Playing the stock market and being successful at it requires skill and strategy, much like playing poker and being consistent at winning. Investing and poker have a lot in common. Both can be lucrative opportunities if played well—if not, they can lead you towards bankruptcy.
Knowing when to call or when to fold is essentially the game of both playing fields. And a clever poker player would know that there are so many financial and investing lessons to learn from the trade. Here are 5 key investing lessons you can pick up from the poker table.
Research Is Key
Poker and investing are both games of skill, with a bit of luck on the side. This is why poker players spend years researching and studying the game to be able to master the theories, the tricks, and the ins and outs of every game.
In the same way, you need to study the market, study different stocks, and study the ways you can move your money. As famous mutual fund manager Peter Lynch once said, “Investing without research is like playing stud poker and never looking at the cards.”
Never bet recklessly. Bet and invest wisely.
Keep Emotions In Check
There’s a reason why the term “poker face” became popular. Many players may give away their positions by letting their emotions run before their cards. A bad card may frustrate you, or a good deal may entice you to smile, but giving away these cues will give away your position and cost you dearly.
In the same way that emotion can ruin a poker player’s game, letting emotional biases come before logic in investing is never good. Sometimes, emotional biases urge people to sell when they should buy, hold onto losing positions in hopes they will come back, or even refuse to admit they’re wrong. Be disciplined and employ logic more than swayed confidence.
This is how you should try to keep your own emotions under control as well as learn how to read your opponent’s behaviour and the market’s emotions. In poker, being sensitive to these cues will help you win a heads-up. In investing, feeling the response of the market to news and announcements will help you make your call.
Take Calculated Risks
Poker and investing are all about risks—not just risks, but calculated risks. When you have the best, don’t be afraid to make the most of it. In poker, this means going all-in when you feel that your hand might just win them all. In investing, when you have the right environment and assets, invest more heavily into equities because the risk will be mitigated by your “strong hand.”
Just be sure to be wary about your all-ins. One should never go all-in all the time, not taking into account the market conditions. Study the field before trusting your hand. Going all-in recklessly might just enable your opponent and the market to bust you.
Know When To Fold
Knowing when to quit is key in maximizing your profit potential, both in poker and investing. Unlike in competitive sports, where quitting is essentially walking out of the whole game, quitting is a skill to be mastered in poker and investing to minimize your losses.
In poker, there are many players who have mastered the art of knowing when to fold, quit and cash in their chips. Sometimes, even though they fail to take the trophy and end up settling for second place, they still walk away with a profit.
In investing, there are also times when you have to admit that you have to let go of losing positions and wait for a better one to come along. It is important to know when you have to walk away from a bet to save yourself potential losses.
One of the most important traits that a poker player and an investor must learn to master is patience. Mastering the game and cashing big will not happen overnight. You will also not win every hand, and you will sometimes even go into long losing streaks. It takes patience to overcome these challenges and realizing that no one technique works all the time.
Sometimes, you just have to roll with the losses and continue learning the market; continue adapting to the changes in the market and growing. Real results take time, so always look at your investment long-term, instead of scratching every itch you encounter for short-term profits.