VALUE INVESTING: Lesson from the Blackjack Table

Posted on May 5, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

By Vitaliy Katsenelson CFA

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“Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet.”

– David Sklansky, The Theory of Poker

Over a lifetime, active investors will make hundreds, often thousands of investment decisions. Not all of those decisions will work out for the better. Some will lose and some will make us money. As humans we tend to focus on the outcome of the decision rather than on the process.

On a behavioral level, this makes sense. The outcome is binary to us – good or bad, we can observe with ease. But the process is more complex and is often hidden from us.

One of two things (sometimes a bit of both) can unite great investors: process and randomness (luck). Unfortunately, there is not much we can learn from randomness, as it has no predictive power. But the process we should study and learn from. To be a successful investor, all you need is a successful process and the ability (or mental strength) to stick to it.

Several years ago, I was on a business trip. I had some time to kill so I went to a casino to play blackjack. Aware that the odds were stacked against me, I set a $40 limit on how much I was willing to lose in the game.

I figured a couple hours of entertainment, plus the free drinks provided by the casino, were worth it. I was never a big gambler (as I never won much). However, several days before the trip I had picked up a book on blackjack on the deep discount rack in a local bookstore. All the dos and don’ts from the book were still fresh in my head. I figured if I played my cards right I would minimize the house advantage from 2-3 per cent to 0.5 per cent.

Wanting to get as much mileage out of my $40 as possible, I found a table with the smallest minimum bet requirement. My thinking was that the smaller the hands I played, the more time it would take for the casino’s advantage to catch up with me and take my money.

I joined a table that was dominated by a rowdy, half-drunken blue-collar worker who told me several times that it was his payday (literally: he was holding a stack of $100 bills in his hand) and that he was winning. I played by the book. But it did not matter. Luck was not on my side and my $40 was thinning with every hand.

Meanwhile, the rowdy guy was making every wrong move. He would ask for an extra card when he had a hard 18 while the dealer showed 6. The next card he drew would be a 3, giving him 21. Then the dealer would get a 10 and then a 2 (on top of the 6 that already showed), leaving him with 18. The rowdy guy barely paid attention to the cards.

He was more interested in saying “hit me”.

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