Billy Walters and the Fourth Horse

2:20 pm - February 2, 2011

Billy Walters, the greatest sports bettor of all time, was recently profiled on 60 Minutes.

(If you missed it you can watch the youtube clip here.)

To get an idea of just how good Walters is, here’s the 60 Minutes intro:

When it comes to gambling, everybody knows the house has the advantage. But there are some high rollers who consistently win. And it’s hard to find anyone better at winning than Billy Walters. He bets on football and basketball, is worth hundreds of millions of dollars, and has been so successful that many Las Vegas bookmakers are afraid to even take his bets.

The segment goes on to describe Billy Walters’ “30 years of unprecedented success,” highlighting his many homes, golf courses and private jet… his pool hall exploits as a young teenager… and the fact that, while Walters occasionally has losing months as a high end sports bettor, he has never had a losing year.

Stories like this one bring to mind “the gift” — the notion that some people are simply born to excel at certain endeavors, with an almost supernatural talent that no ordinary human can match.

It’s an awe inspiring profile… but also a misleading one.

Whether the error was intentional or not, 60 Minutes did not get the whole picture. While true that Walters has been on top of his game since the early ’80s, he was not always a winner.

That much is made clear in an excellent article titled “Billy Walters and the Story of the Computer Group,” which can be found here.

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The Computer Group saga has the feel of a real life “Ocean’s 11″ — a group of colorful characters who get together to crack the code of the sports betting world through street-smart execution and computerized statistical analysis.

There was the naive math geek who wrote the original code… the shady doctor who put the group together… the network of street level players who made the physical bets… and of course Walters, who handled the logistical side of getting money out on the street.

The Computer Group piece, which is quite long but worth the read, offers detailed profiles of all the key players, including Walters himself.

And in that profile we can see that Billy Walters was not always a winning player. In fact, in the early years, Walters was about an awful a gambler as one can be, and came to Vegas a nearly broken man.

The “natural” who went on a 30-year winning streak, amassing hundreds of millions and keeping it, first started out like this:

Billy Walters moved to Las Vegas… with his family and his immense ego and very little else. He was worth more dead than alive, as they say. For too many years he had been operating a used-car dealership in his home state of Kentucky, and then gambling away the profits. In 1982 he plea-bargained to a misdemeanor bookmaking charge – possession of gambling records, it was called – and was sentenced to six month probation and a $1,000 fine. He was in debt to several bookmakers, and he could not command credit. At 35, into his third marriage, with an ill son who was supposed to have died years before, Billy Walters believed he had no alternative but move to Las Vegas, to be a full-time professional gambler, to lay all that he had on this one final hand.

Walters can pinpoint his problems from those days, now that he is worth millions of dollars. As recently as 1982, when he was preparing to leave Kentucky, he had lacked focus. He was a gambler, that was definite, but he had no idea how to gamble professionally. He wanted to win every single day. When he lost at the race track or when he lost betting games or when he lost playing poker or when he lost playing golf, he always felt compelled to get down another bet, to retrieve what he had lost that very day. He recalls an evening in Kentucky when he was pitching nickels with a friend. The wagers grew until Billy Walters had lost his house – his house, from pitching nickels.

Then he had to come home and tell his wife. “I’m not one to beat around the bush,” he says. Standing now in his kitchen, head down, hands in pockets, he seems to be recreating the scene. “I just came home and said to her, Look, honey, I was pitching nickels with a guy today, and I lost the house. And we might have to move.’” They didn’t have to move but it took Billy Walters a year and a half to pay off the mortgage incurred by the revolution of the five-cent coin. He kept the house, but he lost his wife. She left him. That was his second wife. “She couldn’t take it. Fifteen times I’ve come home where I’ve lost every single penny we’ve got,” he says, as if revealing a scar.

Damn. Fifteen times busted! Losing his house on a coin toss!

So much for supernatural talent. If anything sets Walters apart — and contributes to making him the best in the world at what he does — it would have to be perseverance. The willingness to keep pushing… keep experimenting… and as Winston Churchill advised, the passion to “Never, never, never give up.”

This leads to an interesting question. Is Billy Walters so good because he was once so bad?

The idea, of course, is not to advise going bust fifteen times. It is notable, though, how many great traders have at least one “going bust” experience very early in their career paths (before they are playing with enough capital to do lasting damage).

Paul Tudor Jones, one of the greatest pure macro traders of the 20th century, talked about precisely this — the value of going bust — in an interview with Jon Markman for the annotated Reminiscences of a Stock Operator edition:

In the book I think [Jesse Livermore aka Larry Livingston] lost his entire fortune four or five times. I did the same thing but was fortunate enough to do it all in my early twenties on very small stakes of capital. I think I lost $10,000 when I was 22, and when I was 25 I lost about $50,000, which was all I had to my name. It felt like a fortune at the time. It was then that my father flew up from Memphis and sat me down in my tiny New York City apartment and began lecturing me as lawyers do. He commanded, “Leave the gambling den behind. Come home and get a real job in a safe profession like real estate.” Of course, I did not, and the rest is history. And real estate these past few years has been about as safe as shooting craps to pay the rent, so I was twice blessed. If I’d have taken my father’s advice, I might have lost all of my money again these past few years in my fifties.

Anyway, I think it’s no coincidence that our greatest champions, our greatest artists, our greatest leaders, our greatest everything all seem to have experienced some kind of gut-wrenching loss. I think their greatness, in part, was fashioned on the crucible of that defeat. Two years before Lincoln was elected as maybe our finest president, he lost that monumental Senate race to Stephen Douglas. To a certain extent, I think that holds true in my field as well, and I am leery of traders who have never lost it all. I think that intense feeling of desperation that accompanies such a horrifically deflating experience indelibly cauterizes great risk management reflexes into a trader’s very being.

Again, the message here is not to advise getting bust. (Try it, you’ll like it! Just kidding.) Instead, we can see how, in the case of legendary players like Walters and PTJ, the foundation of greatness is forged in the fires of failure.

Cycle back around to that 60 Minutes piece. (If you haven’t watched it yet, watch it!)

Ironic, isn’t it?

While Walters’ success is rightly celebrated, the “always a winner” message is almost completely backwards. The man is not a demigod with powers beyond mere mortals. He is someone for whom the road to untold riches was paved with brutal beats. He had to take the pain of losing deep into his core — and to keep persevering, keep coming back — before he finally learned how to win.

And that brings us round to a passage from the excellent book Mastery, by George Leonard, and the type of horse that Billy Walters is:

In his book Zen Mind, Beginner’s Mind, Zen master Shunryu Suzuki approaches the question of fast and slow learners in terms of horses. “In our scriptures, it is said that there are four kinds of horses: excellent ones, good ones, poor ones, and bad ones. The best horse will run slow and fast, right and left, at the driver’s will, before it sees the shadow of the whip; the second best will run as well as the first one, just before the whip reaches its skin; the third one will run when it feels pain on its body; the fourth will run after the pain penetrates to the marrow of its bones.” You can imagine how difficult it is for the fourth one to learn to run.

“When we hear this story, almost all of us want to be the best horse. If it is impossible to be the best one, we want to be the second best.” But this is a mistake, Master Suzuki says. When you learn too easily, you’re tempted not to work hard, not to penetrate the marrow of a practice.

“If you study calligraphy, you will find that those who are not so clever usually become the best calligraphers. Those who are very clever with their hands often encounter great difficulty after they have reached a certain stage. This is also true in art, and in life.” The best horse, according to Suzuki, may be the worst horse. And the worst horse can be the best, for if it perseveres, it will have learned whatever it is practicing all the way to the marrow of its bones.

First horse, fourth horse, worst horse, best horse… at the end of the day, perseverance is what matters. Whether or not you think you can do it, chances are you’re right.

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