What can poker teach you about investments?

If I could give you a one-word answer it would just be – ‘everything’.  The reason really is, adapting to the decision-making process of a good poker player can go a long way towards improving the long-term health of your portfolio.

“In the long run there’s no luck in poker, but the short run is longer than most people know.” – Rick Bennet.

Events in poker and investing are both stochastic in nature i.e., price performance has randomness and volatility you cannot control. That is easy to agree with, but really hard to accept. As a professional investor, I get asked everyday how the Nifty or the S&P 500 or XYZ stock is going do this year. The only answer that has any value is – I don’t know.  It maybe disconcerting to hear from your fund manager – but it’s the truth.

So, both in investing and poker, the most important skill if you want to get better is to not get emotionally invested. Your best bet is to take good decisions based on information at hand, and then let the luck of the cards or stock prices play out.

The really key thing here is to accept that even the ‘correct’ play might end up costing you. You need to play the next hand dispassionately. Being able to avoid playing on ‘tilt’, which is a poker term for someone doing the exact opposite, is a hallmark of a great player. 

In the markets too, investment decisions should be made based on information in-hand and then only be changed if information is changed, not because the results were not optimum.

Another equally important skill is bankroll management. Even if you are the best player in the world, if every time you play you sit with all the money you have, you will eventually lose it all; so, it is important to play with only a certain percentage of corpus. Betting the house on one trade, will eventually mean that if one trade goes wrong (which it will), you will be wiped out. So, diversification is really key.

“Fold and live to fold again” – Stu Ungar

Finally, I want to leave you with some advice from probably the best Texas Hold’em player of all time. Professional poker players probably fold over 80% of hands. In the world of Whatsapp/Telegram/Reddit tips and intense FOMO, it is really important to be selective about investing ideas. Not every idea you think of or read about will be worth backing, and you can’t capture all the different ways to make money in the market.

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Disclaimer

Views expressed above are the author’s own.

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