5 PokerLessons that Poker Can Teach You
In the world of poker, a never ending debate has endured in regards to the ruling forces that control the degree of success at the poker table. Is poker ultimately a game of luck and skill or does it have to do more with facts and mathematical probabilities? Both sides of the issue have very convincing arguments that they defend quite vehemently.
Another selected group of people that seem to have a very similar deliberation are those professional and amateur entrepreneurs that are either interested in the stock market or on the look for the next big thing in business. The truth is, when you are interested in making money, investing and poker have a lot of things in common in terms of risks, losses and profits.
By playing poker, even if it is for monopoly money, we can learn important lessons that can help us become better investors out there in the real world:
1. Always take into account the variables of Risk/Reward, regardless of the pot.
When playing poker, the seasoned player learns to do constant equations with the cards that are on the table, the ones on his hand and the ones that have not shown up yet. In this manner, they can calculate the value of a particular card and the overall expected value, or EV, of their hands or their competitor’s.
In the same manner, investors need to make projections that will estimate the possibility of future growth and the average cash flow that investing in a new venture would ultimately cost.
2. Learn to rein in your emotions.
Pride, anger, excitement or even happiness are ill advisers when it comes to the handling of money. Lots of poker players have come to regret aggressive decisions made because they thought they had a bout of luck or even worse, because of personal vendettas and strategic pressure from the rest of the table. When you control your emotional side, you let your rational judgment take over and weight in the situation.
In finance, stock market trends can play with your head. Conversely, impulsive reactions can cause even a bigger dent on your bank account or even make you face bankruptcy. If you have done the financial research, your rational side will instruct you to make the best decisions and, in return, give you confidence and appease your emotions.
3. Folding is a valid decision, not a defeat
Don’t waste your energy or invest your attention in pointless battles. Star quality poker players will probably play only 10% of the initial cards that they are dealt. Patience also proves to be a virtue for investors. When you decide to go into the market, you have to carefully analyze which are the best stakes to acquire instead of recklessly try your hand at everything. And, in the case no good opportunities are on the board, wait for the market to shift and reevaluate your options. Do not be afraid to sell stocks if they are not generating what you expected in the proposed period of time.
4. Be aware of the rake at all times
On a poker table, there is usually a certain rake that the table commissions by game. Plus, some poker games have betting limits and/or cash minimums as requirements. It all depends of the exclusivity of the table.
As an investor, you need to calculate the fee that the investment managers will charge you when you asses the cost and return of a possible stock or a new deal.
5. Trust history, not coincidences
Both in the poker table and in the market, one always needs to leave room for unpredictability. Strategizing and paying attention to every detail are the secrets of a constant frontrunner; nevertheless, the risk of getting flimflammed by the unlikely is ever present. So, prepare for it and have a contingency plan. Also, do not let a couple of good runs affect your ego and give you a false sense of confidence. Keep accurate records of your ups and downs to remind yourself of your wins but also of your flops.
In short, playing poker is a solid training for investors because it manages to combine the most important concepts of investing in an entertaining and intellectually challenging manner.