You want to make your first investment. But you don’t know where to start. You don’t have any formal education. Will any of your previous experiences help somehow? Well, if you’re a professional poker player, yes, your experience can help you with your investment portfolio.
It turns out that some of the most successful investors (and businessmen) out there are either great poker players or former regulars at the tables. As a matter of fact, a recent study revealed that fund managers that do well in poker tournaments outperform their peers in terms of making money from investments by a large margin. So one has to wonder –– how can poker help you with your investment strategy?
That’s what we’re about to find out. Let’s look at five lessons that poker can teach all of us about the investment game….
1. Balance Your Game
The first thing that you learn in poker is that different games are played in different ways. You need to understand the rules, know what kind of game is at hand, and how it plays when you sit down at the table. Sure, when you’re still learning the basics this can be quite tricky, but eventually, you figure out that if you know the type of game you’re playing, you can better prepare for it.
The same goes for investments. If your portfolio is one big mess and all your money is in a single stock or ETF, there’s a very high chance that you’ll be badly burned if it crashes. That’s why it’s important to know what kind of game you’re playing – are you investing for retirement, buying property, or putting money in the stock market? And whatever you’re trying to accomplish, where are you doing it?
Once you figure out how and where you want to invest, you can better prepare yourself. Ultimately, it’s all about diversifying your portfolio to maximize your chances at gains and minimize the likelihood of losses.
2. Understand Your Opponents
You can never be sure who you are going to play against when you sit down at a poker table. This is what makes the game interesting but it also increases your chances of losing money significantly if you’re not careful.
The first thing that any good poker player does is spend a lot of time scoping their opponents. They pay attention to what kind of a player they’re sitting next to, how good they are, and whether any tells might provide clues about the cards that they have.
Once you get into investing, knowing how other people play can also help you earn money in no time. You have all kinds of tools at your disposal – social media, investment forums, even some data on what other investors are doing can help you to stay one step ahead of the game. You aren’t necessarily trying to beat these other investors the way you would poker opponents, but there’s certainly still an element of watching and reacting to others.
3. Fold If You’re Losing
While we tend to focus mostly on direct winning strategies, learning to accept defeat is also a core aspect of becoming a wining poker player. The successful poker player knows when to fold their cards and walk away from a losing hand. Basically, if you’ve already lost half of your money, the chances are that you’re going to lose it all if you don’t quit. Sure, there are some players out there that will never give up, but most professional poker players know when they have to fold cards and cut their losses.
The same principle applies to investment: Walk away if you’re losing. Look at your investment portfolio, and if there are any losers that are draining your account balance, explore the idea of getting rid of them. Sure, you might be able to get more money out of them. But often enough it’s best for your total portfolio to cut losses and redirect money toward winning assets. There will always be other investments and they aren’t going anywhere.
4. Think About Your Opponents’ Bets
All of the greatest poker players think about their opponents’ bets carefully. They take into consideration how much money they have in front of them, what kind of cards they’re sitting on and whether it’s worth taking a stand against them even if they seem stronger.
Once you understand this principle, you can use it to your advantage when investing. For example, if you take into consideration that your counterparts are betting big on stocks, then it might be a good idea to bet on something else right now – like bonds or gold. Stocks are risky but if everyone’s jumping in to buy them, you’ve often already missed the boat –– and the chances of losing money increase significantly.
5. Always Be Ready To Get Pushed Around
Poker players are not victims. They know that they might get pushed around by stronger opponents every now and then but that doesn’t mean that they have to accept it. Instead, they get better at reading their cards, thinking about their bets, and trying to figure out how the game’s going to play out before it does.
You should follow the same rule when it comes to investments. Accept that there are times when the market will “push you around.” Investing can make for choppy waters for even the most experienced traders, and everyone has to deal with loss at one point or another. What’s important is doing so in a productive manner. When you do get knocked off your game, analyze the conditions that made it happen and learn how to do better next time.
The Bottom Line
Even though poker itself is just a game, it does provide some strategies that can be useful to investors. Many in financial trading and business have been using the principles above to make money for years, and the same ideas may just help you as well.