What Poker Players Know About Investing at Catch a Gideon

January 16th, 2007 by digerati

If you play Texas Hold’em you know more about investing than you might think. Here’s what a good poker player knows about investing:

Know when to fold. A hand (or investment) might start out looking good, but after more cards it’s not as good as you think. The good player will fold, knowing he’s lost some money (the initial bets) but avoiding losing more.
Any money you’ve already spent is a sunk cost. You won’t make it back if the stock sinks further. Too many investors refuse to sell an investment that has lost money since they have already lost money on the endeavor. The key is to get out if the ship is sinking.
Know your odds. A good poker player knows the odds of their winning each hand. Knowing the odds of your hand (and that of other possible hands in play) allows you to determine an approximate risk. From this you can decide if the benefits are worth the risk.
You should know the risks and rewards before investing! In business this is called cost-benefit analysis. Some calculations could end up saving you money, or making you much more over time.
Be patient. A good player will wait to bet until he has a good hand (bluffing aside). A good investor will wait for a good opportunity. A bad player will start making bets on marginal hands when they are not drawing good cards. The bad investor will throw money at investments without knowing much about them, or with justifications like “I like their food, of course the stock will perform well.” Whole Foods was a great example of this recently. In a year when stocks went up an average 15+%, Whole Foods stock dropped almost 40% in 2006. Many investors probably bought because a Whole Foods moved into their neighborhood and they loved the store, so they invested in the stock.
Investing in good opportunities will get you ahead in the long run. Don’t try to get rich quick. If you haven’t found a good investment opportunity, invest in safer investments until you find something worthwhile.
Invest to Win. A good player plays to win, many play to make a living. Investing is the same way. You don’t invest to see what happens, you want to make money. Following the above steps should help you stay ahead of the game.