Wednesday, January 17, 2007

Poker and Investing

Being an experienced and very keen Texas holdem poker player ( I usually play at night while I am writing up things for my blog) I found this article quite interesting.

It relates the game of texas holdem to investing. IN particular he came up with 3 common rules that work in both arenas:

1. Know When to Fold’em

You don't want to be holding onto a losing hand once you know you are beat. In the same sense you don't want to be holding a stock when you know you got it wrong and you are making a loss.

2. Know your Odds.

You need to have a good grasp of the odds in poker if you are playing with cash. There are some hands which are more likely to occur and there is odds on whether you should play depending on how much money is in the pot. In investing you need to know your rough risk/reward ratio. It is no good trying for a small 2% gain when you know there is a potential for a 10% loss if you get it wrong.

3. Be Patient

Patience is the key in poker. As long as you have a chip and a chair you are still in the game. But if you play every hand dealt you are quickly going to lose your chips. Its the same in investing, you don't want to buy every and any stock just cause its there or someone gave you a tip ... which leads into my next point which I have added by myself ...

4. Only play the best hands.

You should only play good hands like Pocket Aces or Ace, King in poker and it is the same in investing. When You get a good hand you bet larger as your odds are getting better at taking this pot. It should be the same in investing. Put more money into shares which you feel are a much less ricker option with a high payoff. This all revolves around portfolio construction which is a huge topic in itself.

Well I hope this was a good read and gave you some insight into both poker and investing. What it really all is about is knowing your risks possible rewards for each investment and playing them so that you get the best profit possible.

Good Luck Investing.


Anonymous said...

I'm glad you enjoyed the article! I like your "only play the best hands" rule.

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