Online Poker Forum - Becoming a better investor

Dag Mikkelsen · Posted: Thu Oct 30, 2008 11:38 pm Post subject: Becoming a better investor

Becoming a better investor

After being active in the "Rail Requests" part of the forum for a little while now it's time I contribute a little. Most of you are more experienced with BAPs than I am, but I have a lot of experience at investing in other players and also statistics and math. Here's my guide to become a better BAP investor.

In every market there are good and bad investments. The same goes for BAPs. I'm not talking about only investing in good, trustworthy players. You don't need me to tell you not to invest in players you don't know. I want to talk about using statistics and math to determine the best place to invest your money.

A lot of things affect the profitability of a BAP. The most important ones are the player's ROI in these tournaments, how many he is playing and the variance. If I want to invest in a BAP I want it to be in tournaments with low variance, high ROI and over as many tournaments as possible.

You have to remember that as an investor you have to pay 100% of any losses, but you only get to keep a x% of any profits. Therefore you want the chance of profit to be as high as possible. You also want the average size of the profit to be as high as possible. ROI, variance and number of games are the key factors in both the chance of profit and the size of it.

This is easier explained by some examples. Let's start with single MTT BAPs.

Single tournament BAPs

Player X is going to play one $24+2 tournament with around 1000 entrants.
He is offering 70/30+SB.

We know player X is very good and can expect to beat this tournament for 100% ROI.
He will finish ITM about 18% of the times.

100% ROI means that on average he will win $52.
This means that the times he cashes he will on average cash for $52 / 0.18 = $289

So 82% of the times the investors will lose $26.
18% of the times the investors will make ($289 - $26) * 0.7 = $184.

Your EV as an investor will then be:
(0.18 * $184) - (0.82 * $26) = $33.12 - $21.32 = $11.8

This is a ROI of 45% as an investor. Not bad, but not great considering the huge variance. I would consider this a borderline good investment. But what happens if the player is a 50% ROI player? Or if he's only cashing 15% of the time? This is why need to have a good margin for error when you invest. You don't KNOW their ROI or ITM percentages and you should always play it safe.

70/30+SB was OK for this scenario, but I would have preferred 80/20+SB or better.

Tip:
When investing in single tournament BAPs you should expect a bigger piece of the profit to cover the margin of error and your huge risk.

Multi tournament BAPs
These are a bit more complicated and can't be calculated like the single tournament BAPs. At least not every time. Calculate might be the wrong word, simulate might be better.

If you read my FTOPS BAP thread you probably saw my post where I did exactly this.

I have a simulator I developed where I can enter a custom payout and finish distribution and then do simulations. I had this simulator play $26 tournaments with 1300 entrants and 145% ROI (pretty realistic numbers for a great player).

Then I made it simulate a BAP where this 145% ROI player played 16 of these tournaments and offered a 50/50+SB. I ran this 5000 times.

Now remember the single tournament BAP where the stakers made a profit 18% of the time. In these simulations the stakers made a profit 28% of the time. 7% of the times the player did not cash in any tournaments.

In this scenario the stakers had an expected ROI of 52%. This is only slightly better than in my single tournament BAP example, but the risk is lower since you
1. Make a profit more often
2. You rarely lose your entire investment

Hypothetical example:
Instead of playing 16 tournaments the player plays an infinite number of tournaments. Your ROI as an investor would then be 145% / 2 = 72.5%

This tells us that the ROI for investors converge very quick. At 16 we are not too far from the maximum ROI. If the BAP was only for 2 tournaments we would obviously not even be close to max ROI. For every tournament we add to the BAP the ROI will increase, but it will increase with less and less.

Tip:
When investing in multi tournament BAPs you want the player to play as many tournaments as possible. The less tournaments he is going to play the less of the profit he should receive.

Conclusion
I hope this has been educational for current and future investors. By showing you two examples of BAPs and how profitable they are I hope you'll be better at determining the difference between a good and a bad BAP.

cmbf117 · Straight Flush Joined: 19 May 2008 Posts: 485

Enlightening post, thanks Dag. However...

Dag Mikkelsen · Posted: Thu Oct 30, 2008 11:59 pm Post subject:

oh... lol.. wonder where that part went :/ guess ill have to fix it

g_420man · Posted: Fri Oct 31, 2008 12:16 am Post subject:

very nice. sticky imo.

Autosuggestion · Posted: Fri Oct 31, 2008 4:22 am Post subject:

Well played. Nice post.

RiotNoise · Posted: Fri Oct 31, 2008 8:16 am Post subject:

gg and ty

LostOstrich · Posted: Fri Oct 31, 2008 8:35 am Post subject:

Wow I really do love this guy. Sticky this please.

st6truckie · Posted: Fri Oct 31, 2008 9:29 am Post subject:

bingy1990 · Posted: Fri Oct 31, 2008 10:39 am Post subject:

Young danes Heart

Dag Mikkelsen · Posted: Fri Oct 31, 2008 12:51 pm Post subject:

*cough* norwegians

anyway, ty ppl =)

LostOstrich · Posted: Fri Oct 31, 2008 12:54 pm Post subject:

BBCOACH44 · Posted: Fri Oct 31, 2008 12:57 pm Post subject:

Thanks D...very good post....oh yes +1 4 Sticky.... Idea

cds tripaces · Posted: Fri Oct 31, 2008 1:02 pm Post subject:

Good post, I have become a very active staker/investor on another site, done properly it can be very profitable.

rockycatt · Posted: Fri Oct 31, 2008 1:02 pm Post subject:

a breat of fresh air ,very informative your the best so far imo
R C

XxBinh_LamxX · Posted: Fri Oct 31, 2008 2:52 pm Post subject:

good post, Ty Dag.

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