ACKCHYUALLY: Pabrai Didn’t Beat Blackjack. He Got Lucky

His "system" is just variance

As a former poker pro, few things grind my gears more than flawed gambling metaphors or stories used to make a point. And lately, there’s one making the rounds again.

https://xkcd.com/386/

The Anecdote

Mohnish Pabrai tells a story about getting banned from a Vegas casino for “beating” blackjack. He sets the scene by explaining how he looked for and found the best blackjack game in Vegas.¹

The single-deck game at the El Cortez has the thinnest house edge of any blackjack table on the planet. The house edge is 0.18%.

This means that per $100 bet, you’d expect to lose $0.18 (or said otherwise: EV = -$0.18)

Negligable, so almost literally a fair coin flip.

Pabrai put it like this:

Blackjack sometimes has streaks — runs where you win six, seven, even eight hands in a row, or lose just as many. What I did was very simple: when I was losing, I bet the minimum. When I was winning, I increased the bets. With that kind of variance and the razor-thin house edge at the El Cortez, I was able to overcome the odds.

If you’re not into gambling or you’re just used to taking investing legends at their word, this might sound reasonable.

You might even think:
“Classic Pabrai. This is why he’s such a good investor: aways looking for an edge, but keeping it simple and thinking outside of the box”

But I’m here to

Unless you’re counting cards or gaining new info, the house edge in blackjack stays fixed. Just through sheer randomness, streaks will happen. But this is pure noise at the blackjack table.

Sizing up or down based on whether you’re winning or losing does not change the house edge of 0.18%. It just means you’re risking more into the same losing odds. The math still says -$0.18 per $100 wagered.

Every hand. Always.

This is a textbook example of being fooled by randomness and mistaking luck for skill.

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Eventually, the general manager … came and sat next to me while I was playing…. ‘Mr. Pabrai, I like you. I’ve read your book. I’ve watched your videos. But you have a system we cannot beat.’

I told him, ‘You know I’m not counting cards.’ And he said, ‘That’s exactly what threw us off. We know you’re not counting cards. But we also know you’ll beat us.’ And then he said, ‘You can come to this casino anytime you want — but you cannot sit down at a blackjack table.’

I mean, why would I go to the El Cortez if I can’t play blackjack?

In total, I took them for about $150,000 — and this was with a low table limit of just $2,000. But I kept hitting them, and they finally said, ‘Okay, we’re done.’

Why would the casino bar him if he wasn’t beating them?

Simple: when someone ramps bets from minimum to maximum, they assume something suspicious. Better safe than sorry. They don’t need proof. If they genuinely believed he had the best of it (counting or otherwise), banning him is standard operating procedure, even if they could not articulate how he was doing it.

Whenever I go someplace to talk or something and someone’s introducing me, I always tell them: ‘Listen, just say that I have a lifetime ban in Vegas.’ I don’t care about everything else on my CV. That’s really irrelevant. That’s what’s relevant.

Getting banned for beating the casino sounds impressive, at least in our circles. Until you realize the “system” is just variance with better PR.

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Sources

• I saw the anecdote pop up in this post on position sizing. (I do not disagree with the importance of sizing within a portfolio! I’m just debunking the blackjack anecdote)

• And the original podcast can be found below. The casino bit starts around 1:00:00

• Cleaned up transcript:

“I got banned in Vegas playing blackjack, right? I figured out a system which basically beat them — and actually, I did it without counting cards. In fact, it took the casino almost a year of watching me. I used to go every, like, six weeks or something, and they played those tapes over and over, because the markers that they look for were not there.

There’s a publication called BJ21 — bj21.com. If you give them a hundred bucks, they give you a PDF with the odds of every blackjack table in North America. For example, the Wynn Las Vegas — they’ll list all the games: single-deck, double-deck, six decks, whatever — and what the odds are if you play perfect blackjack.

There’s a casino in Vegas called the El Cortez. It’s a small casino, so to induce people to come, they kind of improve the odds — still in their favor, but better. The single-deck game at the El Cortez has the thinnest house edge of any blackjack table on the planet. The house edge is 0.18%.

They play single-deck blackjack, but they only deal half the deck — then they shuffle. The reason they deal only half is to make it difficult for card counters. The deck might become favorable, but then they shuffle, so you never get to play the good part. So counters get screwed.

I had a system which took them a long time to figure out. It relied on the fact that blackjack occasionally has streaks. You may win six or seven or eight hands in a row — or lose that many. And what I did in the betting was: usually when I was losing, it was always the minimum bet. And when I was winning, the bets were increasing. So with the variance of that, I was able to overcome the edge.

Normally what the counters do is — on a brand-new shoe — it’s a low bet. Minimum bet. In my case, there was a brand-new shoe — and there’s a high bet. So they’re saying: ‘We just shuffled. The whole deck is there. There’s no odds edge he has on that deck. Why is he betting high?’ That threw them off.

Eventually, I’m playing blackjack and the general manager — who’s very friendly to me — comes and sits next to me. He tells the dealer, ‘Stop dealing.’ She’s in the middle of a hand — she continues dealing. He screams at her: ‘Stop dealing now.’ You’ve never heard that before, right?

Then he tells me, ‘Mr. Pabrai, I like you. I read your book. I watched your videos. And you have a system that we cannot beat.’ I said, ‘You know I’m not counting cards.’ He said, ‘That’s what threw us off. We know you’re not counting cards. And we know you’ll beat us.’ So he says, ‘You can come to this casino anytime you want — but you cannot sit down at a blackjack table.’

I took them for like about $150,000 or something. And this was a very low table limit — only $2,000. But at $2,000, I took them. So they said, ‘Okay, we’re done.’

Whenever I go someplace to talk or something and someone’s introducing me, I always tell them: ‘Listen, just say that I have a lifetime ban in Vegas.’ I don’t care about everything else on my CV. That’s really irrelevant. That’s what’s relevant.

It’s like — if you get into Harvard, wow, that’s impressive. But if you’re a Harvard dropout — that’s the higher status signal. So — you’re good at blackjack? Made money in blackjack? I was banned from a casino. That is the highest status."

1. The casino alsways has an advantage but the house edge depends on the exact set of rules used and varies from game to game. Therefore it’s possibe for some games to be better than others.