Press Your Winners

"It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as [George] Soros is concerned, when you're right on something, you can't own enough."

- Stanley Druckenmiller, CEO, Duquesne Capital Management

"Greed, for lack of a better word, is good."

- Gordon Gekko (Michael Douglas) in the movie Wall Street

"You're quitting now?" I asked my friend Doc, who had battled back from losing a dime to winning $50. "How do you ever expect to win if you leave every time you get a little momentum? I guarantee that if you were losing 50 bucks, you'd be playing all night to get even."

My advice turned out to be a waste of breath. Doc is known for being a "hit-and-run" artist; he leaves as soon as he gets up a little. You'll hear him say all the time that you can't argue with a win. When he's losing, you'll also hear him vow to quit as soon as he gets even. It's on those occasions that he ends up playing marathon sessions and blowing his entire bankroll.

How many times have you sold a stock that has appreciated and said to yourself, "You can't go broke taking a gain," only to see that stock skyrocket just after you've sold it? Even worse, how many times have you held a stock that keeps depreciating, waiting to "get even" before you sell it?

Common sense dictates that when things are going well, you should keep playing and take advantage of your momentum. It would also seem to make sense that when you are struggling, you should take a small loss and come back another day. But it's human nature, and not common sense, that leads you to the ATM when you've exceeded your loss limit and haven't slept in three days.

In 1988 when Stanley Druckenmiller had taken over day-to-day operations of George Soros' Quantum Fund, he took a large short position against the German mark. It started to go in his favor, and he was pleased with himself for making a big score.

Soros asked, "How big a position do you have?"

"One billion dollars," Druckenmiller answered.

"You call that a position?" Soros asked, a question that has become part of Wall Street lore. Soros persuaded Druckenmiller to double his position, and even more profits poured into Quantum. The lesson stayed with him. In September 1992, Druckenmiller sold $10 billion worth of sterling, thinking Britain would devalue the pound. When it did so on Sept. 15, he racked up a profit of $958 million.

"The most important lesson Soros had taught me," said Druckenmiller, "was that it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. The few times Soros has ever criticized me were when I was really right on a market and didn't maximize the opportunity."

You might feel the urge to pull chips off the table when your business is succeeding. Rather than put on the brakes, this is the time to increase your commitment. When you're ahead, you can afford to take more risks by playing aggressively. That doesn't mean that being ahead is an excuse to take unnecessary risks or to waste money. It does mean that when things are going your way, you should continue to back up correct decisions by increasing your stake.

In poker, I believe that 95 percent of players, even top pros, are underdogs at the table once they've lost their first rack. Part of the reason is internal – once you start losing, you question your own play and lose the mindset required to win. The other part is external – once you start losing, your opponents detect an edge against you and play better against you. It's subtle, but in a game in which perception is reality, it's enough to make a difference – and make you an underdog.

When you're winning, you make decisions based on reason, not emotion. When you're winning, you don't chase. When you're winning, your mind is entirely focused on taking the chips from your competitors.

In business, the easiest person to sell is someone who has just bought something. In poker, the easiest person to beat is someone who is losing. The next time you have an edge on someone, rather than take your win and celebrate, press that edge and play even more aggressively. Doc limits his winnings because he hits and runs; Druckenmiller presses his edge. Playing like the latter is your only chance to make $958 million.

Greg Dinkin is the author of The Poker MBA: Winning in Business No Matter What Cards You're Dealt, which will be published by Random House's Crown Business imprint in April 2002. For a book review – plus a joker – send an E-mail to [email protected], subject heading, The Poker MBA.