Susquehanna’s Billionaire Founder Jeff Yass Honed His Mind on Probability Theory And Poker

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I learned more about option trading strategy by playing poker than I did in all my college economics courses combined.

– Jeff Yass, The New Market Wizards: Conversations With America’s Top Traders (1992), p. 396 – Yass majored in economics and math at SUNY Binghamton.

YASS STARTED SUSQUEHANNA, for all intents and purposes, in his dorm room at SUNY Binghamton.  It was 1975.  Yass played poker there with friends, mostly middle-class Jewish kids from Queens (like Yass) or Brooklyn.  They skipped class and went to the racetrack.  But Yass’s crowd wasn’t like other college kids.  They were science geeks — Yass himself majored in math and economics.  The poker and betting on horses was cool and fun, but much more than that.  The prism of probability and game theory and risk-taking could be applied to practically everything, Yass decided.  It was all about finding edge, how one thing plays against another.  About figuring out the better way.  Traders at Susquehanna joke about looking for edge from the moment of first light, with the decision of which side of bed to get out of.  Though it’s not really a joke.  June Binney, who befriended Yass as a student at Binghamton, would hang out and marvel: “They really believed there were rational decisions for anything that came their way.”

Self-styled intellectuals with a taste for cards and ponies: They didn’t have much money — some came from summers spent bussing and waiting on tables at the Concord Hotel, a sprawling resort in the Catskill Mountains 90 miles northwest of New York.  But they bet to win.  Yass studied the Racing Form in the student union.  Other students reportedly gave him money to wager at the track, to risk as he saw fit because his game-theory approach worked.  Yass’s thesis for an economics course, “An Econometric Analysis of Horse Racing,” was published in Gambling Times magazine.  His approach was simple: Make something supposedly built on chance rational.  Turn the odds in your favor.  Figure out the edge.

“Beating The Odds”, Philadelphia Magazine, September 2009

The firm also hosts poker tournaments — Jeff Yass deals — with cash prizes.  It’s a way of attracting top-drawer recruits (employees don’t risk their own money) and of vetting them as decision-makers: reckless poker player equals reckless trader.  Susquehanna has become renowned in the trading world for its three-month tutorials of new hires, where in-house games of poker are front and center as a teaching tool.  After-hours games in the offices — that’s just for sport.

At first blush, poker would seem to be at odds with the rational decision-making that Yass preaches.  But poker — well-played poker — is all about making decisions, again and again and again, that are most likely to succeed: when to bet, and how much; when to call, when to fold, based on the cards dealt and actions of other players.  Which makes poker played well the opposite of gambling.  Making the rational decision, again and again and again — it’s the Susquehanna mantra.  Over time, you’ll come out ahead.  Poker is akin to trading in other ways: The decisions have to be made fast, under pressure, and there’s the lurking risk that what you want to happen, or the bad result that just happened, will color your decision now. Poker tutorials are designed to bleed out such stupid emotion.

Eric Brooks, one of the founders of Susquehanna, left the company to play tournament poker.  He won the World Series of Poker in 2008 [2008 Event #14, Stud, $10,000].

“Beating The Odds”, Philadelphia Magazine, September 2009

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