
You Bet [pdf] - RickJWagner
https://www.oaktreecapital.com/docs/default-source/memos/you-bet.pdf
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__s
Well written piece on expected value. Something he doesn't get into is the
shape of the skill factor

There's quotes out there about how poker is 9x% luck, & that last stretch of
skill is a game of chess. What they're talking about is skill cap. By this we
mean that poker is such a hard game that not even the best players are playing
it perfectly. See a recent AI Pluribus for some articles on how AI's pushing
this game

Essentially it's about having a 3d graph with the three labels:

X: Player1's skill Y: Player2's skill Z: Player1's chance to beat Player2

Issue: skill may vary with different strategies, so that you end up in rock-
paper-scissors scenarios

Then there's a function over how much effort is required for a player to
increase their skill. This is how we get games described as "easy to learn,
hard to master" they're games with high skill caps but which a player should
be able to quickly have more than single digit odds against an experienced
player

An interesting thing with this 3d graph is that you can make transforms on it
while treating the game itself as a blackbox. For example, in StarCraft
players will often play Bo3 in tournaments. Plenty of commentators will go on
about how this let's people bring a variety of strategies etc etc, but all it
really does is avoid letting a single map's balance be decisive & exaggerates
the advantage of skill. If you have a 70% winrate against someone, in a Bo3
you have an 80% winrate against them

This ends up creating interesting decision making scenarios when one can
choose strategies which shift the role of luck in a game. It may make sense to
play a strategy where even with perfect execution you only have a 40% winrate
if the skillcap for that strategy is low enough & your opponent is better.
This sort of thing makes it that there can be a bit of a divide where players
are stuck at a 40% winrate against players who are better than them until
they've become skilled enough to rationally play the higher skillcap strategy

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H8crilA
If you like his memos I recommend the "bubble.com" memo from 2000:

[https://www.oaktreecapital.com/docs/default-
source/memos/200...](https://www.oaktreecapital.com/docs/default-
source/memos/2000-01-02-bubble.pdf)

Timely written, at the very peak of the mania (though Marks correctly admits
that such precise timing is accidental, knowing well the difference between
luck and skill :) ). You can find all Howard Marks memos on Oaktree's website.

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united893
The PDF has been corrupted since going up a few hours ago. Here's an archived
copy:

[https://web.archive.org/web/20200116002831/https://www.oaktr...](https://web.archive.org/web/20200116002831/https://www.oaktreecapital.com/docs/default-
source/memos/you-bet.pdf)

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ninetax
If you enjoy this you might enjoy Thinking in Bets by Annie Duke.

It's got a lot of the classic "here's how humans are irrational" stuff that's
in other similar books of it's genre, but I found it full of very practical
tips as well.

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RyanShook
One of his main points is that value is based on fundamentals and good
companies can be bad investments if there is not additional value to be
uncovered. This is sound advice but I think the definition of sound
fundamentals is changing. The lens through which we value companies probably
always needs to evolve as the global market evolves and I think this makes
identifying “good bets” more challenging.

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rdlecler1
There is one other factor. Reputation. Imagine being at a poker table where
the dealer preferentially deals aces to one player. That's exactly what
happens in venture capital, and it's the only asset class where the asset
chooses the investor and it's why top funds tend to stay as top funds.

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baddox
> In other words, we tend to respect people who think like we do. Did you ever
> hear someone say, "I think Bob's a genius, and he thinks my views are all
> wrong"? That's something few people would ever say. No, we tend to think
> highly of people whose opinions mirror ours.

This doesn't seem like a very good explanation, because we can and in many
cases do _change_ our views in the face of arguments from people we respect as
geniuses. It doesn't have to be a coincidence or evidence of bias if the
people you respect the most in some area of work also share your views about
that area, because if you respected someone else _more_ then you would change
your views to _those_ views.

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yskchu
This is quite interesting, here's the man himself on Bloomberg talking about
this memo few days ago:

[https://www.youtube.com/watch?v=b3rXpMYp4rE](https://www.youtube.com/watch?v=b3rXpMYp4rE)

