Investing Lessons from Poker

Every other week my friends and I have a poker night. Last week, after a friend of mine cleaned us up, he said, “Poker is a lot like investing, you have to be very patient.” Immediately we started discussing how playing poker and investing is similar and what you lessons you can learn from playing poker that can be applied in investing.

Patience

Poker can be a very long game and patience is crucial. You may be getting bad hand after bad hand and be forced to watch for the most part of the game, but you have to be patient and wait for the right hand to play.

Investing: Investing is also a long game and investors can lose sight of their long-term goals if they are not patient enough. Realistically you cannot expect to become wealthy in a few short years, unless you take extremely high risk. As an investor, you too, have to be very patient with your investments and keep in mind that it is a long-term process.

Fold’em

The best poker players know when to fold, you can start of 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.

Investing: In the real world, markets change and sometimes very profitable businesses are no longer profitable. When the fundamentals change and an investor has to be able to let go of those investments and look for other opportunities.

Steady

When playing poker you have to pace yourself and not go “all-in” in every hand, you have to wait for the right time to make some moves. Being in control of the game can provide you with a lot of advantages.

Investing: Investing, just like poker, is also a very emotional task. When you receive your statement and see a 5% decline in your investments you may start to freak out and want to pull out of the market. Conversely, if the market is hot you might be inclined to act more aggressively. Either way you’ll be acting on emotions and probably getting yourself in trouble. The best thing is to stay in control and invest steadily regardless of how the market is doing.

Big Picture

Losing a big hand in poker hurts, a lot. Often when players loose a big hand they loose focus and start to play more risky or avoid betting, either way they are hurting themselves. As a player you have to keep the big picture in focus, remember it’s not the hand that matters it’s the game. You can loose a big hand every now and then as long as you have all the chips at the end of the game.

Investing: When investors see a big market decline, they want to take out all their money and hide it under their mattress. Just look back at 2008-2009 when the markets were declining investors let their emotions take control and lost sight of the big picture. You will loose money every now and then but keep the big picture in mind, long-term growth.

There are probably more similarities between playing poker and investing, these are just a few we discussed. I wonder if being a good poker player means you are also a good investor or visa versa?