"Poker may be a branch of psychological warfare, an art form, or indeed a way of life." -- from Big Deal by Anthony Holden
I apologize for getting all philosophical so early in the week, but when you stop and think about it, poker can be a microcosm of life in general. How many other games let you experience as wide a range of raw emotions -- greed, fear, anger, and elation -- as you do in poker? And all that can be felt in just one hand of cards!
For many of those who have ventured to play poker professionally, the game isn't simply a representation of life. It is life. In order to survive in the perilous world of poker, professionals must learn how to lie (bluff), steal (steal blinds), compete, and grind their way to long-term profits. By examining how professionals make a living at something as psychologically taxing as poker, those of us who are more risk-averse are guaranteed to learn something -- minus the lying and stealing, of course.
Full house of feelings
Poker is a tougher, more volatile, stripped-down version of the stock market. Every emotion that you're forced to confront in the stock market, you can experience tenfold at the poker table -- in a much shorter period of time. As you can imagine, poker, just like stocks, has the potential of turning into an emotional roller coaster at any moment. Just think of the stomach-churning, zero-gravity drop that the shareholders of online gaming stocks Cryptologic
So the key to success in both poker and stocks is being able to turn those volatile thrills into something more cool, calm, and serene -- like a Saturday afternoon trolley ride. Fortunately for stock junkies, getting on that trolley is a lot easier than it is for poker-playing professionals.
Here are the two aspects of poker that can teach us Fools the most when applied to investing.
1. Know thyself
The biggest difference between a professional poker player and an amateur -- or "lemon," if you want to be mean about it -- is that a pro is self-aware.
Putting money on the line is a nerve-wracking experience, and beginning poker players are often so anxious at the table that they become incapable of making smart decisions. On the other hand, successful poker players act as if they were regulars on the Dr. Phil show -- completely in touch with their own feelings. Poker professionals know that unrestrained nerves are the biggest roadblock to sound decision-making, so they make it a habit to regulate their own emotions. As a result, professionals can, in a sense, step outside of themselves, doing whatever is necessary to make the right decision most of the time.
Similarly, as investors, we need to be completely aware of when our emotions are getting the better of us, jeopardizing our ability to make sound investment choices. Foolish investors should prevent any single feeling -- whether it's fear, greed, anger, or jubilation -- from escalating to the point where it begins to cloud good business judgment. It might take a bit of reflection to realize exactly when this happens, but it's nothing that requires advanced karmic meditation.
For example, I know I wouldn't be able to invest in mineral stocks like Phelps Dodge
2. Long-term thinking
There's nothing in the world more discouraging to a poker player than a "bad beat." Even casual poker fans can appreciate how frustrating it is to see their pocket aces get cracked by a lucky card on the river. But this is exactly the point where bad players start to get emotional and make several bad moves in a row, believing that there is no such thing as poker justice.
On the other hand, true professionals believe in nothing but the laws of math. Successful players know that their ability to make a living has nothing to do with one bad hand, one bad night, or even one bad month. The only way to succeed is to continue to bet as long as they have a positive mathematical expectation -- no matter how bad their luck is going. They have faith, because the "law of large numbers" (and yes, it's a law) dictates that they will be profitable over the long run, as long the odds are consistently on their side.
Similarly, our goal as Foolish investors should be to make the most amount of money over the longest period of time. Our long-term wealth is not based on a day's return, a month's return, or even a couple of years' worth of returns. As true investors, we should already know that there's no reliable way to predict Mr. Market's mood swings over the short term. Holding on to the stocks of poker havens Harrah's Entertainment
Buy and hold 'em
Poker great Freddy Gasperian once wrote, "To master poker and make it profitable, you must first master patience and discipline, as a lack of either is a sure disaster regardless of all other talents, or lucky streaks."
Likewise, as Foolish investors, we should always remind ourselves that the best way to build considerable wealth is to stick with good businesses over the long haul. And by regulating our emotions, keeping cool, and staying prepared, we can take advantage of these opportunities whenever they are dealt to us. More importantly, we'll have the courage to stay in the hand when Mr. Market -- through the use of his intimidating stares and stock prices -- tries to bluff us out of it.