Investing Versus Poker

Both games can be fun, especially when you are winning. Some players in both arenas know the game better than the other players, and they are often called winners. Everybody can’t win in either game. What separates the winners from the losers?

Here’s a simple investor guide to playing the game to win. Don’t play for dollars until you know the basics.

Know who you are playing with. In poker some players cheat, some hustle, and others bluff. If the stakes are too high and you can’t afford to lose, you don’t belong in the game. If you don’t know the rules, you don’t either. The rules can be learned quite easily, but applying them with success requires a bit of savvy and experience if you expect to walk away ahead. You don’t need to be super intelligent or formally educated to win… you just need to know the game.

The above paragraph applies to poker, and to investing as well. Your friends will be glad to teach you poker, but where do you learn how to invest? Here are a few investing principles to use as a basic investor guide.

In the stock market don’t continue to hold and bet on a bad hand, there is no bluffing. If you’re holding a loser, throw in your cards… sell and get out.

Don’t expect any market to act on a rational basis on a day-to-day basis. The participants are people, as in poker, and as a group tend to place their bets out of emotion. Extreme news events cause investors to overreact. Don’t go along with the crowd and sell out of emotion. Wait until the dust settles and take advantage of the artificially low prices.

Don’t take big risks unless the potential rewards are high. This way, if you make a good call one-half of the time your winners will more than offset your losers.

Actually, it is easier to win at investing than in poker, which is truly a zero-sum game. Every poker game comes to an end, and total losses must equal total winnings.

In the investment markets this is not the case. For example, over the long term stock prices have historically risen, and stocks have returned about 10% a year on average. In other words, anyone holding average stocks long enough would have netted 10% a year if they just stayed in the game long enough.

If you know how to invest you can do better than average. Our investor guide now comes down to earth, to address serious long-term investing.

The long-term investor can avoid major losses and achieve better-than-average returns by utilizing a few basic investing tools. Chief among them are diversification and balance across the basic asset classes, rebalance, and dollar cost averaging.

It might take a while longer to learn how to invest vs. a game like poker, but over the long run the payoff will be worth your time and effort. There are many fine articles on investing available to you, keep on reading.