Summary

The author emphasizes the importance of understanding luck and risk for taking calculated risks, drawing from personal experiences in professional poker.

Abstract

The author shares their journey of becoming a professional poker player at a young age, attributing their success to a combination of luck and understanding risk. Guided by two friends, they learned to navigate the uncertainties of poker through rational thinking and effective bankroll management. The article highlights that risk and luck are intertwined, with risk involving a good decision leading to a bad outcome and luck being a bad decision resulting in a favorable result. Recognizing the influence of external factors, the author stresses the importance of not being misled by luck and learning to manage risk. They offer four lessons on luck and risk that can be applied beyond poker to business, investing, and life, emphasizing the need to quantify both, acknowledge their roles in success, recognize their subjective nature, and maintain a balanced confidence level.

Opinions

Luck and risk are acknowledged as integral components of any competitive endeavor, with both requiring careful management.
The author believes that success in poker, and by extension in other areas of life, is not solely the result of skill but also involves a significant element of luck.
It is important to be humble and realistic about the role of luck in success to avoid overconfidence and to better handle the challenges that come with competitive pursuits.
The author suggests that people often overlook the impact of luck and risk, especially when it comes to attributing success to personal skill and effort alone.
Understanding and distinguishing between risk and luck can help individuals make more informed decisions and focus on what they can control.
The article conveys that risk should not deter one from taking action, but rather inform a more strategic approach to decision-making.
The author warns against the false confidence that luck can bring, as it may lead to poor long-term decision-making and an inability to adapt to negative outcomes.

If You Want To Take Risks, You Need To Understand Luck.

Luck and risk are two sides of the same coin.

I got lucky to be a professional poker player.

When I was 19, I went off to university in London. Most people my age got a retail job to fund their studies, newfound freedom and drinking habits.

But my first thought was to play poker to fund my London lifestyle.

Yes, I was going to gamble my way to hangover success. I didn’t know if I was going to succeed, but all I wanted was to win £20.00 to order my twenty jaeger bombs.

When I asked two friends who became professional poker players for some help, they took an interest.

I don’t know what they saw in me, but they decided to coach me.

My friends helped me develop a fundamental understanding of poker. They taught me how to be a rational thinker and how to weather uncertainty with good bankroll management.

I progressed quickly, moving from $5 stakes up to $50 stakes in the space of a year with their help.

I would conquer each stake and move up to the next one.

It wasn’t all plain sailing. I would move up, get obliterated by the regulars at that level. And be forced to study and adapt so I could overcome their strategy.

But without the guidance of my two friends, I suspect it would have been harder to succeed. I got lucky to have them in my life to have their guidance and teach me.

Understanding risk and luck

Another reason for my success is that I understood risk. I understood risk because I understood luck.

I learnt that if risk is what happens when I make a good decision but end up with a bad outcome, luck is what happens when I make a bad decision but end up with a great outcome.

They both happen because the world is too complex to allow 100% of my actions to determine 100% of my outcomes.

Luck and risk are two sides of the same coin. They are both driven by the same thing — I am one person in a 7 billion player game with infinite moving complex parts. The impact of other people’s actions can be more consequential than my own.

Experiencing risk daily made me recognise what was out of my control. This instant feedback helped me adjust my strategy, but luck didn’t.

Luck generates the opposite feedback. It gives a false feeling of being in control because I made a poor decision but got the outcome I wanted. This is terrible feedback for making good long-term repeatable decisions.

Despite luck and risk being two sides of the same coin, we treat one as more important and act like the other doesn’t exist when we succeed. This is partly about ego but also our human desire to identify patterns of what works.

We love assigning narratives to explain things, and the most comforting narrative when dealing with uncertainty is “I’m good at this and will continue to be good.”

Here are 4 lessons about luck that I’ve learnt from poker that you can apply to business, investing and life.

1. When quantifying risk, do the same for luck.

It was unrealistic for me to expect to win every session in poker. On average, I would win 55+% of my sessions.

There were some days lady luck graced me with her magic. I got dealt great hands, every bluff goes through, and every value bet got paid off.

But it is being humble enough to know that this level of luck isn’t repeatable.

Understanding that this portion of success was caused by luck, you’ll better handle the reality that competitive pursuits are a continuous chain of stress and challenge.

2. Discounting risk and luck in past successes.

Telling someone their success was, in part, luck is insulting. Because it undermines the effort a person has put into their endeavour.

But risk doesn’t care about how much effort you put into something, nor does luck. Both show up unannounced, ready to humble you. The only difference is that risk humbles you as soon as it arrives, while luck humbles you down the road.

You can manage risk and luck. You can ignore risk and luck.

But you can’t get rid of either.

3. It’s hard to define risk and luck.

A poor person who wins the lottery is lucky. A person born in the western world to wealthy parents is lucky, too.

A person who works a 9–5 thinks it is risky to start a business. A person who was raised in an entrepreneurship environment think it’s risky to stay in a job.

They’re different types of luck. They’re different types of risk.

Risk and luck are hard to define, and they mean different things to different people.

4. Risk reduces confidence. Luck increases confidence.

Experiencing risk reduces confidence when it should highlight reality. Risk can make people more conservative than they should be.

Luck increases confidence without increasing ability, magnifying how people respond to it.

Not only are you tempted to repeat the actions that helped you get lucky, but you will do so with exuberant confidence. You leave no room for error and can’t respond to negative outcomes when your luck runs out.

Beware of thinking everything you’ve done was all skill.

Both luck and risk are ever-present and a normal part of life.

But they are hard to pin down.

There is a fine line between “inspiringly bold” and “foolishly reckless”. They are only visible with hindsight.

It’s not easy to identify what is luck and what is risk. But understanding risk and luck is the only way to identify and focus on what is in your control.