Bridge to investing

What could have got Warren Buffett so stressed out that he chose to run away rather than face up to the situation? Would you believe, a game of cards? In 1994, Buffett and his bridge partner, Sharon Osberg, were in Albuquerque, New Mexico, participating in the World Bridge Championship. A keen social player, this was the first time the investing genius was playing competitively — and that too, unwillingly. Osberg, his teacher and partner in the game, had registered and dragged Buffett along. As was to be expected — this is Buffett we’re speaking of, after all — the two cleared the qualifying rounds and made it to the final. “We were huge underdogs but by some miracle, we actually qualified,” recalls Osberg. 

But three days of exhausting play took its toll and Buffett decided he had had enough. “He looked at me and just said, ‘It’s too stressful. I can’t do it. Tell them I have a business emergency. Tell them anything’,” Osberg says. She had to do the dirty job of breaking the news to the organisers and withdrawing from the final. Not surprisingly, they were furious and even threatened to take away her Masterpoints and ranking — Osberg is a two-time World Bridge champion. “I told Warren, ‘In the history of bridge, we are probably the only pair ever to withdraw from the finals of a world championship without one of us dying!’,” Osberg laughs. 

The incident, though, didn’t affect Osberg’s then-relatively new friendship with Buffett. They had met — appropriately enough — in 1990 during a bridge game at the Empire State Building organised by Wells Fargo, where Osberg was a senior executive. From only knowing “vaguely” that Buffett was a very wealthy man — and not knowing at all where Omaha was — Osberg went on to become best friends with the world’s greatest investor; she plays bridge with him at least four times a week, online from her home in California. “For the world of investing he is the teacher but in bridge, Buffett is still the student and I am the teacher,” says Osberg. Clearly, she’s good — Osberg succeeded in convincing Buffett to use a computer (the bait was the online games), something even Microsoft founder Bill Gates, who plays bridge with both Osberg and Buffett, couldn’t achieve. 

It’s not all one-sided, though. Osberg candidly says Buffett has “opened up a new world” for her. “Bill Gates is my friend, Katherine Graham [the late publisher of The Washington Post] was a very good friend. I’ve played with people such as Sandra Day O’Connor and attended parties where Henry Kissinger was a guest, thanks to these friends. That’s how different my life is since I met Buffett,” she adds.

It’s no coincidence that Osberg names some of the brightest names in the world of business as her bridge partners. In the US, especially, most of the top-rated bridge players are from Wall Street and many of them are options traders — Martin Fleisher (currently No.1 in the American Contract Bridge League rankings) is MD, Dearborn Capital Partners; Michael Kamil (at sixth rank) is an options trader, as are Eric Greco (No.7) and John Diamond (No.8). The No.10 player, Brad Moss, is the founder of a hedge fund, Crosscourt Capital Management. Lower down the ranks and among enthusiastic amateurs are people such as Buffett, Osberg and Gates, David Einhorn of Greenlight Capital and most of the former Bears Sterns team, including James Cayne, Warren Spector, Alan Schwartz and Alan ‘Ace’ Greenberg. 

But then, as Buffett and several other investors acknowledge, bridge is a great preparatory tool for business. There was a time when the best way to cosy up to the boss was on the golf course — now, it’s the bridge table. But it’s not just about schmoozing — bridge actually makes you better at business and investing. “Bridge is a problem-solving game and a lot of it has to do with pattern recognition and mathematics,” points out Osberg. But the younger generation is not hooked on to the game. So in 2005, Buffett and Gates (T-Bone and Chalengr, in online bridge tournaments) kept aside $1 million for Osberg to start a programme to promote bridge in public schools across the US. Their pitch: bridge enhances maths skills, teaches logical thinking and promotes team work. Schools said no deal, though, and the programme folded up in 2010. 

A winning hand

Buffett would probably add that bridge also teaches you focus and concentration. He famously remarked, “If I’m playing bridge and a naked woman walks by, I don’t even see her.” Not many bridge players would go that far, but Deepak Parekh, chairman of HDFC and a bridge enthusiast, agrees. “It’s a mind game and helps you stay concentrated.” 

Others concede that when they’re playing a hand, what they focus on is the odds of winning. “Bridge is a game of probabilities. And you need a very good understanding of psychology to crack it,” says Sanjoy Bhattacharyya, a value investor and founder, Fortuna Capital. An avid bridge player Bhattacharyya says he was lucky to be taught bridge by his grandmother when he was just nine and has been playing the game for 44 years.  

Although bridge is often compared with the other mind game, chess, the two are quite different. Chess is purely mathematical, which is why a computer can win over a human (remember, IBM’s Deep Blue beat Gary Kasparov back in 1997). “In chess, if you can compute all existing possibilities at any given time, the bluff won’t work. In bridge, it’s not so,” says Bhattacharyya. 

But bridge is a lot like the market. Ask mathematicians, and they’ll call bridge a game of ‘imperfect information’. After the cards are dealt, the players on both sides bid for their side’s right to choose the trump. Players then use the information gained from the auction and from the play of hands to figure out who holds the remaining, unseen cards. The stock market is no different since here, too, you’re dealing with inefficiency in information. 

In both bridge and stockmarkets, the feedback loop is critical as you modify your strategy based on the constant flow of new information. But in investing it is very difficult to learn from the feedback loop in the short term (and there’s no other way to learn in the long term), while in bridge, the response is near-instantaneous — you play the hand and you know the result. But it’s not a simple loop; you may play the right hand and still lose. That happens in investing, too. “In investing and in bridge, you have to listen to the feedback loop without being deterred by the outcome and see what is the way to improve the process,” says Bhattacharyya. 

Indeed, listening is a key attribute if you want to excel in either ‘sport’. You have to keep an open mind and your ears perked up and try to catch everything going on around you. “The bidding, the pauses, the mannerisms at the table, the comments that are made… everything is important,” says Bhattacharyya. Ditto for the market — you have to keep an eye out for
all cues. 

You also need to take calls at the speed of light, almost. Let’s say you are incredibly smart — you need just 15 minutes to figure out all permutations and combinations given the hand you’ve been dealt. Trouble is, you have only 10 seconds to make your move. In which case, you have to build methods in your mind that help you to perform under those conditions and compete. “The art lies in tucking important information in the corner of your mind and recalling it at the appropriate time — you have to think, deduce, eliminate as you go along,” says Parekh.

It is exactly the same with investing. Given one year to solve problems, many could get it right, but you don’t get that much time. Things are fluid and dynamic in the stock market. Events are taking place and prices moving all the time. At the margin, new information is coming in and changing prices and you are forced to react. How do you do that? How do you adjust to new information coming in, incorporate it into decision making, and make better decisions? “You have to constantly question your assumptions. Can they change as you play the next card? Is the assumption that the king of diamonds is to your right validated?” says Bhattacharyya. That helps you adjust, to change your assumptions or to validate them and, therefore, to move in a cohesive, logical way towards what you should be doing. “Bridge helps develop logical thinking,” adds Parekh, who has been playing bridge, for the past 50 years, since he was a student in the UK. 

So far, bridge has only been a hobby for Parekh although he intends to play more frequently when he retires, but Bhattacharyya is already serious about playing professionally. “But, be it bridge or the markets, there is no room for pretenders at the top,” says Bhattacharyya. There is a critical difference between the two, though. In bridge, you can differentiate skill from luck; in investing, you may come across people with great track records but no way of saying whether they are skilful or have just been lucky. On the flip side, you also come across people with great track records who are damned because of a bad year or two. “Bridge isn’t that cruel. If you’ve been in the game for 15 years or whatever, people can figure out whether you are skilled or not,” he adds. 

Finally — and this is perhaps the most important difference — bridge is less about character than investing. In bridge, technique matters much more than in investing. Of course, it matters in the market too. Just look at Buffett — a young boy of extraordinary intellect figured out early that if he was to succeed, it would take more than a high IQ, and worked really hard to go one step further and build an incredibly good temperament and mindset. To that extent, bridge was just one more step Buffett took to succeed. But, as he would be the first to acknowledge, an important step.