Back in my college days, I played poker. A lot of poker, at high stakes. I played online, in Atlantic City, in underground Philadelphia poker clubs, and against other UPenn undergrads. I was a very good player, but I had a few college friends who were objectively better. They were better at every aspect of the game…except one: table selection. And because of that one weakness, a couple of them were constantly broke.
These young poker players would make tens of thousands of dollars playing against “fish”, but would then take their winnings and sit down with the very best players in the world. They would challenge the best professionals, like Phil Ivey, to high stakes heads up games. Inevitably, they’d eventually lose to the superior players and often they’d lose everything. Then they’d borrow a few thousand dollars from friends and rebuild, only to lose it all again against the top pros.
I too occasionally tested myself against the best in the world, but I knew I was paying for a lesson, and would only sacrifice a small percentage of my winnings. I spent most of my time playing against weaker players. I realized early on that table selection was a part of poker too, and there was no shame in using that as a critical part of playing profitable poker.
“Table selection” refers to choosing a poker table at which to play. And it, more than anything else, determines whether you’re likely to end up a winner or a loser. Unless you’re the very best or very worst in the world, your expected value depends on your opponents. If you’re the 10th best player in the world but only play against the top 9 professionals, you’ll go broke. If you’re a mediocre player but exclusively play against even worse players, you’ll be profitable.
This concept applies throughout life. Venture capitalists know it’s a bad idea to invest in companies trying to beat Amazon at its own game. And as a trader, there are some tables I want to sit at, and others that I want to avoid.
Trading in many traditional markets is like sitting down at a table of the top professionals. It’s possible to win as a long/short equity trader, but you’ve got to be among the very best in the world. In contrast, cryptocurrency trading is currently like sitting at a table of weak players; there may be the occasional professional, but we’re not competing with the professional. Rather, we’re playing against the price insensitive retail investor – the person who panic sells BTC at $1800 that has never heard of BIP 91, or the person who buys ETH on margin at $400 without a glance at the network capacity or scaling roadmap. We’re not trying to impress with complex trade ideas. We’re not trying to show off by out-thinking other professionals. We’re here to win.
In practice, this means that we’re flexible. Back in April I was sitting at the ICO table. I invested in the Cosmos Network’s Atom token at an attractive valuation. Over the following month, the ICO table got much more competitive. Initial valuations skyrocketed as investor capital flooded into the space. And a great many of the professionals entering cryptocurrency are currently focused on ICOs. So…for now at least, I’m not. This isn’t to say that there aren’t attractive ICO opportunities – there are. But I see softer tables at the moment.
Table selection requires that we banish our egos. Avoid the temptation to compete against the best (even if you think you are the best.) Choose your opponents carefully.