People often equate casino gaming with investing. Generally speaking, this is neither appropriate nor logical; chance-based gaming is neither a form of investing nor an activity that resembles it all that closely. This does not mean, however, that nothing useful can be learned from certain casino activities that involve elements of skill and analysis.
In particular, the game of poker can actually be helpful. While it still shouldn’t be equated with investing as a means of expanding wealth, it does teach skills and instill habits that can benefit long-term investors and active day traders alike. Whether you play on your new smartphone, a home PC, or in person, poker can teach you plenty about investing. Below, we’ll cover some of these benefits to the popular hobby.
Assessing Opportunity Cost
Among the many pieces of investing advice he’s famous for, Warren Buffett is known for downplaying the importance of math in the markets. At the same time however, he has discussed that successful investors must know how to optimize and maximize opportunity cost. By buying a given amount of one stock, an investor precludes himself from investing that money in another; learning to compare and optimize within a budget is crucial.
Poker players don’t deal with this exact scenario, but they do typically operate with budgets, and they do need to learn where to prioritize their bets. Within a game, they need to know when to bet and how much to withhold. Playing multiple tables at once, as many do online, they need to determine where they want to bet heavily and where they want to play conservatively. It’s a version of the same skill, and some who play poker will find aspects of investing easier as a result.
The idea of diversifying stock investments is a very popular one that is essentially about reducing volatility by embracing variety. When an investor spreads wealth out across different assets that are not linked to one another, he lowers the chances that a decline will affect his whole portfolio. We just noted that some poker players are in the habit of playing multiple games at once online (10 or more tables for some skilled players). This is in effect a similar practice. Poker players learn to diversify their games such that poor play or bad luck at one table doesn’t damage overall performance too greatly. The chances of bad total losses are reduced, and the likelihood of a net gain increases.
Beyond spreading gaming budgets out across tables, some poker players will also learn to play different varieties of the game. While Texas Hold’em is the most popular poker variant in competitive gaming environments, playing Omaha poker gives players a slightly different challenge and a fresh way of enjoying the same basic game with a few minor tweaks. Other players looking for something a bit more different will explore various “stud” and “draw” poker options — which still have major fundamental similarities with Hold’em, but involve different gameplay.
Exploring variety is not a strategy to maximize gains. But it does lend players experience betting (either with real or play money) in different settings — attempting to grow their gaming funds through different practices. One can see how this, too, can serve as a sort of informal training practice for investment. Investors will often explore different markets over time, from stocks, to commodities, to currency exchange — applying the same goals and some general strategies to a variety of practices.
Learning When to Cash Out
We don’t really call it “cashing out” in the world of investing. But the practice is basically the same. In poker and investing alike, people need to know when, strategically, to pull their funds out and collect whatever gains they may have made. This process works very differently in one practice versus the other. However, the basic skill — recognizing when to collect gains and stop pushing for more — is quite similar.
Acting Without Emotion
Alongside diversification, the need to trade without emotion getting in the way might just be the most common tip given to investors. It’s easy to understand why: Investing can be aggravating, thrilling, gratifying, upsetting — even humiliating or affirming. It covers the spectrum in terms of the emotional effects it can have, and it’s important for investors not to be swayed by these emotions. It’s another skill that can be learned through poker. Just as in investing, poker players need to learn how to handle wind, losses, luck, and misfortune without losing their calm, or their grasp on strategy. It’s important to remain level-headed and reasonable, and learning how to do so can certainly serve one well in an investment setting.
Poker is again not a form of investing, nor are the two closely linked. But the game does teach a number of skills and strategies that investors would do well to practice. In a roundabout way, the game provides helpful training for certain aspects of the investing world.