How poker helps with investing mindset

Unlike the majority of society that think poker is pure gambling and comparing it to roulette and blackjack, I expect our audience to be more knowledgeable. Poker is the ultimate game of statistics, psychology about others, emotional control and risk calculation. All of this is topped by a good amount of luck. In other words, there is no other game that resembles better the financial markets (and real life!) than poker. The bold calculative risk takers make bank. The viewers watch like it’s a movie. Let’s break down all those principles:

Statistics

Calculating the risk reward ratio first needs some easy math. You calculate the pot odds offered and then decide if the amount of chips you need to bet can return you more money than the odds offered. An easy example would be: the pot has $10 and someone bets another $10. Now you need to put yourself $10 to claim a total net profit of $20. If you think your odds are better than 2:1 then you do it. It’s simple like that. Now how do you calculate your odds? That’s where statistics come into play. Each player has certain cards that he could be playing this way and you try to estimate his range of playing cards and their frequencies. Rephrasing that, a player can have a range of nothing to very strong hands but these come at different frequencies like in statistics. Let’s say he could have hands A,B,C. This doesn’t mean that A has 33.33% and B and C the same. There are 3 possible hands but maybe hand A has 80% frequency and is much more probable. All this calculation happens in the head of a poker player realtime and takes a lot of practice. The good news is that it doesn’t have to be that way if you are thinking about buying a certain stock.

Risk and assymetric bets

Someone comes and gives you a pair of deuces and tells you upfront that he has Aces (rockets!) and asks you if you want to bet. Non-poker players and people that don’t understand probability would quickly answer: “hell no! I’m no fool!”. The poker player will ask: “what are the odds offered”? Here lies the intrinsic ability of poker players to understand assymetric risk and the reason why almost all poker players bought Bitcoin and Cryptocurrencies way before the masses. It’s because they understood the asymmetric risk/reward (otherwise called sharpe ratio) that crypto offered. You may lose 100% of your investment if Bitcoin goes to zero but you can win very big multiples. A simple question for you: I tell you that a certain altcoin has 90% chance of being a scam and you lose all your money or in the off-chance (10%) that it’s not it will skyrocket to 100x valuation. Would you take it? If you said no stop reading now, go to wikipedia and take some Khan Academy courses on probability and statistics. I would also advice that you freeze your Robinhood account immediately!

Psychology of others

Behavioral investing is a very big thing in economics and finance university courses. It’s a science by itself, a blend of psychology and quantitative calculations. A simple example would be the recent tweet from Elon Musk where he mentions Signal as an alternative to Whatsapp and the stock Signal that has nothing to do with the app skyrockets. Now that seems extremely dumb but my guess is that half the people that bought it were really dumb and the other half really smart in that they saw the other half buying and speculated on the idiocy of others. That also works on poker. If you are going to be a good player you need to think not only if the other player is smart and what great move he can take but you also need to think of the other player being stupid and the dumbest move he can make (it’s way more frequent than you think!) and then adjust your play assuming that your opponent can make great mistakes.

Emotional control

There isn’t a single great poker player that can’t master very well his/her emotions. It’s the most important skill in poker much more so than all the others because a great player that gets frustrated can blow off all his/her earnings in a heartbeat. Similarly, panic moves in trading and buying high with FOMO and selling low with fear would make the best fundamental analyst go broke. That’s also a reason algorithmic trading exists (among others such as speed of execution etc). It’s the ability to remove emotion from trades so you don’t overthink / doubleguess your plays. Emotional control also means that you are resilient in variance (volatility). Another great aspect of poker psychology that gave poker players the ability to stomach big price fluctuations. If you don’t have this you can’t survive as a cryptocurrency investor.

Conclusion: Study poker principles

I strongly suggest people to read up on poker principles. You don’t have to be great at the game of make money from it but just studying it and learning about all the different disciplines that you need to have to succeed will definately make you a better investor overall.

P.S If you find value in this article please consider subscribing to the newsletter.

Disclaimer: The information on this site is for informational purposes and isn’t financial advice. We cannot guarantee that you will have the same results as we have nor can we guarantee that the information shared here is appropriate for you. This is not financial advice and not given by professionals.

Leave a Reply

Your email address will not be published.