When you’re actively trying to become a better investor, it’s common to look to the experts and absorb their habits. In some cases, these habits have to do specifically with investing principles. For instance, Warren Buffett famously advises people to invest in what they know, rather than reaching (and guessing) on what they don’t. In other cases though, people attempt to emulate the experts by adopting more general strategies and practices. For example, some might take up meditation, which has been pitched by notable investors such as Ray Dalio (who credits it as the biggest reason for his success).
When it comes to side hobbies and practices that can impact financial success, one intriguing option to consider is poker. The popular, age-old card game is known to be a favorite among the wealthy and successful. In fact, even some prominent business and financial leaders, such as venture capitalist Dan Fleyshman and SurveyMonkey CEO Dave Goldberg, are known to be enthusiasts. But what is it that these figures see in poker? How might the game make you a more effective investor? Read on for a few thoughts on the subject.
Learning to bottle up emotion
The ability to bottle up or set aside emotion is commonly mentioned as a crucial one for investors. We’ve written on important tips to reduce emotions during trading in the past in fact, and noted that some research has shown that “trading psychology” influences 95% of decisions. This can lead traders straight into trouble if they can’t keep that psychology free of emotional influence.
Poker players face the same dilemma. It is tempting, particularly for beginners, to react emotionally to outcomes –– perhaps placing bets out of frustration out of a loss, or out of reckless excitement following a strong hand. Making decisions in this fashion, however, takes strategy and reason out of the equation. For this simple reason, poker players learn to bottle up or set aside their emotions –– a skill they can carry into investing.
Self-reflecting
Another crucial skill that poker players learn, and which can translate to investing, is that of self-reflection. As stated in a feature on tips for leveling up your poker game, poor players tend to believe that their failures are due to bad luck. Better players, on the other hand, learn to consider those failures carefully, thinking back on the hands that let them down and identifying mistakes. This is in a sense the only way to improve, and it’s common practice among players who succeed in the long run.
Similarly, investors cannot afford to blame bad luck for poor outcomes. While luck can of course play a role, the more productive practice is to assess decisions that lead to losses and adjust strategies as needed to avoid repeating those decisions. For strong poker players, this approach is second nature.
Practicing moving on
Despite the fact that reflecting on mistakes tends to be beneficial, it is also important in poker and investing alike to be able to “move on” in the moment. This is related in a sense to the idea of managing or disregarding emotions. As a piece on poker and investing put it, the key in poker is to “live to fight another day.” Succumbing to frustration and hasty decision-making can lead to successive losses, which can cut your game or tournament short. By contrast, learning to let go of frustration and “move on” to the next hand enables you to adhere to your long-term strategic approach.
This principle holds true in trading as well. Dwelling on a poor trade or trying to make up a bad investment with one big move will often lead to additional losses. On the other hand, chalking up a loss as part of your process and focusing on the next move with the aim of net gains over time is a winning approach.
Managing money
Finally, there’s the matter of bankroll management. This concept was cited in a an article advising people in business as to why it’s wise to partner with successful poker players. Specifically, the point made was that those who are weak with money management at the poker table are “destined for failure,” while better players will have learned to be responsible –– which, naturally, can benefit a business.
We’d posit that the same skill is useful in investment. In poker, managing your bankroll essentially means knowing how much you can afford to lose on a given game, tracking your net gains and losses, and periodically pocketing winnings (rather than keeping them in perpetual circulation at the tables). Failure to do these things can lead to steep losses in short time. And in investment, the same basic principles hold true; you’ll need to know what you can afford to trade with, make sure that you’re protecting your gains, and monitor losses closely.
When you consider these skills, it’s not wonder that many in the world of finance and business count themselves capable poker players. Accordingly, you may well find that learning the game makes you more confident and savvy with your own investing decisions.
