Poker Faces for Investors

How studying the game of poker can help your investment strategy

9/16/2013 1:29:56 PM
Successful investment in the stock market requires a steady hand, gathering and using the information at hand, and thinking long term, which is why comparing it to playing poker is an easy thing to do. It’s also a comparison that can help new and seasoned investors rethink or re establish their game. In fact, the experts have a lot to say on the subject, and here are a few of their ideas about how the game of poker can improve your investment strategy.

Don’t Get Emotional

In poker, the worst thing you can do is let your emotions dictate your next move. Sure, the urge to win now and win big is understandable, but the best players let the game come to them and play their cards right. The same goes for investing. While you’re not faced with a roundtable of opponents staring you down (let’s hope not, anyway), the self-imposed pressure to earn big money may still be there. But staying levelheaded is the best strategy, and interestingly enough, doing so can mean a big payoff at times when others are reacting emotionally.

“You want to be a seller when markets are rising and getting extended [and] you want to be a buyer when people think that the world is coming to an end,” Lance Roberts, CEO and chief economist of Streettalk Advisors, told the Daily Ticker, a Yahoo! Finance blog.

Don’t Go All In …

While some poker players (and all poker players some of the time) rely on their gut, when your gut is telling you to go all in on an investment, do your best to ignore it; your gut doesn’t understand investing the way your brain does. “In a game of Texas hold ’em if you bet yourself all in every hand, you will lose,” Roberts told the Daily Ticker.

“Same goes for being 100% invested at all times.” You’re better off diversifying your holdings, which is something a good financial institution can help you do.

… Or Do Go All In

There are those rare cases when going all in makes sense, says The Motley Fool’s Matt Koppenheffer. “If your all-in moments are restricted to times when the market is trading near or below its long-term average valuation, then you can shift the odds of market-beating returns further in your favor,” he writes, adding that this strategy is best avoided when it comes to individual stocks, in which case “most mere mortals are best served by avoiding an all-in call.”

Use Big-Picture Thinking

Big-picture thinking is simply another way of reminding yourself not to get emotional about your investments. Successful investors set goals for the future and then learn as much information as they can and apply it in order to make those goals happen. But they don’t stop there; they keep learning, and when it makes sense, they adapt their investments accordingly. The same could be said of poker, says

“The best poker players know when to fold,” the website states. “You can start off with a great hand but that hand may not be worth much when the flop is shown. You have to accept defeat and fold the hand or you could get burned. … In the real world, markets change and sometimes very profitable businesses are no longer profitable … and an investor has to be able to let go of those investments and look for other opportunities.”

So there you have it – a few investment lessons gleaned from poker. Maybe they’ll help you keep a poker face when the markets go up or down so that you can think long term and achieve your ultimate goal: financial security.

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