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A thread of my favorite investing lessons from poker.
Shuffle up and deal…
Shuffle up and deal…
Less whining = More winning...
Your bad-beat stories are FAR more interesting to yourself than others.
Winners in poker, investing, and life use their losses (and wins) as feedback loops, not as excuse magnets.
2/
Your bad-beat stories are FAR more interesting to yourself than others.
Winners in poker, investing, and life use their losses (and wins) as feedback loops, not as excuse magnets.
2/
The hero of Rounders was Joey Knish, not Mike McDermott...
Bankroll management isn’t sexy but it’s important. You go, @JohnMTurturro!
If you’re moving up a level, you don’t bet your mortgage.
In the stock market, you don’t risk money you need in the next five years.
3/
Bankroll management isn’t sexy but it’s important. You go, @JohnMTurturro!
If you’re moving up a level, you don’t bet your mortgage.
In the stock market, you don’t risk money you need in the next five years.
3/
Any idiot can play aces...
Meanwhile, in investing, there are no bonus returns for degree of difficulty. In the past decade, the FAAMG stocks have been a pair of aces.
4/
Meanwhile, in investing, there are no bonus returns for degree of difficulty. In the past decade, the FAAMG stocks have been a pair of aces.
4/
Don’t underestimate Hawaiian shirts...
It’s absolutely possible to get cleaned out by a guy in a Hawaiian shirt and shades. I’m proof of that!
A stock that’s been unexpectedly dominating the table? Very few believe Domino’s Pizza ( $DPZ) is up over 20x in the past decade.
5/
It’s absolutely possible to get cleaned out by a guy in a Hawaiian shirt and shades. I’m proof of that!
A stock that’s been unexpectedly dominating the table? Very few believe Domino’s Pizza ( $DPZ) is up over 20x in the past decade.
5/
Action kills...
A good poker pro only plays about 20% of their hands.
That’s two hands once around a 10-person table, including the two blinds.
The best players (and investors) are constantly weighing the opportunities, but rarely are they moved to act.
6/
A good poker pro only plays about 20% of their hands.
That’s two hands once around a 10-person table, including the two blinds.
The best players (and investors) are constantly weighing the opportunities, but rarely are they moved to act.
6/
The worst hand is the 2nd-best hand...
It’s the full house vs. a straight flush that stings, not mucked rags.
Overconfidence also kills investing returns.
Mark Twain: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”
7/
It’s the full house vs. a straight flush that stings, not mucked rags.
Overconfidence also kills investing returns.
Mark Twain: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.”
7/
Sweat the big stuff...
The profits from a successful session are usually made up of just a few big hands. Same with a disastrous session.
For tournament players, a deep cash is worth a lot of min cashes.
8a/
The profits from a successful session are usually made up of just a few big hands. Same with a disastrous session.
For tournament players, a deep cash is worth a lot of min cashes.
8a/
For investors, one 50-bagger is worth much more than a bunch of slight market beaters. In poker, it’s why small pocket pairs can be so powerful.
8b/
8b/
True for growth investors…
Peter Lynch: "All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out."
8c/
Peter Lynch: "All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out."
8c/
And value investors alike…
Warren Buffett’s partner Charlie Munger: “If you took our top fifteen decisions out, we’d have a pretty average record.”
8d/
Warren Buffett’s partner Charlie Munger: “If you took our top fifteen decisions out, we’d have a pretty average record.”
8d/
Everyone’s a winner when you keep your own score...
The world is chock full of above-average drivers, poker players, and investors.
9/
The world is chock full of above-average drivers, poker players, and investors.
9/
Don’t get into a biggest stack contest...
What matters are your results in 1,000 sessions, not your result in one against some trash-talker on a heater.
In investing, it’s 10-year returns, not daily returns. And FOMO may as well be spelled TILT.
10/
What matters are your results in 1,000 sessions, not your result in one against some trash-talker on a heater.
In investing, it’s 10-year returns, not daily returns. And FOMO may as well be spelled TILT.
10/
Know if you’re the fish...
As the old saying goes, “Look around the poker table; If you can’t see the sucker, you’re it.”
Chasing bigger possible gains at a $5/$10 NLH table when you’ve got $1/2 NLH skills ends in losses.
11a/
As the old saying goes, “Look around the poker table; If you can’t see the sucker, you’re it.”
Chasing bigger possible gains at a $5/$10 NLH table when you’ve got $1/2 NLH skills ends in losses.
11a/
What’s nice about the stock market is that it’s a positive sum game, returning around 10% a year historically. If you can’t beat the index, join it!
11b/
11b/
True bad beats are badges of honor…
If you got your money in with the odds ever in your favor, it means you did the right thing but got a bad outcome.
Process not results.
An investing bad beat isn’t as mathematically clear-cut as a runner-runner, but it’s similar.
12/
If you got your money in with the odds ever in your favor, it means you did the right thing but got a bad outcome.
Process not results.
An investing bad beat isn’t as mathematically clear-cut as a runner-runner, but it’s similar.
12/
Math is only table stakes...
To play well, it’s certainly important to know probabilities, pot odds, positional strength, and game theory.
But emotional control, playing to your strengths and weaknesses, and the ability to pay constant attention are underrated.
13a/
To play well, it’s certainly important to know probabilities, pot odds, positional strength, and game theory.
But emotional control, playing to your strengths and weaknesses, and the ability to pay constant attention are underrated.
13a/
It’s also easy to pay too much attention to stock metrics we can calculate (P/S, P/E, ROIC, dividend yields, DCF outputs, etc.). Knowing thyself, doing the work, and understanding the underlying businesses are underrated.
13b/
13b/
Many paths to the top of the river...
Loose works. Tight works. Quiet works. Obnoxious works.
Growth works. Value works. Concentrated works. Diversified works.
Loose and weak doesn’t work. Daytrading crappy companies doesn’t work.
14/
Loose works. Tight works. Quiet works. Obnoxious works.
Growth works. Value works. Concentrated works. Diversified works.
Loose and weak doesn’t work. Daytrading crappy companies doesn’t work.
14/
The early action matters...
If you don’t want your pocket kings to get sucked out on the river, push a lot of money in earlier in the betting.
If you don’t want to make tough financial decisions near retirement, push a lot of money into your savings in your 20’s and 30’s.
15/
If you don’t want your pocket kings to get sucked out on the river, push a lot of money in earlier in the betting.
If you don’t want to make tough financial decisions near retirement, push a lot of money into your savings in your 20’s and 30’s.
15/
Insanity is defined as repeatedly trying to bluff a call station...
When poker pros play each other, they’re all so good that it’s basically a game of paper/rock/scissors (“They know I know they tend to bluff here. So maybe they have it?”)
16a/
When poker pros play each other, they’re all so good that it’s basically a game of paper/rock/scissors (“They know I know they tend to bluff here. So maybe they have it?”)
16a/
But for low-end games, mastering the basics is a winning strategy. E.g., it does you no good to vary your play if the table isn’t paying attention.
Unless you’re moving markets with hundreds of millions, you’re in a low-end investing game. Basics will get you quite far!
16b/
Unless you’re moving markets with hundreds of millions, you’re in a low-end investing game. Basics will get you quite far!
16b/
Sunk costs...
Over-defending your blinds is so dangerous because it’s so viscerally appealing. Fight or flight!
The opposite is pot odds, where a 5% shot is STILL worth it if it’s a $25 call in to a $1,000 pot.
The investing analogue is throwing good money after bad.
17/
Over-defending your blinds is so dangerous because it’s so viscerally appealing. Fight or flight!
The opposite is pot odds, where a 5% shot is STILL worth it if it’s a $25 call in to a $1,000 pot.
The investing analogue is throwing good money after bad.
17/
Ranges, not point estimates...
“I KNEW you had pocket jacks” is fun to declare, but pro players put you on a range of possible hands with probabilities for each.
This works in investing, too (e.g. 15% chance of total loss, 75% chance of meh, 10% chance of a 10-bagger).
18/
“I KNEW you had pocket jacks” is fun to declare, but pro players put you on a range of possible hands with probabilities for each.
This works in investing, too (e.g. 15% chance of total loss, 75% chance of meh, 10% chance of a 10-bagger).
18/
Know thyself...
While I’m fine at not overvaluing A-J and J-J, I’m not great at playing A-Q and Q-Q. Knowing that gets me well on the way to fixing the problem.
19a/
While I’m fine at not overvaluing A-J and J-J, I’m not great at playing A-Q and Q-Q. Knowing that gets me well on the way to fixing the problem.
19a/
Similarly, I gravitate to 52-week lows vs. 52-week highs. A turnaround situation feels better to me than a winner that keeps on winning.
But I’ve been turning around my own situation by heeding my poor performance in the former and better performance in the latter.
19b/
But I’ve been turning around my own situation by heeding my poor performance in the former and better performance in the latter.
19b/
Blinds are inflation...
The price of inaction in poker is being slowly crippled by your blinds.
The price of inaction (i.e. cash) in investing is being slowly crippled by inflation.
20/
The price of inaction in poker is being slowly crippled by your blinds.
The price of inaction (i.e. cash) in investing is being slowly crippled by inflation.
20/
“Yeah, well, sometimes nothin' can be a real cool hand.” – Cool Hand Luke ...
“The Millionaire Next Door” taught us that a janitor can end up with more savings than a doctor.
The secret is being happy spending less than you earn.
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“The Millionaire Next Door” taught us that a janitor can end up with more savings than a doctor.
The secret is being happy spending less than you earn.
/end
