screamed. "I was dealt rolled-up aces and I lost." When Doc ripped the three aces and threw them toward the ceiling, the floorman 86ed him for the day.

Traders, in particular, know that you can never fall in love with a hand, because the situation is always changing. Intel might be a great buy at 9:45 a.m. and an obvious sell at 9:46 a.m. – if market conditions change. The reality is that market conditions are always changing. Your ability to divest when things go wrong is what allows you to have the time and resources for other investments.

Suppose that you invest $10 million in a project before you realize that it has no chance for success. Even so, you need to put in only another $2 million to complete the project. When you ask your colleague Ernie, he says, "What's another $2 million after we've already spent $10 million?"

If you had asked Ernie if he would invest $2 million in a project that had no chance for success, he would have laughed in your face and said no. Yet, when the decision is coupled with the fact that you have already spent $10 million, he thinks you should. It's called escalation of commitment, and it is as unhealthy for a business as it is for a poker player.

Like Doc, Ernie is the type of poker player who, even when he knows that he is beat in a hand, will call one last bet and mutter, "I've gone this far. What's another 20 bucks?" Those 20 bucks, or those two million bucks, are dollars that can be put toward a future investment.

If you think about businesses like you do a hand of poker, you can maintain a better perspective. There's an infinite number of hands to play in the future, and holding on to a hand or business that once seemed promising will only prevent you from having the resources to play the next hand.

So, the next time you know you're beat, fold – or as they say on The Sopranos, faghetabowdit.

Greg Dinkin is the author of The Poker Principle: Winning in Business No Matter What Cards You Are Dealt, which will be published by Crown in April 2002. He is also the co-founder of Venture Literary (www.ventureliterary.com), where he works with writers to find publishers for their books and producers for their screenplays.