When do we know that a risk is worth taking? Poker champion, hedge fund speculator and entrepreneur James Vogl provides an expert insight into the volatile art of decision making.
James Vogl is no stranger to the game of risk and reward. At age 23 he caught the eye of awe-struck onlookers as he defeated poker-playing royalty to pocket a record-breaking $400,000 in just one hand. Then he turned the heat up a notch higher. Throwing down the cards, Vogl went on to play his hand at a higher-stakes game of hedge-fund speculation for some of the world’s leading investment firms. Running portfolios with values soaring beyond the billion-dollar mark for over 10-years, Vogl now steps into his newest venture as founder of personal development school Cerebral Gym. Here, we speak to the poker-champ-turned-hedge-fund-speculator-turned-entrepreneur about embracing risk, accepting failure and gathering the rewards.
“When you believe that your expected value is higher than what the risk to reward ratio is offering you then you go with it”
TBE: Can you explain your personal formula for risk-taking?
James Vogl: With my formula, you’re weighing potential risk with potential reward and coming up with a ratio. Then, using experience and empirical data, you can decide whether your probability is higher or lower than that formula to get your expected value. When you believe that your expected value is higher than what the risk to reward ratio is offering you then you go with it. If it is lower you probably shouldn’t take that chance.
TBE: How has your career as a professional poker player and hedge fund speculator informed your approach to risk?
J: I started off risking my own money and managing my bankroll so that I didn’t go broke. In poker, I had to decide which games and which stake to play while assessing how much of a favourite I would be to win. I did the same thing all the way through hedge fund managing. When I started, the first account I had was a million dollars and by the time I left, it was 1.2 billion. How much I risked on every single trade was dependant on volatility, climate and how much risk I was in the mood to take at that time.
TBE: Would you say that you were born with a natural proclivity towards taking risks?
J: My grandfather was quite a strong backgammon player and he taught me backgammon at about age six. From my experience of playing the game, I became a natural risk taker. With every single play in backgammon, you’re weighing one play against another, the pros and the cons. You have to be able to immediately decide, ‘what percentage is my chance of winning?’. If it’s 25% you take it if it’s lower you don’t. But, I don’t think anyone should seek to be total risk-taker or totally conservative either. Everyone should balance the risk-reward ratio of a situation and be completely neutral.
TBE: Are most humans naturally inclined towards being risk averse?
J: I’d say some are and some aren’t. It depends on where you are at in life. Steve Jobs was 24 when he founded Apple and he said that he had absolutely nothing to lose except the shirt on his back. What could happen if the company failed? Nothing. At a later stage in life, a similar venture could prove more difficult. You might have kids in private education and a mortgage to pay. You have more to lose so you are going to be more risk-averse.
I think the important thing is that everyone understands exactly what the risks and rewards are and then acts in accordance with their individual personalities. Often people don’t even fully understand what the risk and reward ratio of a situation is to start with.
“If you never lose, you aren’t taking enough risks”
Do you think risk taking involves making peace with failure?
J: Absolutely, funnily enough, there’s a saying in backgammon that if you don’t get gammoned enough, which means to lose a double game, then you aren’t taking enough risks. That means that if you never lose, you aren’t taking enough risks, which is not playing optimally. On the flip side, you want to make sure that when you make your big bets you don’t fail so often. While it’s fine to fail with the smaller things, big bets carry greater risks.
What are your thoughts on the idea of risk-taking as ‘pro-active living’?
J: Every single time you make a decision you are taking a risk. When you cross a road you risk being hit by a vehicle, but you don’t even think about it because the risk is so familiar. Going back to the games, there’s another example: In a poker tournament the hands keep going up, so if you don’t play a hand you are going to lose, regardless. So you have to take risks, you have to play to stay alive. So, I think that obviously we’re always taking risks but it’s just a question of how much risk you take. So yeah sure we all take risks, subconsciously and consciously.
“Every single time you make a decision you are taking a risk… you have to play to stay alive”
TBE: What advice would you give to someone who wanted to be less risk-averse?
J: The first thing is to visualise and try and calculate what’s the worst that can happen, what is the best and what is the medium outcome. If you are going to ask a girl out on a date, what is the worst that could happen? She could say ‘no’, but logically she could also be flattered and then say yes. The second is to think about taking smaller risks but the risks have to be connected with rewards. Additionally, in areas where you really struggle, like with investments or financial decisions, you can outsource. If you’re an average trader, give your money to a big trader instead of trying to struggle along.
TBE: If someone was faced with pros and cons of all of their options seem to carry the same amount of risk, how can they make a final decision?
J: If they are all equally weighted, I’d say to go with your gut instinct. A gut instinct is your first evaluation based on your previous experiences and an amalgamation of all that has happened in your life since you were a child. If you’ve got the fundamental background and the maths and understanding, your gut instinct is more likely to be right. Occasionally, when you come across really tough decisions, so I would say 90% of the time decision making is a routine. There’s nothing to think about and you just go with your gut because you’ve seen it so many times. But occasionally you have to stop and think when there’s a really hard problem and try and use the rules of analysis.
TBE: There’s a quote, ‘The most rewarding thing you should do in life are often the ones that look like they cannot be done’. Do you agree?
J: No, I don’t agree with that at all. Obviously, it is rewarding when you solve a really difficult problem or face something that is tough. But, for example, bringing my kids has been the most rewarding thing to me and comes very naturally to every parent. Something doesn’t have to be very difficult to be rewarding, in fact, if something is so difficult that it’s consuming so much of your time, you’re probably not allocating your time correctly. You should be spending your time on things that impact you straight away.
When on holiday, I enjoy sitting in a hammock and reading a novel. Recently, I thought to myself ‘why aren’t I doing this in London?’. Now I have a hammock up in my back garden and find an hour here or there to read and find that to be very rewarding.
James Vogl is the founder of personal development school Cerebral Gym. At the age of 24, Vogl made a name for himself in the world of high-stakes poker after winning $400,000 at his first World Series of Poker tournament. After this success, he went on to work as a hedge fund market speculator for Goldman Sachs and Moore Capital before becoming a partner at Graham Capital LLP 2014. After 10 years of managing accounts of over $1 billion. He is currently writing the book “Risk Over Risk Plus Reward” where he will share insight and analytical skills gained throughout his career.