“Step right up and try your luck…spin the wheel and watch where she lands…everybody’s a winner” – sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to “step up and try their luck” in a game that in many ways have become rigged against them. During the last three decades, it has been amazing to watch the transformation of Wall Street from a place where individuals actually invested to a “casino” where institutions controlled the outcomes through high-speed automation, algorithms, and liquidity.
But nonetheless, individuals continue to stroll through the doors of the “Casino Wall Street” to try their luck by betting “against the house” for a dream of riches. However, just as anyone who has been to Vegas knows, you do indeed win sometimes; but the “house” wins most of the time.
However, “professional gamblers” can succeed at playing the odds in both Vegas and on Wall Street. Why? Because they understand “risk” in its various forms.
While most amateurs will bet on most hands, take speculative positions where the odds of success are stacked against them or try to bluff their way through a losing hand; professionals play with a cold, calculated and unemotional discipline. The professional gambler understands the odds of success of every play and measures his “bets” accordingly. He knows when to be “all in” and when to “fold and walk away.”
Do they succeed all the time – of course not. However, by understanding how to limit losses they survive long enough to come out a winner over time.
10 Lessons Learned From Poker
1) You need an edge
As Peter Lynch once stated:
“Investing without research is like playing stud poker and never looking at the cards.”
He’s absolutely right. There is a clear parallel between how successful poker players operate and those who are generally less sober, more emotional, and less expert. The financial markets are nothing more than a very large poker table where your job is to take advantage of those who allow emotions to drive their decisions and those who “bet recklessly” based on “hope” and “intuition.”
2) Develop an expertise in more than one area
The difference between winning occasionally and winning consistently in the financial markets is to be able to adapt to the changing market environments. There is no one investment style that is in favor every single year – which is why those that chase last years performing mutual funds are generally the least successful investors over a 10 and 20 year period.
Flexibility is the cornerstone of long-term investing success and investors that are unwilling to adapt and change are doomed to extinction – much like the dinosaur. Having a methodology that adapts to changing market environments will separate you from weak players and allow you to capitalize on their…