Poker Articles

(continued from Part 1)

#3 Long Term vs. Short Term

You don’t have to ask around long to find that if you are participating in either poker or the stock market to make money in the short term, you have it all wrong. Both share a fundamental concept that in order to be successful you must apply your strategy over the long term and not the short. There is too much variance in both to try and “win” over a short span of time. Mathematics and statistics prove that over longer courses of time variance decreases. Common sense just tells you that if you have an edge, you can exploit it over a longer period of time, when variance and other factors level out with skill factors. This concept is true in all paradigms of life, not just poker and the stock market. On the contrary, if you’re saying to yourself “Wait…What is my edge?” Well, if you don’t have an edge, either find one, or find a new hobby.

Your return on investment (ROI) would tend to be higher in both poker and the stock market if you recognize the fundamental idea that in the short term anything is possible. On any given day you could lose money with this approach and many poker professional poker players (amateurs too) posit that on any given hand a rookie can outplay a pro. But over extended periods of time, if they play 1000 hands, the more skilled player will have more time to develop and apply his talents. What does this mean? Allow yourself enough time for skill and all other controllable factors to outweigh the variance, just as is in the stock market.

Any investor knows that stocks are very risky in the short-term. Stock prices fluctuate widely; a discernible contrast to the stability of bonds, government issued t-bills and bank deposits (all insured by the government). It is historically accurate that the stock market (a portfolio of stocks) has averaged about a 10% return every single year consistently for over 100+ years. It is even a well-known fact that stocks are the single most profitable long-term investment you can make; more than money markets, CD’s, bonds, cash itself, savings accounts, etc.  Think of your poker ROI with this in mind. If you would like poker to marvel the stock market in this regard consider it a long-term investment that will pay dividends over time.

Professionals who make a living as “day” traders (short-term investors) involve inherently more risk than the average investor on Wall Street, a principle that comes with this job’s territory.

The bottom line is there is much more risk in both poker and the stock market in the short term. Plan for the long-term, it’s the best way to guarantee success.

#4 Luck and Skill

This in part is aforementioned in the section about long and short-term strategy but not at all elaborated upon.  Luck is just a random factor involved in both poker and in the stock market. It is important to note that it is indeed random; somebody’s good luck is at the expense of another’s bad luck.  You cannot control luck in either the stock market or in poker. You have to understand and accept that getting into either will guarantee your exposure to luck, sometimes in good form and sometimes in bad.

You can find comfort in that developing and perfecting your skills can help you overcome bad luck and further, can help you seize the good luck you encounter. Betting, bluffing, raising, folding, check raising, aggression, reading ability; these are all things that have just as much prevalence in poker as luck; the only difference is that you can control these factors. If you acknowledge that there are an extremely wide variety of skills to possess in poker, it goes a long way in coping with one of the factors you cannot control.

The stock market, again, is no different. There are endless scenarios where someone who knows very little can get rich from investing. On the contrary, there are investors who are extremely well educated and knowledgeable about the market and all it takes is one unlucky event to cause a large sum of money to be lost. The point is that on average and over time, the person who knows what they are doing, despite the presence of luck, is better off than someone hoping to get lucky. After all, exceptions to the rule are by no means how you measure true success in any field.

#5 Variance and Volatility

Perhaps the deepest correlation between poker and the stock market is variance. For the most part, it’s not possible to delve into either poker or the stock market without recognizing the concept of variance. It’s a fundamental principle in both entities.  In layman’s terms, variance is defined as a discrepancy; an event that departs from expectations (anything that varies from a norm or standard).  In poker, you are probably accustomed to hearing variance, but in the stock market, the more often used word is volatility (tending to fluctuate sharply and regularly). When the stock market goes up one day, and then goes down for the next week, then up again, and then down again, that’s what you call stock market volatility.

Variance and volatility are accepted norms in both fields. We accept these norms while participating, sometimes even subconsciously. They are both out of our control, yet they don’t obstruct us in the involvement of either. 

A typical scenario in poker is understanding and accepting that if you have pocket aces against pocket two’s, only 4 out of 5 times you will win. Variance (more specifically statistics) controls the other 20%. In the stock market, part of being a trader is that on any given day, any stock price can fluctuate, out of the bounds of your control. Shares are bought and sold with this idea in mind. These elements are not only out of our control, but they can sometimes even drive us to the brink.  Since these are just averages and statistics, on some days variance will be higher than others and you’ll feel like the world is certainly scheming against you. It’s important to note that we usually never acknowledge when the variance is overwhelmingly in our favor, only the opposite.

But to participate means to accept these standards. Poker players often curse poker for its evils, almost always having to do with variance.  If you want to be successful in poker, recognize that lucrative and profitable stock market trader’s deal with this principle on a daily basis. You are not alone. Laws of averages, theories and universal truths have been parts of society for billions of years, even before our knowledge of them. Don’t let any one factor of any game determine your success or failure, or even your participation. Use what you can to overcome these factors; after all, that’s what all the successful people do.

Whatever you do, if you find yourself in a debate about poker and somebody calls you a gambler or a degenerate (or both) tell them that among Warren Buffet, the family’s financial advisor and your father’s boss that you are in good company.

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