I want to convince you of something. It runs contrary to good old fashioned common sense, and yet I believe it’s true. Consider:
When you encounter an economic opportunity where it’s totally unclear if you have the best of it, frequently the best thing to do is risk some of your money and time and find out.
This could be though of as the anti-business-school method. Business grads spend plenty of hours figuring out how to analyze a business or opportunity, investigate the competition etc. That’s great. But it’s worth a little time to think about what happens if you give up on the B-school method entirely and instead learn about business by doing business.
Ideas like this are of course best illustrated by old gambling stories… Some time in the 50s Toby and Doyle, two leather-assed Texas road gamblers, were sitting in a diner when the local bajillionaire walked in and offered them a proposition. The businessman would play either one of them 5 card draw poker at $50 limit, offering a $500 rebate every time they lost $1000. In return for the rebate, on each hand played he would get to exchange his 5-card starting hand for a new hand before the first (pre-draw) betting round if he so desired. The hand would then proceed normally. This businessman was known to be a poor card player.
Now, Toby and Doyle had no clue who had the best of this proposition despite being what passed back then for poker experts. The various opposing factors made it totally unclear. Toby and Doyle were partners playing the same bankroll and had abut $6000 between them. Toby wanted to play. Doyle didn’t, worried that even a single $500 loss would notably shrink their bankroll and unsure who had the best of it. Ultimately they broke the partnership over the disagreement and Toby went to play.
I don’t need to tell you what happened next: Toby won every single $1000 game (the businessman really did suck at poker), and $35,000 dollars later the businessman got sick of losing and quit.
Doyle did the “rational” common sense thing but Toby got at least slightly rich ($35,000 was a house in the 50s). Even if there was a 90% chance that the game rules would actually favor the businessman, it was still worth a few hundred dollars to find out because the cost of learning was so small compared to the potential profit.
My life was changed by a similar gamble. One day I was in the Bellagio card room waiting for a 15/30 Texas holdem seat. The brush, a casino employee who’s job is to “brush” reluctant players into games, suggested I take an open seat in the 20/40 7-card stud game. There were only two problems: one it was slightly above the stakes I intended to play, and two I’d never played a hand of 7-card stud in my life. The rational thing to do would be to wait for my holdem seat. Of course I sat at stud. I’d like to pretend this was some sort of clever Toby-inspired gamble. It wasn’t. It was boredom overcoming common sense and I expected to lose. Only one thing got in the way of my self destruction: that stud game was populated by some of the worst players ever to change hundred dollar bills for chips. My unfamiliarity with the game was no match for their complete inability to play poker in general. If my typical holdem opponents were bad players, these guys were 10x worse. A few hours later I’d accomplished three things:
- Made about $2500.
- Recalled everything I’d ever read on how to play stud and moved from nearly incompetent to merely shaky (I’d later become very good)
- Discovered that any time I needed money, I just had to play cards with these gentlemen. And it turned out that they played every day.
The Bellagio 7-card stud game died this past year. RIP. For some of the old players, literally RIP. I suspect the only social security money I’ll ever see came from them In any case stud has gone the way of the dodo and Kansas City lowball and I’ll miss it. But for the last 8 years any time I needed money it was a $200 plane flight and two hours away. This may seem like a weird thing to say, but that’s life changing – more specifically backbone inspiring. From that day on I never took shit from bosses, my parents, or much of anyone else really. When your backup plan is to make a couple thousand a day, it gives you some freedom to maneuver on the main plan.
The point of this article isn’t really to tell gambling stories of course. It’s to get you to take some shots when you don’t know if they’ll work out. I stumbled on an intriguing one recently – smoked turkey legs. This is where the readers should riot – what is a blog about trading doing talking about turkey legs? Well, it turns out it costs about $1.50 per leg in ingredients and fuel to make them with a Traeger type pellet smoker. Turkey leg stands at fairs and whatnot sell them for $5.50 or so. I bet a stand on the local pedestrian mall could sell 100 legs during lunch at least 100 days a year. That’s enough to cover 4 hours of employee time per day with hundreds of dollars a day left over. The profit could be $10,000 per year for just a few hours of management a week and one smoker and food stand worth of capital Do I know for sure it would make money? Hell no. Food inspectors and mall vendor permits could kill me. Restaurant union goons could bust up the stand. Turkey prices could skyrocket. I have no idea. But it would only take about $2000 to find out, and if I had even a 10% chance of making $10,000 per year that’s a ridiculously good gamble. The possibility of expansion to more than one stand makes it even better. It’s a gamble I should take. But I’m lazy and like to make my money staring at a screen or sitting at a card table so I haven’t done it.
Maybe someone reading this is smarter than I am and will try it. Get the permits, buy a smoker, hire and employee and find out if there’s money to be made. I don’t know, but then neither do you. As Toby would remind us, it’s stupid not to find out.