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10 Investing Lessons To Learn From Poker

Tyler Durden's picture


Submitted by Lance Roberts of STA Wealth Management,

"Step right up and try your luck...spin the wheel and watch where she lands...everybody's a winner" - sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to step up and try their luck in a game that has been rigged against them.  During the last two decades, I have been amazed to watch as individuals strolled through the doors of the Wall Street casino to try their luck by betting "against the house" for a dream of riches.   Just as with anyone who has ever gone to Vegas - you will win sometimes but the "house" wins most of the time.

However, there are always the "professional gamblers" that can do better than the average most of the time.  Why?  Because they understand "risk" in its various forms.   Most amateurs tend to bet on most hands.  They take speculative positions where the odds of success are stacked against them, or try to bluff their way through a losing hand.  Professionals play cold, calculated and unemotional.  The professional gambler understands the odds of success of every play and measures his "bets" accordingly.   He knows when to be "all in" and when to fold and walk away.   Do they succeed all the time? Of course not.  However, by understanding how to limit losses they survive long enough to come out a winner over time.

There are 10 lessons that can be learned from being a good poker player.

#3366ff;">1) You need an edge

As Peter Lynch offers:

"Investing without research is like playing stud poker and never looking at the cards."

He's absolutely right; it is a clear parallel to how successful poker players operate as people who play cards for a living sit only at tables where the other participants are less sober, more emotional, or less expert. The financial markets are a very large table, and it is your job to take advantage of those that are far too emotional to make "sober" decisions, or perhaps just not informed enough to be comfortable accepting them.

#3366ff;">2) Develop expertise in more than one area

In the financial markets the difference between winning occasionally or consistently is the ability to adapt to the changing market environments.  There is no one investment style that is in favor every single year – which is why those that chase last years performing mutual funds are generally the least successful investors over a 10 and 20 year period.  Flexibility is the cornerstone of long term investing success and investors that are unwilling to adapt and change are doomed to extinction – much like the dinosaur.  Having a methodology that acts as an operating system where all types of applications can be used will separate you from the weak players and allow you to capitalize on their mistakes.

#3366ff;">3) Figure out why people are betting against you.

In essence, if there is one thing that we must always remember, and keep with us daily, is that basically “we know nothing”. Sure, there are some things we can determine like what a particular company's business is today, what they most likely will do in the coming months, and whether the price of its stock is trending higher or lower. However, in the grand scheme of things, we don't know much as we are closer to knowing nothing than to knowing everything, so let's just round down and be done with it.  

All we really know is what “IS” and all we can really do is create and implement a plan that will deal with what “IS” and protect us from what “Might Be”. Most investors can not accept, or comprehend, the concept where a companies earnings are rising but the price of the stock is falling.  It is at this point the realization of what is "unknown" is critically important. 

We must always remember that there is someone on the other side of every trade, for every seller there must be a buyer. If there is not, the price will fall until one is found, that's simple supply and demand, but don't assume the person on the other side of the transaction is any more or less informed than you. You have your reasons to buy, they have their reasons to sell, technical analysis is simply a way of recording the overall battle of those willing to sell versus those willing to buy. In poker, you may see a few aces in your hand and think that now is the time to bet it all, but there is often a calculated reason for the guy across the table to match your bets. In poker it is called "checking," in investing it is called "hedging," but both are simply forms of risk management.

Don't assume you are the smartest person at the table, when stocks meet your objectives, be willing to trim, when they begin to break down, begin to become defensive, when your reasons for buying have changed and no longer exist, be willing call it a day and remove your risk.

#3366ff;">4) When you have the best of it - make the most of it.

In a game of "Texas Hold'um" when the right hand comes along you can be "all in" and bet it all.   The risk with this, of course, is that if another player "calls" you and you lose - your busted.   In investing when you have the right set of environmental ingredients in your favor such as an extreme oversold market condition, panic and fear from investors, deep discounts in valuations, etc. those are times to invest more heavily into equities as the "risk" of loss is outweighed by the potential for reward because the "hand" you are holding is a strong one. 

The single biggest mistake that investors make today is they continue to be "all in" on every hand regardless of market conditions.  "Risk" is only a function of how much money you will lose "when", not "if", you are wrong.

#3366ff;">5) It often pays to pass; and 6) Know when to quit and cash in your chips

Kenny Rogers summed this up best: 

"If you're gonna play the game, boy...You gotta learn to play it right - You've got to know when to hold 'em. Know when to fold 'em. Know when to walk away.  Know when to run. You never count your money when you're sittin' at the table.  There'll be time enough for countin' when the dealin's done.

Now every gambler knows the secret to survivin' - Is knowin' what to throw away and knowin' what to keep.  'Cause every hand's a winner and every hand's a loser and the best you can hope for is to die in the sleep".

This is the hardest thing for individuals to do.   Your portfolio is your "hand".   There are times that you have to get rid of bad cards (losing positions) and replace them with hopefully better ones.   However, even that may not be enough as there are times that things are just working against you in general and it is time to walk away from the table.   This is why using some measure of risk management in your portfolio is critical to long term success.   Most people do the opposite of what they should due to emotional biases - the sell when they should buy, the hold onto losing positions hoping they will come back, they double down on losing positions, they sell winning positions too soon and many more mistakes that are almost all entirely driven by emotion rather than logic.  Emotional players ALWAYS lose in gambling and investing.  

The error that most investors make is that they are playing poker without a hand of cards. Since most investors buy investments, because of what they read in a newspaper, saw on television or heard about on the radio, they have effectively “anted” up for the game. They then basically walk away from the table and begin to hope that the hand they were dealt is the winning hand – this is the basis of the “buy & hold” strategy.

A good investor must develop a risk management philosophy (a sell discipline) and combine that with a set of tools to implement a successful investment strategy.  The odds of success can be substantially increased by removing the emotional biases that drive most investment decisions.  Being well disciplined within an investment strategy, just as a professional poker player is disciplined in his game, allows you to act and react successful to a fluid and changing investment landscape.   Sell signals, trend changes, pre-determined exit strategies, etc. will give you the chance to fold before losses mount.

#3366ff;">7) Know your strengths AND your weaknesses & 8) When you can't focus 100% on the task at hand - take a break.

Two-time World Series of Poker winner Doyle Brunson joked a bit about his book "Super/System," of which he had thrown around two alternative ideas for titles before going with "Super/System". The first of which was "How I made over $1,000,000 Playing Poker," and the second equally accurate idea was, "How I lost over $1,000,000 playing Golf."

The larger point here is that invariably there will be things in life that you are good at, and there will be things out there that you are much better paying someone else to do. Many investors believe that they can manage their money effectively on their own – and they are most likely right – as long as we are in a cyclical or secular bull market. Of course, this idea is equivalent to being the only person seated at a blackjack table and the dealers cards are all face up. You might still lose a hand now and then – but most likely you are going to win.

Me, I would love to be a graphic artist, but until pie charts and analytical tables come into vogue as contemporary art it is unlikely I will be able to fund my retirement by doing it. However, just because my emotions tell me I want to be an artist doesn't mean that I will be good at it. So, for the time being, I will leave it to others that have a penchant for paint. (But if you are interested in a pie chart for your living room let me know…)

Emotion causes us to attach significance to things that have little influence on whether a trade works out or not. Short-term traders often rely on a narrow statistical advantage in their methodology that allows them to be profitable over time. Emotions will deter this and over time have caused countless trading debacles, some of which ended in large hedge funds causing near-currency collapses. And that's only looking at the Nobel Laureates.

Tom Dorsey wrote;

“Consider this, if someone offered to flip a coin for you and offers you a better payout on heads than tails, the only logical bet would be on heads. So there is only one decision, logically, but emotion may cause you to remember that the last time you took heads was in the 1958 NFL Championship game at Yankee stadium. You were with the Giants and called for heads in the overtime session, losing not only the coin toss, but also the game, eventually, to Johnny Unitas and the Colts.

That decision may be one you will remember for the rest of your life, but it isn't one that will have any impact on the bet at hand. Nonetheless, we are all human and all susceptible to these types of thoughts, just some more than others.”

That is why there are so few successful poker players in the world but so many people willing to fund the Las Vegas strip. Most people are more than willing to take a risk with their money in the hopes of hitting the jackpot, the dream of being rich has been embedded in us since birth, however, very few investors have any idea of the “possibilities” of success versus the overwhelming “probabilities” of failure. Therefore, as in my case, I can’t paint, therefore, I understand that there is a huge probability that I will not be successful as an artist versus the slim hope (possibility) that people will flock to my door wanting 8 ½ X 11 framed pie charts. (Readily available at our website)

If you are not successful at managing your money over the long term, you will wind up losing money as roughly 80% of all investors do. It is better to be honest with yourself and begin an approach to increase your probabilities of success.   There are literally thousands of articles, research reports, contradicting opinions, radio programs, television shows, etc. – how are you supposed to determine what’s important and what’s not – that is the difference between a professional poker player and everyone else. In a blink of an eye, the professional can read the table and make a determination as to whether it’s time to “hold’em” or “fold’em”.

#3366ff;">9) Be patient

Patience is hard.  Most investors want immediate gratification when they make an investment.   However, real investments can take years to produce their real results, sometimes, even decades.  More importantly, just like in playing poker, you are not going to win every hand and there are going to be times that nothing seems to be "going your way". 

No investment discipline works ALL of the time.   However, it is sticking with your discipline and remaining patient, provided it is a sound discipline to start with, that will ultimately lead to long term success.   I remember in the late 1990's the media equated investing with Warren Buffet to driving "Dad's old Pontiac" as Warren didn't embrace new technology.   He didn't embrace new technology because he didn't understand and valuations on those companies made no sense to him.   He stuck with his discipline even though he was grossly under performing the market.   Eventually, his discipline paid off because it was a sound investment discipline to begin with and he was patient to allow it to work for him over time.

#3366ff;">10) Examine your motivation for playing.

Why are you trying to manage your own money? Is it that you love doing it? Is it the “thrill of the chase and the agony of defeat” syndrome? Or, did you just think that is what you are supposed to do?   It's a fair question, you've probably been asked it before, you've probably even got a well thought out answer. However, the real question that you need to ask yourself is “Am I successful at managing the future of my family and my retirement?”

"To a real player, gambling is only a certain part of what happens at casinos or at the track. Gamblers (or average investors) are people who either don't know what they are doing, or like to bet against the odds. Good poker players (and good investment advisors), like good horse players, search for value. They leverage advantage. They look for small truths and they hope other people (competitors) don't notice. They manage risk, and expect rewards for playing well. They like the sport. They like knowing. Call these people craftsmen. Don't call them gamblers."


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Thu, 12/19/2013 - 20:33 | Link to Comment fonzannoon
fonzannoon's picture

Somebody really wrote this? This is like elevator music.

Thu, 12/19/2013 - 20:38 | Link to Comment Newsboy
Newsboy's picture

Uh, how about "don't gamble against professionals"?

Thu, 12/19/2013 - 20:49 | Link to Comment BLOTTO
BLOTTO's picture

Poker is like life.

The masses are playing a rigged game they can not leave.

The dealer - TPTB - is the one controlling the cards and therefore controls the outcome. 'Ask' (i.e. vote) for another dealer and they just send in some other controlled beaut to screw us.


We just sit around shoving fuckin poker chips from one person back to another to switch yet again, with nobody really winning...all the while the dealer rakes 5% off each pot.


And the eye in the everything


Thu, 12/19/2013 - 20:57 | Link to Comment negative rates
negative rates's picture

First you have to know how to play the game, then you have to know how to bet, and finally you have to know when to walk away. The 3 rules of winning at gambling.

Thu, 12/19/2013 - 21:01 | Link to Comment Mr Pink
Mr Pink's picture

Mr. Pink's Investing rules:

1. When an analyst recommends buy, SELL everything immediately

2. When an analyst recommends sell, BUY with both hands

3. When an analyst screams a company is "going to zero", BUY on margin

Only time I ever made money in the market was after a figured out how rigged the casino is

Thu, 12/19/2013 - 21:13 | Link to Comment FieldingMellish
FieldingMellish's picture

What happens if one analyst says buy and another sell?

Thu, 12/19/2013 - 22:01 | Link to Comment Mr Pink
Mr Pink's picture

In that case I take 100 oz gold bar and shove it up your ass sideways you annoying little fucking troll

Thu, 12/19/2013 - 23:15 | Link to Comment Quit Your Bitchin
Quit Your Bitchin's picture

That goes double for economists.

Thu, 12/19/2013 - 20:43 | Link to Comment nmewn
nmewn's picture


Thu, 12/19/2013 - 20:45 | Link to Comment NoDebt
NoDebt's picture

Well, SOMEBODY has to do the Muzak version of "Radar Love" and "Smells Like Teen Spirit", I suppose.

Thu, 12/19/2013 - 21:06 | Link to Comment monkeyboy
monkeyboy's picture

So is 'all-in' on a 2-7 off suit an effective strategy?

Fri, 12/20/2013 - 08:54 | Link to Comment RobCrash
RobCrash's picture

Yes, it is one of the more embarrassing things I have seen here.  

Thu, 12/19/2013 - 20:35 | Link to Comment FieldingMellish
FieldingMellish's picture

Because its all like gambling... what a crock of shit...

Thu, 12/19/2013 - 20:39 | Link to Comment Zero Point
Zero Point's picture

Try playing cards, when those opposite are hardened criminals in a crime syndicate.

Thu, 12/19/2013 - 20:40 | Link to Comment NoDebt
NoDebt's picture

Wow, I didn't think they let MDB write full-length articles for ZH.


Thu, 12/19/2013 - 22:26 | Link to Comment spinone
spinone's picture

This isn't MDB.  MDB knew the difference between your and you're.

Thu, 12/19/2013 - 22:50 | Link to Comment stacking12321
Fri, 12/20/2013 - 01:31 | Link to Comment Tijuana Donkey Show
Tijuana Donkey Show's picture

Fucking genius! Someone is really commited to Trav777, MDB, and the crew. I still think they are a Tyler, messing with all the people in the forum. 

Thu, 12/19/2013 - 20:42 | Link to Comment Quus Ant
Quus Ant's picture

What investors can learn from poker:

6000 players enter the tourney.  600 end up in the money.  Top nine get a bundle.  Winner gets a mint. 

Sounds about right.  Who's ready to play? 

Thu, 12/19/2013 - 21:34 | Link to Comment Quus Ant
Quus Ant's picture

 "It's a fucking joke anyway. After all, I am paying you with your money."

-Teddy KGB

Thu, 12/19/2013 - 21:50 | Link to Comment NoDebt
NoDebt's picture

"What?  What did you say?"

Thu, 12/19/2013 - 20:46 | Link to Comment Ness.
Ness.'s picture

I clicked because of the poker reference.  I stopped reading at the Kenny Rogers lyrics.



Thu, 12/19/2013 - 20:53 | Link to Comment NoDebt
NoDebt's picture

Then you missed the punchline at the bottom.

Thu, 12/19/2013 - 20:57 | Link to Comment Tinky
Tinky's picture

If you'd like to read a much better (yet terse) article relating to the broader applications of poker skills, here you go:

Thu, 12/19/2013 - 20:55 | Link to Comment buzzsaw99
buzzsaw99's picture

Never shove all-in when the house holds all the Aces and you have nothing but a pair of Goric.

Thu, 12/19/2013 - 21:03 | Link to Comment Prairie Dog
Prairie Dog's picture

1. You don't play poker against the house

2. Checking isn't calling

3. You will only bust out when all in if your opponent has as many chips as you

4. Enough bad analogies. moving on


Thu, 12/19/2013 - 21:18 | Link to Comment Orly
Orly's picture

These are good analogies that any trader should be able to relate to. Until you can follow these hard-to-follow "suggestions," your account will suffer.

Have a plan and stick to it.  When it's not working, get out. That is much harder to do than one would think on the surface.

Love me some Lance!


Thu, 12/19/2013 - 21:35 | Link to Comment eddiebe
eddiebe's picture

No matter where you put your money, you are gambling, and that includes doing nothing.

Thu, 12/19/2013 - 22:45 | Link to Comment AurorusBorealus
AurorusBorealus's picture

I have spent years of my adult life playing poker for a living with no other job.  One of the biggest things that the author does not mention is discipline (as important as patience in the long-term).  Never get too high on the highs or low on the lows.  It is very difficult not to lose perspective after a big win or series of big wins, assume times will always be good, and begin to blow through your winnings or bankroll with abandon.  The adrenalin rush and the euphoria that big wins create is a powerful force that can and will take over a man´s mind. I have seen many good players fall apart, both in life and in poker, from big wins, more than from big losses.  I see all these young kids winning these tournaments, the lights, the fame, the television, and the money, and sadly, I know how this story will end for many of them.  They will end up broke, possibly adicted to cocaine, alcohol, or heroine, and watch as friends and women walk off with as much of their winnings as they lose to real pros in the big cash games.  The same goes for big losses... these will sap your mind of energy and launch you into depression if you permit it.  To gamble for a living, you must learn to take all things in stride...

Thu, 12/19/2013 - 22:56 | Link to Comment AurorusBorealus
AurorusBorealus's picture

1 other thing... poker is not about the cards and is only partly about the math.  It is a game that you play against people.  Your game is not as important as your opponents (just as your cards are not important, only your opponents cards are).  To win, you must watch your opponents carefully, find any and all weaknesses in their game (do they bet too much, too little, do they play too many hands, do they bet the river too often, do they fold too easily, do they love the gamble and chase flushes and straights too often) and then exploit these weaknesses, without revealing that your game really only consists of exploiting their weaknesses.  The cards are an illusion that you use... you pretend to be playing your hand as the cards dictate, but really you are playing your hand to exploit your opponents weaknesses... this is what Goldman Sachs does to its clients...

Fri, 12/20/2013 - 15:48 | Link to Comment EFNuttin
EFNuttin's picture

"To win, you must watch your opponents carefully..."

This helps explain my experience with poker. I have done lousy while playing in various casinos, but have done very well in house games. The house games are with people I know well and reading them during a poker game is much easier for me than reading strangers who just happen to be sitting at the same table with me. 

I will always remember the time I had an Executive Vice President dead to rights with a Queen high, straight flush after the turn. The competitor in me was screaming "all in," but the employee in me applied the brakes and I only took another $50 off them. No major feathers were ruffled and I got to to keep that job without having humiliated anyone at the table. 

Another time I was on a riverboat casino, grinding away for about three hours. Absolutely most miserable hands I have ever seen. I "won" about three hands that evening, on two of which the pot was chopped at least three ways. I was about to leave when the dealer pointed out I was in the big blind and might as well play the last hand. My hole cards came in: 2, 7 off suit. It was the perfect ending and I haven't been in a casino game since then.

I loved "Rounders." A good friend who lives in Las Vegas was married to a professional poker player and grew tired of his addiction. He made a final table in the WSOP .They divorced about five years ago after she kept watching gambling destroy so many of their friends around Las Vegas.

Fri, 12/20/2013 - 00:17 | Link to Comment soopy
soopy's picture

Can Blackrock please fuck right off with those annoying fucking banners in the middle of the page that can't be closed?

Fri, 12/20/2013 - 01:34 | Link to Comment Tijuana Donkey Show
Tijuana Donkey Show's picture

But.... remember to turn it off and click some ads on ZH each month. The site needs some $$$ to host our posts, and it's the least you can do. (literally...)

Fri, 12/20/2013 - 09:22 | Link to Comment swedish etrade baby
swedish etrade baby's picture

In gambling EV is short for expected value. In investing it means enterprise value. 

Fri, 12/20/2013 - 04:34 | Link to Comment geoffb
geoffb's picture

I'm guessing this guy wasn't long from 09. Otherewise he wouldn't be waxing philosophical nonsense about an investment taking 10 years to pay off.

Fri, 12/20/2013 - 05:11 | Link to Comment dunce
dunce's picture

The largest and most persistent investment risk is government policy. You can lose money because of the usual business risks or Madoff type fraud but those risks are limited and avoidable, not so government policies. Fortunes can be made off government policies but they usually involve corruption. Most of the people that seek and get public office are very flawed characters so no matter the form of government, it is largely composed of crooks.

Fri, 12/20/2013 - 10:00 | Link to Comment drdolittle
drdolittle's picture

In gambling the rules stay the same and the house does not know everyone's cards ahead of time. The house can actually be beaten.

Fri, 12/20/2013 - 10:37 | Link to Comment WarPony
WarPony's picture

first, I liquor, then I poker, they call me stamp - not bluffing

Fri, 12/20/2013 - 18:29 | Link to Comment bluemaster
bluemaster's picture

only time I made money when I didn't reed news ,turned off TV and telephone and just watched the chart ....


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