Tuesday, August 11, 2009

Dasan on poker & investing

A little evening reading from rogue speculator & blogger, Dasan.

Being a bit of a poker player, Dasan has collected some of his thoughts on the parallels between poker and investing and put them down for us to read in a post entitled, "Fishes, Donkeys, Bulls & Bears...".

Here's an excerpt from that piece:

Element of Luck. No Limit Hold’em, for the uninitiated (is there anyone left in the US who hasn’t played Hold’em?) is a game consisting of luck and skill. Why is it so popular? Because it has a huge component of luck in the short run.

If I play one hand against Phil Helmuth, and just go all-in, he has no advantage over me. In fact, many beginning poker books advocate an extremely aggressive pre-flop game as a way to neutralize your disadvantage against more highly skilled players.

This is why you often see Helmuth go into a childlike tantrum when he raises the standard 3x raise and some amateur that raises him all-in pre-flop.
This is an important point – in the short run, luck dominates, but in the long run, skill dominates.

Stock price movements are the same thing- in the short run they are close to random, and the most skilled analyst has no “edge” at all.
In short periods, even lousy investors can make money in bull markets. But over medium to longer term periods, a skillful investor will completely blow away the performance of a lesser-skilled investor.

While I'm not much of a card player, I can still appreciate the lessons drawn from Dasan's post. I hope you will too; enjoy the piece!

Related articles and posts:

1. Knowing when to fold - Davian Letter.

2. Wisdom of Johnny Chan - The Kirk Report.