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“Pleasure in the job puts perfection in the work.”
Aristotle
Over the years I’d advised hundreds of clients on their financial plans for life, which meant managing their investments within the context of their financial goals. The ages of my clients varied, but most were in their 40s, 50s, and 60s. Some were saving to put their kids through college and most were concerned about retirement. In my early days, my broker/dealer at the time was adamant that we offer our clients an extensive array of insurance products, such as life, disability, and long-term-care coverage. A big part of me saw a value in the policies I sold and what they could provide in the most tragic of times. Years earlier I’d sold my father his first and only life insurance policy. He couldn’t afford much coverage and he didn’t take to the idea very well. Some of my colleagues at the time had felt that our broker/dealer was just pushing products and trying to make sales. So while I was skeptical of the notion that everyone needed insurance, I did have conviction to sell some amount (any amount) of life insurance to my father. I believed he needed it.
He and my stepmother lived a fairly simple life and I knew that his business wouldn’t likely leave her with the means to live comfortably if he died. One night while discussing the subject, things got heated and I even briefly questioned my own motives for selling my father a policy. The night ended in anger and frustration. Even though his health was subpar and his finances were in disarray, he didn’t believe he needed the coverage. It was for those same reasons that I believed he did. At the time, for him to not buy a life insurance policy from me hurt my feelings. But aside from that, I truly believed it was the right thing for him to do. Regardless, a night of intense deliberation ended in disagreement. I left the next morning without saying much.
Later he called me to say that he’d decided to apply for the policy after all. To this day, I’m not sure if he actually recognized the need or if he felt that it was more important for him to support me in my career. That was my father. He could be an aggressive man, passionate about his beliefs and, at times, unbendable. But his heart and mind were larger than his ego. All he ever needed was some time to reflect and he would usually make the right decision—a decision based on logic and fairness. Unfortunately, it was his heart that eventually gave way and cost him his life. I remember delivering the life insurance check to my stepmother for the proceeds of the policy. It was a difficult few years for her after that, both emotionally and financially, and I always regretted not selling him more coverage. But what little he had went a very long way.
I’d heard the phrase since the first time I sat down at a blackjack table that insurance was a “sucker bet.” Insurance in blackjack is a bet that casinos offer when the dealer shows an ace up in his first two cards. At that point the player has the option to wager an amount up to half his original bet that the dealer has a ten in the hole and will turn over a blackjack. Once the insurance bet is made, two things can happen: The dealer doesn’t have a blackjack and the player loses the insurance bet, or the dealer has a blackjack and the player wins the insurance bet and a 2-1 payoff. On the occasions when both player and dealer have naturals and the player has taken insurance, the hand is a push and the winning insurance bet equals the amount of the original wager—hence the term “even-money.”
A sucker bet? For non-counters it is, but few people really understand why. First, let’s separate the insurance bet from the initial bet. After all, they really are two separate wagers.
Start with the total number of cards in a 6-deck shoe: 312. If the dealer’s upcard is an ace, there are now 311 cards that are unknown. Of those, 96 are 10s, jacks, queens and kings. So, in the previous example, for each $50 insurance bet that’s wagered, 96 times out of 311 (or approximately 30% of the time) the dealer will have blackjack and the player will win $100 on the insurance bet. On the flipside, any other card besides a ten will not give the dealer a blackjack and the player will lose the insurance bet. Since there are 311 cards and 96 of them are valued at ten, then 215 are non-tens. So 215 times out of 311 (approximately 70% of the time) the dealer will not have blackjack and the player will lose $50.
Assuming a player is faced with an insurance decision 10 times, and he chooses to make the $50 insurance bet each time, here’s what he should expect: Three times out of 10, he wins $100. Seven times out of 10, he loses $50. The three wins total $300. The seven losses total $350. That’s a losing proposition—a sucker bet for sure.
Unless you’re counting cards.
A card counter has the knowledge of what cards have been played and what remains in the unplayed pack. As the true count begins to rise, the saturation of high cards (including ten-value cards) increases. That means that the likelihood of the dealer catching a blackjack also grows.
For this reason, it’s correct for a card counter to take insurance at a true count of +3 or greater. This decision accounts for more than 30% of the total value of all index plays.
The other critical index play is standing on a hard 16 vs. a dealer ten with a true count of ½ or higher. In fact, while many card counters believe that taking insurance at +3 is the most important play, Peter Griffin pointed out in his book The Theory of Blackjack and Don Schlesinger noted in his book Blackjack Attack, that the proper play of 16 vs. a ten is actually more valuable. Regardless, these two plays are incredibly important, while the rest of the index plays have negligible impact in comparison.
As with any hard and fast rule in life, there are certain exceptions that must be considered. On one particular occasion, I sat before one of my largest clients reviewing each and every investment of his with a fine-toothed comb. We discussed risk-adjusted returns, standard deviation, alpha, beta, r-squared, and several other measurements to help evaluate the composition of his portfolio. I’d just completed the investment review and was anxiously looking forward to my flight in a few hours. It was the second attempt at a trip to Vegas to ply our trade through the card counter/pro athlete program. While my mind wandered to blackjack for a brief second, I refocused on the task at hand.
“Before you go, Henry, there’s something else I’d like to cover,” I said.
“Listen, Nathaniel, if you’re going to try to tell us that we need insurance, forget it. We don’t need it. We don’t like it. We don’t want it.”
“I just wanted to touch base about your retirement goals again. If there’s some additional income from a part-time job it could impact your projections.”
“Okay,” Henry said. Then for good measure he added, “Just no insurance. It’s a sucker bet.”
I thought about his comment on the drive to the airport. I wondered if he was a gambler himself or if he picked up on the vernacular from a colleague at the water cooler. I couldn’t help but smile as I thought about the tremendous parallels between my career as a financial advisor and my life as a blackjack player. I loosened my tie and turned the radio to the local sports-talk station for updates on the red Sox spring training. Over the noise of the evening drive hosts, I heard my phone vibrate in the center console of my car. With one eye on the road, the other glanced down to see who it was. Mike.
D.A. and I had agreed earlier in the week that no matter what, we were going to Vegas. Even so, when I met D.A. at the gate and told him Mike had canceled again I could see the disappointment in his eyes.
“The good news is I talked to Mike and let him know we were going by ourselves anyway. I told him that it wasn’t just this weekend either. We were going out on our own for good. He was pretty good about it. I think he feels bad that nothing’s happening.”
“Well that’s good I guess,” D.A. responded.
“Yeah, so let’s get fired up. We’ve got a big weekend ahead of us. Did you finalize the back-up schedule?”
“Of course. How much do you have on you? I’ve got twenty-five.”
“I’ve got fifty.”
Bringing $50,000 through airport security wasn’t as difficult as I once thought it would be. Four packs of $10,000 each were in the four separate pockets of my jeans. Another $10,000 wad was rolled up in a shoe inside my carry-on. My brother had worked for the TSA for a year at Logan and he’d briefed me on the best way to sneak it through. Even if my bag had been checked there was nothing wrong with transporting more than $10,000, despite what people had told me. It was certainly an issue for international travel, but domestically it might raise a few eyebrows and elicit a few questions, but legally it was OK. It wasn’t uncommon for passengers heading to Vegas to carry large amounts of cash. The rest that I kept securely in my pockets would go unnoticed through any metal detector. This was before the days of airport x-rays. So unless I was patted down, which I had little reason to fear would happen, I was fine.
I had shared the strategy with D.A. months earlier as our bankroll began to increase. After going through security, I’d stop off in the restroom to consolidate my cash into one location in my bag. Carrying so much cash in my pockets was uncomfortable, as I’d discovered on a much shorter flight to Atlantic City a month earlier.
We crammed ourselves into the two aisle seats of the exit row across from one another. We liked to fine-tune our strategies and discuss the nuances of the game on our flight out. On return trips I’d opt for a window seat. It was usually the red-eye and all I wanted was a few hours of sleep before making a beeline on Monday morning from the airport to the office.
The flight attendant reviewed the safety instructions and responsibilities for those seated in our exit row. The two tall drafts of Sam Adams that we’d managed to consume at the airport before hearing the final boarding call were settling in nicely and I decided to enjoy the relaxed sensation while it lasted. Between the two of us we had $75,000 in cash rolled up in the two bags beneath the seats in front of us and, although the plans with Mike had fallen through, we had a new independence and autonomy that we’d both been forced to accept. In many ways, it seemed like a blessing in disguise.
Mike had been a tremendous teacher and an incredible mentor to us, with his most notable quality being his requirement for perfection. With his guidance, we’d grown from decent card counters to elite professionals. But as in many teacher-student relationships, there comes a time when the student must go it alone.
That time had come.