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Win the Battle, Lose the War

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Don't worry, I got an ace up my sleeve

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Win the battle, lose the war. This is the very essence of gambling; many battles won, tickets cashed, pots raked in, pockets stuffed, all the while running in place as we slip inexorably toward destitution. I would like to tell you that it's different, perhaps even as much as you might like to hear that it's different, that the war can be won, that not all gamblers die broke, that the battles fought between the first post and the last pot matter in the end. But it is what it is. The truth is harsh.

Stu Unger met the truth in a Las Vegas motel room in 1998. Stu Ungar, or Stuey the Kid, won back-to-back World Series of Poker titles by the time he was 27. According to a new biography set to hit stores this week (naturally), "One of a Kind: The Rise and Fall of Stuey 'the Kid' Ungar, the World's Greatest Poker Player," Ungar won and lost about $30 million before meeting his end in that hotel room at the age of 45.

The New York Times on Sunday ran a feature on the phenomenon of Stu Ungar. It made the front page of the Sunday Styles section. The newspaper also this past weekend began a new "educational" feature on poker playing, similar to the Chess features, or Bridge features, that have run in newspapers around the country for years. I suppose it was about time.

The reason the Stu Ungar story caught my eye, though, is because the article managed to draw a thin line between risk and ruin and even shade the line between the two with a bit of gambler's wisdom. The thin line between risk and ruin is really just the faded, yellowed distinction between those who have already lost and those who still want to. According to the Times, "To his contemporaries, Ungar remains the ultimate gambler's cautionary tale, the embodiment of hazardous risk. But to a wonky new generation of players, decked out in Oakley snowboarder sunglasses and iPods, schooled on Internet poker and striving for corporte sponsorship, Ungar is a renegade genius..."

A symbol of wasted talent (and reckless disregard) to some, Ungar is also a symbol of romantic rebellion (and reckless disregard) to others. Which category one falls into, wasted talent or romantic rebel, probably also describes one's relationship to risk in general.

I'm no stranger to a romantic view of gambling and a tilted relationship with risk. When I was a kid I basically grew up on a golf course and took lessons from the local golf pro - not in golf, but in making odds lines, taking bets on everything from Churchill Downs to the Cincinnati Reds to the British Open, and occasionally running them to the local liquor store to hand over to the bookie. My first real job out of college was working for the Daily Racing Form. Over the years I've met, literally, hundreds of "professional" horseracing gamblers. But I can count on one hand the ones who were verifiable winners. Most were addicted to losing. After all, that's the one addiction gambling feeds day in, day out - losing. Winning is a hard thing. It's hard enough when the odds are in your favor. Give somebody a head start, whether it's the takeout at the track, a bookmaker, the vig in Vegas, the unknown opponent across from you at the poker table, or the commission on 10,000 shares of a stock, and then you got your hands full. That's one wheel you don't want to fall asleep at.

Just like gamblers, some traders and investors are addicted to losing. They repeat the same patterns of mistakes over and over again. They complain about their losses, they bemoan their luck, and then they go home, rest, and start all over again doing the same losing things the next day.

Still others are like the gamblers who have simply fallen in love with risk itself. Winning and losing for them are separate things, irrelevant things. For them the action alone is where it's at. There can be a certain numbness that comes with winning, something akin to inevitability, and with losing as well. Both can be disappointing in their own way. But risk, well, risk is always there. If you're looking hard enough for it you can find risk as easily between your desk and the deli as you can between the open and close, or the first card and the flop.

Until it's made manifest, risk is nothing but a word kicked around like an empty can on the way to the playground. Risk is subtext, a promise made over and over that fails to follow through, again and again and again.

"If you keep it up, one of you is going to lose an eye," my mother warned me and my brother when we were kids. Yeah, right. We're not going to lose any eyes, we thought. And sure enough, we were right. Firing BB guns at each other at near point-blank range never did cost us an eye. Risk is nothing until it finally decides to shake off the cobwebs and show up. It's nothing.

So today, while we secretly steal glances at the For Sale signs in our next door neighbors' yards and contemplate the possibility of a housing bubble, the real bubble, the bubble in risk assumption, continues to grow unabated. Sure, the tech unwind that began in 2000 caused quite a few players to switch games, diluted their stake, wasted their bankroll, but gamblers are nothing if not resourceful. Poker, and its popularity, is nothing but a single data point on that chart, a manifestation of an increased appetite for risk.

Of course, this increased appetite for risk is cyclical. And cycles are ever-changing. And believe it or not, ironically, that's something I learned in a book about gambling. In "Secrets of Professional Turf Betting," by Robert Bacon, now out of print and published more than 50 years ago, the author writes:

"The collective "mind" of the public imagines that if it could only once find the "combination" for beating the races, it would be set for life... But, if the public play ever did get wise to the facts of life, the principle of ever-changing cycles would move the form away from the public immediately."

Bacon might as well have been talking about financial markets, or poker, or even real estate for that matter. No matter the game, the target is always shifting. Just when we think we've found the key, the target suddenly moves, and only those who can adapt survive. Risk management requires an understanding of this dynamic. Survival depends on it. But the secret is there is no secret, there is only risk management, and once we come to terms with that we also, inevitably, must come to terms with the fact that risk can never be eliminated, only managed. And frequently, even managed risk leaves us with undesirable results. It's better than ruin, but beauty is always in the eye of the beholder. One man's reward is another man's ruin. That's why the market is waiting for us each day in the first place.

Of course, there's the other side of the risk game; the Stu Ungars of the world, the stars who burn so bright and scorch the earth with their talent, raw, unfiltered, unmanageable. Ungar is a fascinating figure, but a tragic figure really. The fact that his legacy is being embraced at this particular point in time probably says as much about us as it does about him. And I'm not so sure that what it says about us is good. I guess we just don't know yet. After all, risk is nothing until it shows up.

No positions in stocks mentioned.

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