What Poker can Teach Investors Waterville ME

Ever wonder how the same set of poker professionals always seem to rise to the top in tournament after tournament? The World Series of Poker frequently includes repeat faces at its final tables. There is a reason why Doyle Brunson, Johnny Chan, Phil Hellmuth and other poker heavyweights show up over and over again.

In the short term, all poker players experience successes and failures. An experienced poker professional expects to lose some hands and even entire games.

In the long run, however, the skilled players continually come out ahead of the rest. Those players have mastered long-term strategies for success—many of which directly apply to investing.

1. Know your odds

To a novice, professional poker players seem to have a magical ability to calculate their probability of success with any given hand. These math skills are a crucial foundation for any serious player.

Serious Texas hold 'em players, for example, can determine with mathematical precision the probability of success based on their two private “hole” cards, position at the table and number of players.

They can then revise that calculation based on other cards that are revealed, as well as the betting strategies and behavior of the other players. This information gathering process provides a more complete story that allows for better decision making.

In investing, a focus on the numbers and information gathering is equally important. In both poker and investing, the goal is to identify opportunities with attractive chances of success, and then take as much advantage of them as possible.

“Know when you have the 60/40 end of the proposition. Know when the odds are in your favor and bet, or know when the odds are not in your favor and get out of the way,” David Nelson, senior vice president of Legg Mason Funds Management said in a November 2003 speech.

Investors can determine mathematical probabilities as well, although they often have even more factors and unforeseen costs to take into consideration in their calculations.

Experienced investors, like experienced poker players, are better at judging the factors that could affect their odds.

Of course, there is always a degree of unpredictability and unknown information in any poker or investment deal, particularly in the short term.

“You don’t know what’s going to happen a lot of the time, but you do enough analysis so that the probabilities are in your favor when you make a particular investment,” Nelson said.

Over time, a strategy that seeks attractive probabilities will show positive long-term results, even though the player or investor will experience occasional disappointments.

“From the strategic standpoint, all you can do as a poker player is to make the most well-informed decisions possible, based on the information available. For an investor, it’s all the same,” poker player and investor Corwin R. Cole said in his article “Poker and Investing: Two Roads to Profit.”

2. Weigh risk ...

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