Paul Meloan – Vested Interest

With the climax of this year’s World Series of Poker Main Event tournament upon us, the poker player in me has been thinking about the connections between the game I love and the work I do. Financial success in poker, as in life, is dependent on controlling your “leaks.”

Poker is a game of mistakes played by flawed human beings. This is its beauty. It is about errors, forced and unforced. For a player to turn a profit he must make fewer errors than his opponent. When he does make errors they need to be smaller in magnitude. If a player is really good, he can often force his opponent into errors he would otherwise not make.

Over time, the cognizant player will come to recognize patterns in his own play that result in him sending profits to other players across the table. The name we give to repeated errors is “leaks.” Of course, as David Mamet points out in his essay “Things I Learned Playing Poker on the Hill” most players would rather go on losing than gain self-knowledge. Losing money is often less painful than knowing yourself.

A classic poker leak is paying too much to draw to a hand you are unlikely to make. Another is bluffing weakly at a pot (if you’re going to go for it, you need to go for it and bet strongly).

When my colleagues and I encounter financial plans that have succeeded or failed, almost always the determining factor is client behavior. Actual investment markets matter little compared to the conduct of the clients. The clients with the fewest “leaks” in their game has prevailed. Those with greater, uncontrolled leaks have either failed or struggled.

Classic financial leaks:

  1. The client who says he’s building financial independence but doesn’t want to know how much he’s spending. Willful ignorance of this fact indicates an inability to accept basic reality. If you are bringing in X, and you’re spending 2X, going broke is only a matter of time.
  2. The client who is afraid of monsters under the bed. Bad things can and do happen all the time in the stock market (that’s why we also have cash, bonds and real estate). Savvy investors know the great majority of the time the stock market offers returns unmatched elsewhere. Investing requires acceptance that we have no control over day-to-day randomness but powerful patterns emerge over the years and decades.
  3. The clients more concerned about the judgment of others than their own self-respect. Keeping-Up-With-Whomever is expensive and draining, and worst of all it will eat you alive and leave you hollow.
  4. Willfully failing to acknowledge the total cost of ownership (instead of just the price). The cost to acquire real estate, vehicles, vessels, planes and animals is only the beginning. All of these things continue to cost money until the day you part with them. If you do not understand how depreciation affects the value of something, you need to.

All of the “leaks” portrayed above involve client behavior, and none involve anything beyond the client’s control. As usual, fixing leaks is simple but not easy.  It’s the price of financial success.



Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

Next Post