Discipline: Part XII – Bankroll Continued

In this column I want to wrap up my discussion of bankroll management. The last few columns discussed the topic of building and maintaining a bankroll. So far I have given you three essential rules for handling your bankroll. These are my three rules of bankroll management:

1. The Larger Your Bankroll Is, the Less Risk You Should Take
2. Always Know How Much You Can Risk
3. The More Unlikely Winning Is, the Less You Should Risk

Let’s briefly review these rules. As your bankroll becomes bigger, you should reduce the percentage of it that you are willing to risk. I defined a bankroll size by the amount of time it would take you to replace it. A small bankroll is one that might take a month to replace. If you lose 50 percent of it, you have lost two weeks worth of earnings.

Certainly that’s not good, but it isn’t horrendous. A large bankroll takes at least a year to replace. Imagine you have accumulated a bankroll that would take you two years to earn from other sources. If you lose 50 percent of that money in one day, you have just cost yourself a year of ordinary work. A complete disaster! Therefore, be more cautious as your bankroll gets bigger.

Don’t worry about how much you need to play in a certain game, focus on how much of your bankroll you can afford to risk. I will return to the discussion of this second rule later in this column. It is important when you consider starting to play for higher stakes or when you are thinking of taking a shot in a bigger game.

The third basic rule is that you should let equity or advantage overcome prudence. If you get 2 to 1 on a coin flip, you will quickly start to show a profit. You would have to lose 7 out of 10 times to have a loss, and even then, it would be a small loss. If you get 200 to 1 on a 100 to 1 shot, you have the same advantage, but a losing streak of 50 bets would be more likely than losing 7 out of 10 coin flips. If you risk $1,000 in a cash game where you expect to win $200, you would have to be fairly unlucky to be losing after ten sessions and you will never lose ten in a row. If you enter a 500-player tournament for $1,000 where your average winnings will be the same $200, it wouldn’t be at all unusual to play in ten events without cashing. (Yes, finishing first or second would result in a huge win, but most of the time you will finish out of the money.)

Almost everyone wants to play for higher stakes. Playing for higher stakes is an excellent way to win more, assuming you have the appropriate advantage. At all times, you want to keep improving and becoming more skillful. Playing at higher stakes against better players is a good way to improve, but it may result in winning less or even losing. It also will result in larger swings. You will be risking a higher percentage of your bankroll. One way to minimize the percentage of your bankroll at risk when you move up in stakes is to go for smaller buy-ins. Here are the minimum and maximum buy-ins for various no-limit hold’em games at Bellagio. Other casinos may have lower or higher buy-ins, but these will serve to illustrate my point:

Blinds Minimum Buy-In Maximum
$1-$3 $100 $300
$2-$5 $200 $500
$5-$10 $400 $1,500
$10-$20 $800 no cap

Most good players tend to buy-in for the maximum, but this is often unnecessary and sometimes a mistake. If you are a successful $2-$5 player with a $25,000 bankroll, and would like to start playing $5-$10 on weekends when the games are good, what should you do? If you normally buy into the $2-$5 for the $500 maximum, and Seat 3 buys-in for the maximum loss for any day, you are risking two percent of your bankroll on each buy-in, with a maximum of six percent risk on any day.

My suggestion is you start playing $5-$10 with the minimum $400 buy-in. This will give you a chance to see what the games are like, learn something about the opponents, and find out if you have an edge. At the same time, you are now risking less than two percent of your bankroll per buy-in and less than five percent per day. Note that in all the Bellagio games, the maximum for any stake is more than the minimum for the next higher stake. The fact that you can switch from a maximum to a minimum buy-in is virtually never mentioned in discussions of moving up, and yet it is extremely important from the point of view of risk management.

I am nearing the end of this series on discipline. In the next column or two, I will summarize the most important points and try to answer a few questions from readers. ♠

Steve ‘Zee’ Zolotow, aka The Bald Eagle, is a successful gamesplayer. He has been a full-time gambler for over 35 years. With two WSOP bracelets and few million in tournament cashes, he is easing into retirement. He currently devotes most of his time to poker. He can be found at some major tournaments and playing in cash games in Vegas. When escaping from poker, he hangs out in his bars on Avenue A in New York City -The Library near Houston and Doc Holliday’s on 9th St. are his favorites.