Common Bankroll Management Misconceptions

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There is no shortage of bad bankroll management advice. Some of it is clearly wrong, and some is subtly wrong because it applies in some contexts, but can easily be applied out of context. We’d like to address some of these common misconceptions.

Fixed number of buy-ins

It used to be that the common figure tossed around for no-limit cash games was 20 buy-ins. It’s easy to remember and compute. What’s wrong with that? It’s like guessing that everyone has a shoe size of 7. For some people, it’s a great fit. For some, it’s off by a little, and for some, it’s horribly wrong. Even for a particular person, like a growing child, if a size 7 shoe fits now, a size 7 shoe will probably not fit next year.
 
If you are a typical winning player, your winrate will drop as you move up. The rake becomes less of a factor, but that benefit is more than countered by the increased average strength of your opposition. In no-limit cash games, the overall aggression factor generally increases, which tends to increase your standard deviation. The result is that the number of buy-ins you need for a given level of safety will usually increase as you move up. Using a fixed number of buy-ins as you move up will lead to disaster.
 
Beginners should also be particularly wary of fixed numbers of buy-ins. The reason is that beginners often play in low-stakes games where high winrates are possible. Dropping 10 buy-ins in a soft game is a much clearer warning that you are not playing well than if you lose 10 buy-ins in a tough game. Do not make the mistake of blaming this loss on bad bankroll management.

Stop-Losses

One simple way to avoid losing 20 buy-ins in a day is to stop playing once you have lost 10 buy-ins. Or 5. Or 2. Wouldn’t it be great to have all of the big wins, without the really painful big losses?
 
While stop-losses can give you an illusion of control, they do not prevent large downswings. You are still going to have downswings which are just as bad. Using stop-losses means that your downswings will be spread out.
 
There are reasons to use a stop-loss. If you don’t play as well after losing, then it might be the right decision to quit for the day. If losing is a sign that the games are particularly tough or that you are not concentrating, then it might be the right decision to quit. If your bankroll is no longer large enough to play then it may be time to move down. However, if the games are soft and you just ran into some bad luck, and your bankroll is large enough to play, then you are not helping your bankroll by quitting.
 
A variation on a stop-loss is a stop-win. You stop if you reach your target win amount. Again, this can give you an illusion of control, but it does not eliminate variance. If you use a stop-win, you will have many small wins and a few large losses which may wipe out most of the wins.
 
Your expected winnings equal your edge times your volume. If your play is consistent, then neither stop-losses nor stop-wins increase your edge. The main effect they have is to decrease your volume. At the end of the year, your day-to-day results are not important, but decreased volume will lower your total profit.

Anecdotal Downswings

Your friend mentions that he has dropped 50 buy-ins. “You better have more than 50 buy-ins in your bankroll, or you aren’t safe!” Then you hear someone else dropped 100 buy-ins. Do you adjust you bankroll requirements to cover these? Are you now irresponsible if you play with 40 buy-ins?
 
Your friend may play in games which are completely different from the games you play, with a very different skill "advantage". Are you sure the player who had the 100 buy-in downswing was a winning player at all? People are quicker to blame bad luck than to admit being outplayed. Did the downswing happen to someone with the same winrate you have? Even if the player was an expert, the answer might be no. Winning low-stakes players often have higher winrates in big blinds than experts maintain in high-stakes games. While winning high-stakes players may win more dollars per hand, their lower winrates in big blinds/hand mean they experience much larger downswings than solid winners in low-stakes games, even players with a lot more to learn.
 
Even if the conditions were exactly the same as in your games, it does not mean you need to have enough to cover the downswing. If you did nothing but play poker in today’s environment for hundreds of years, you would see some very large downswings, some of a size that you will only see once every hundred years. If you have hundreds of acquaintances playing poker for one year under similar circumstances, a few will report a hundred-year storm. A few more might exaggerate and report a downswing which almost happened.
 
The sad fact that many people die in car accidents each year does not mean driving is prohibitively dangerous. If you are a winning player and you do not withdraw your winnings, then you do not need to start with a 60 buy-in bankroll to prepare for the possibility that you will experience a 60 buy-in downswing at some point. If that downswing happens after 1 million hands, then you should have accumulated hundreds of buy-ins, and losing 60 buy-ins out of 800 is not a disaster.