© Abhishek Vedpathak Want to sharpen your stock trading skills? Play poker!
Among the popular skill-based games in India, poker sits on a high pedestal. It is becoming a popular way to make money, whether it is played online or in person. The concepts behind poker are indistinguishable to those that are used to trade and invest in markets.
It is for this reason that leading stock traders encourage their employees to play poker. They do so not only because playing poker is fun, but because playing poker hones one’s trading skills. Some stock market managers go so far as to say that good investors are good poker players and vice versa.
Poker and the stock market have common ground because they both involve bankroll management and risk assessment. However, in poker, success comes from making money, not winning hands. And because most hands are losing hands, it takes patience and discipline to protect your money while waiting for a playable hand.
Poker is undoubtedly a skill-based game
Many people believe that poker is a game of luck and that the dealer plays the most significant role in determining a player’s fate. However, evidence points to just the opposite.
At the 2010 World Series of Poker, Steven Levitt, co-author of Freakonimics, and Thomas J. Miles, performed a study on the correlation between a player’s level of skill and his or her Return On Investment (ROI).
The two economists found that high-skilled players averaged a 30 percent return, while all others averaged a 15 percent loss. These numbers suggest that poker is not a game of luck, but rather, a test of skill. Therefore, it can be said that poker, in the long run, is 100 percent a game of skill. However, there is a significant element of luck in the short term. Professional poker players mitigate the luck aspect by consistently making mathematically superior decisions, and therefore, winning in the long run.
Pros of poker
Know when to let go; Cut your losses
Knowing when to fold is what great poker players do. Folding when necessary will save you a lot of money that you would have otherwise lost by playing. You might be holding pocket aces (the strongest hand). But if a passive player who was meekly calling your bets all along suddenly wakes up and raises you on an innocuous board, get ready to ditch them. You are beaten. No point throwing bad money after good. Fold, move on. There will be other hands, other players and millions of opportunities. That was not the one.
You have to have a sense of the risk involved
Experienced poker players know the odds of a particular card coming up at any point during the hand. Their knowledge of probability allows them to bet based on the expected value (EV) of their hand. Most investors can’t allocate assets based upon models that project future growth and cash flows.
Volatility is an essential concept in poker. It refers to how much short-term results fluctuate versus the average. For a poker player, volatility measures how much their results will deviate from their abilities. A skilled poker player wins profits most of the time against inferior competition.
You learn how to improve your patience.
When playing poker, you may find yourself in situations where you are “card dead” and do not receive any playable hands. The critical takeaway here is not to act emotionally and stick to folding until you find a favourable opportunity.
The fact that you have money for investing does not mean you have to spend now. There are situations where you would be better off waiting for excellent opportunities and sitting on cash, rather than jumping randomly to play a hand.
Concerning stock markets, often people are so eager to invest in oversaturated markets that they end up losing a big chunk of their portfolio. Such decisions can cause you significant losses, and poker players learn this lesson very fast. Poker can help players cultivate patience and control their emotions, which leads to much better decisions and success in investing.
Cons of playing poker
The time factor
The key difference between poker and stock investments has to do with time. Poker is a time-bound event, while an investment in a company can last several years. Playing poker, once the game or race or hand is over; your opportunity to profit from a wager has come and gone. You either have won or lost your capital.
Stock investing, on the other hand, can be time-rewarding. Investors who purchase shares in companies that pay dividends are rewarded for their risked dollars. Companies pay you money regardless of what happens to your capital, as long as you hold onto their stock.
In investing, success is about gradual accumulation of wealth over long periods, not the aimless pursuit of short-term gains. It takes patience and discipline to stick to prudent long-term investment strategies when you’re tempted to engage in risky transactions that could produce immediate, adrenalin-rush-producing results.
Reduced family time
Since you must make your money playing poker, you’ll spend less time with your family. When a good poker player encounters a lousy run, he or she will grind it out until they prevail.
Starting capital needed
If you want to play poker professionally, you’ll need enough money to get through downswings. You have to have agen poker online sufficient starting money to stay in the game until you consistently begin winning. If you have a little capital, you may end up losing it if you are not already very good at poker.
However, all being said, treat poker as a sport and understand that, as it is with all sports, losses and wins are part of the game. Do not let it bog you down in the long run.