Pro Poker Player Annie Duke on When to Quit — in Games, Investments and Life
- We’re told as children that “quitters never win.” But is it always wise to stick with something when it no longer serves us — or worse, when continuing can harm us?
- Bestselling author, retired professional poker player and decision strategist Annie Duke says that learning when to quit is a critical skill, especially for investors. Although grit is considered a virtue, it’s not always a good thing.
- In her new book, “Quit: The Power of Knowing When To Walk Away,” Annie presents strategies for quitting with confidence, especially when common psychological triggers threaten to keep us in the game.
“If I called you a quitter, would you take it as a compliment?”
That’s the question Annie Duke asks as we begin a conversation about making better decisions (including both trades and everyday choices) in an uncertain world.
Few of us would want to be thought of as a quitter. Our Ideas Lab co-host Kevin Coldiron, who interviewed Annie for an episode of Top Traders Unplugged, said it was “unlikely” — perhaps an understatement, considering his success in hedge funds.
But Annie — a bestselling author, retired professional poker player and decision strategist who advises seed-stage venture fund First Round Capital — says that learning when to quit is a critical skill, especially for investors.
“As a society, when we think about the opposition of grit versus quit, grit is a virtue,” she says. “So much so that when we parent our children, we tell them not to quit things because we want to build character. Grit is synonymous with character, whereas quitters are losers; they’re failures. I think that’s just like a huge shame. … Grit is not always good.”
In her new book, “Quit: The Power of Knowing When To Walk Away,”, Annie draws on stories from a wide swath of high achievers, including elite mountain climbers, business leaders and entertainers, to argue that “quitting is a good thing when applied at the right time.” Trained in cognitive psychology as well as tournament poker tables worldwide (earning more than $4 million in winnings before she retired), Annie presents strategies for anticipating risks and quitting based on context.
On this episode, Kevin and Annie discuss how to recognize the right time to quit, the folly of “learning the hard way,” what scaling Mount Everest can teach us about quitting and why we struggle so much with deciding to quit. Here are a few high points from their conversation.
Grit versus quit
To be clear, Annie isn’t anti-grit.
She praises Angela Duckworth’s book on the topic, aptly titled “Grit,” and notes that grit is “really good for sticking to things that are worthwhile, but that are also hard. The problem is that grit is also really good at getting you to stick to things that aren’t worthwhile just because you think quitting is bad.”
One reason quitting gets a bad rap is that quitters tend to be maligned, invisible or simply forgotten.
Annie illustrates this in vivid detail in “Quit” by telling the story of Dr. Stuart Hutchison, Dr. Lou Kasischke and John Taske, who were part of the same expedition to scale Mount Everest in 1996. Although they didn’t know each other before they met in Nepal, the three men became friends.
Led by an experienced expedition leader and several Sherpas, they spent weeks climbing and acclimatizing before the day finally came: Summit Day. They set out from Camp 4 with a “turnaround time” of 1 p.m.
In climbing, “turnaround time” refers to a point when, no matter where someone is on a mountain, they should turn around (even if they haven’t reached their destination).
“It’s meant to protect you from bad decisions in the middle of the climb,” Annie explains.
Turnaround time is particularly important because, in the shadow of the summit, climbers are often overtaken with “summit fever,” the desire to continue no matter the weather conditions, warnings or adverse effects of the thinning atmosphere. Hypoxia (lack of oxygen) can cloud judgment. Plus, it’s crucial to avoid descending the mountain in the darkness.
On this particular day, Hutchison, Taske and Kasischke’s ascent was particularly slow, because they were caught behind other climbers. At one point, Hutchison asked Rob Hall, the expedition leader, what time he thought they’d arrive at the summit. Hall estimated about three hours, then scrambled ahead of them. But it was almost 11:30 a.m. Hutchison realized they wouldn’t get to the summit until well after their turnaround time. He convinced the others to return to camp — “and that’s the end of the story,” says Annie.
Well, sort of.
These men were all part of the expedition that was chronicled in Jon Krakauer’s 1997 book “Into Thin Air,” the 1998 IMAX documentary “Everest” and the 2015 drama “Everest” starring Jake Gyllenhaal.
Hutchison, Taske and Kasischke “are not the heroes of any story, at least not ones that we read,” says Annie. But they should be — because they saved themselves, while Hall and another climber, Doug Hanson, perished on the summit.
‘Kill criteria’ and stop-loss orders
What does mountain climbing have to do with trading? Kevin got the analogy right away: The turnaround time is like a stop-loss order.
That’s precisely Annie’s point. She puts stop-loss orders and turnaround times “under the category of kill criteria,” she says. “Kill criteria, simply put, are generally either a signal or a state you could be in at a particular point in time that should tell you that you ought to stop — one you think about well in advance.”
Stop-loss orders aren’t made on the fly, she explains. They’re part of the calculus when you open the position — and “they’re in the same category of strategies for getting better at quitting.”
Guides calculate turnaround times based on years of experience, and people in the investment world do the same thing: They set stops based on the past volatility of a particular asset, for example. But Kevin wonders: Isn’t there something to be said for “learning the hard way”?
The answer, underscored by the tragedy on Everest is clearly no, Annie replies.
“If Rob Hall, who was one of the most experienced alpinists in the whole world, didn’t pay attention to his own turnaround time, I don’t think that we should trust ourselves,” she says.
Risk, reward and ‘escalation of commitment’
To explain why we’re often not the best judges of our own capacity to walk away at optimal times, Annie cites the work of researcher Jeffrey Rubin, who studies the phenomenon called “escalation of commitment.” The simplest example of this is what happens when we’re waiting in a slow-moving line at a grocery store. Often, even when we see another line moving faster, we don’t switch — because we’re reticent to have “wasted” the time spent in one line already.
So that’s why when it comes to risky decisions about investing (and mountain climbing), “hard knocks aren’t going to get you there,” she adds. “You have to have other things in place because you’re not going to pay attention [to warnings], no matter how much you’ve experienced in the past.”
At its core, adhering to “kill criteria” is simply “setting rules in advance and pre-recommitting to those rules,” says Annie. “In general, that’s just a really good way to deal with these quitting and sticking decisions, because once we’re in it … we’re going to be really bad deciders.”
Here’s an example a bit less dramatic than scaling Everest: It’s difficult to stick to one’s resolution to kick sugar when there’s an open box of sweets right on your desk.
To avoid our worst impulses, Annie suggests setting benchmarks. If she takes a position according to a fund manager’s particular strategy, she asks herself whether that strategy still holds or whether their forecast is at odds with recent events. If the latter is the case, she quits even if their strategy is winning so far.
Context is king
Annie recalls a story she heard from Frank Brosens of Tectonic Capital, who described trading a credit swap in Japan according to “a thesis about how it was supposed to behave under certain conditions,” she explains.
“They ended up winning gigantically — a crazy amount. [But] they immediately sold their position — not because they were winning but because they realized that they had no freaking idea what they were doing. Their model didn’t predict what had actually happened.”
That’s why “kill criteria” works on both sides of the equation.
“It helps you to figure out when you are supposed to stick and when you are supposed to quit,” Annie says.
She thinks what matters most in decision-making boils down to: “Is the thing you’re sticking to worthwhile or not?”
The context is everything, “and we need to become calibrated to [make] this decision,” she adds. “Sometimes sticking it out is the right choice, but not always. It’s not like grit should be synonymous with character. Sticking to things because they’re hard isn’t a good thing if the hard thing isn’t worthwhile.”
Mental accounting and ‘terrible advice’
That being said, “quit while you’re ahead” is usually “terrible advice” if it disregards the expected value of a given decision. Annie notes that Alex Imas has studied why retail traders tend to cancel stop-loss orders, deciding to hold their positions instead, and also often cancel take-gain orders in favor of selling them early.
“In both cases, the order is getting canceled, but in one case it’s to sell … when they’re in the gain. In other words, they’re trying to quit while they’re ahead, before they’ve topped out. On the other side, they’re sticking when they’re behind.”
Why does this happen? We’re not always great at “mental accounting,” Annie says.
Our conception of what we have on our ledgers and what’s actually on them don’t always align.
“It’s whether we feel that we’re in the losses or in the gains, the desire to [go] from a state of winning to having won and our aversion to taking us from a state of losing to having lost.” she explains. “Think about this: If I buy a stock at $50 and it’s trading at $40, as long as I haven’t sold it, even though I’ve got a $10 loss on paper, I still have the gamble on.”
Loss versus sure loss
We’re seldom rewarded for quitting, but the lessons of Mount Everest — and, let’s face it, everyone who has ever held onto an investment for far too long — are worth remembering, internalizing and passing on to the next generation.
When one sells at a loss, the damage goes from a hypothetical “on paper” setback to what’s called a sure loss. Nobel Laureate Daniel Kahneman has studied this phenomenon: Sure Loss Aversion.
Independent of whether we think a bet is still positive in terms of expected value, we feel a psychological pull toward recouping our investment. But you don’t need to be a pro poker player to know that sometimes you should fold and walk away — or run.
This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.
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