Pop Quiz
Here’s a question for you. Can playing poker be considered investing, or is it necessarily gambling?
Playing cards may seem to fit firmly in the “gambling” category, but to properly answer this question you need to have a working definition that clarifies what you mean by “investing”. Our view is that investing is what you are doing when you have tilted the odds in your favour, and have a reasonable basis to expect positive returns.
The result of a poker hand is a mix of skill and luck (not unlike the stock market). In the short run, luck can be the dominant factor, but over long periods of time and/or large numbers of trials, a small edge provided by superior skill tends to shine through. On this basis, for a player that has a high level of skill, poker can legitimately be considered investing. Given this, it is perhaps unsurprising that a number of skilled mathematicians, investors and hedge fund managers can be found sitting around tables in Las Vegas and similar venues.
Not exactly our cup of tea, but we can’t argue with their logic.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
michael yeh
:
Poker is not investing it’s speculation or in stock market terms a chartist. Hoping that patterns will emerge and that one can rely on decisions on a graph but not on a myriad of evidence.
The reason being is that you are dealt the cards without choice and must play every hand even though you have the option to fold/sell.
Investing is when the player has the ability to play in the game when he chooses and gets to pick the cards of his/her choice.
The “better cards” are waiting for me scenario in poker remind me of the roulette wheel last recorded numbers. The gamblers believe it can’t be another red or black .. But alas.
The big difference is choice between having things dealt to you or choosing your cards.
That’s why investing is incredible hard, it requires a massive amount of discipline to only swing at the pitches that fit your criteria.
The noise is all around and like a maddening crowd cheering you to take a swing and hit a home run right ?
Good investing is a disciplined approach that requires investigative skills
(Ben Graham’s Northern pipeline deal) and patience.
The ASX turns up a new hand every morning five days a week but I do not let it instruct me it’s there to serve me.
I’ll leave on this note
“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology”.
Seth Klarman
pranshu.khandelwal
:
One more point, in poker you have to bet without seeing your hand if you are small or big blind and this can cost a lot over long run. In investing you don’t have to bet unless you get great hand.
pranshu.khandelwal
:
In poker you have to wait for a good hand, in stocks you have thousands of hands to pick the best hand. In poker your results depends on how good other people’s hands are but not in investing. In poker someone has to loose for someone to make money, in investing all shareholders can make money if company is doing well. I will pick investing anytime of poker.
Roger Montgomery
:
Best response might be offered by recent article about David Walsh: “A key feature of the markets Walsh and his partners invest in is that they are characterised by randomly “independent events”. Specifically, the occurrence of one event does not influence the chance of the other and they therefore have “finite variance”, or limited downside risk.
“Gambling has the huge benefit of having independent events – I cannot get blown up by the black swans that plague financial markets.”
He says deploying mathematics in “equities markets that may have infinite variance outcomes makes working out probabilities much harder”.
“You don’t know whether you are summing a sequence of fractions that add to one or if they add to infinity, because financial markets have non-independent [or potentially related] events,” he says.
The bankable independence of results in gambling markets is the “component of our strategy that gives me the most security”, Walsh says.
“It is even better in games like black jack, where the events are not only independent but also negatively correlated – your chance of winning goes up if you lost the previous hand because there are an excess of cards remaining that are advantageous to you.”
Andrew Legget
:
Is poker and investing similar?
Yes, it is. Both walk a fine line between investing and gambling/specualtion and decisions needing to be made base don incomplete information.
If you don’t have a tight philosophy and strategy in your approach to both you can find yourself losing money real quick and making bad decisions. In both you may find your psychological strength and resolve tested. Both also have a focus on basic maths. it is also very capable for people involved in both to find themselves getting overcome by noise and making bad decisions. Say an investor selling in panic based on an announcement about something temporary or a poker player who saw his opposite number scratch his eye and thinks this is a tell to go all in.
In both you can do quite well by forming a tight strategy that emphasises your strengths and minimises you weaknesses, focusing on facts and ignoring the noise and putting your money on the table when the odds are in your favour and knowing when to let an investment go by. The only difference is that consistency is a much bigger deal in investing and also you can be more patient as there are no blinds coming around to force you to put money and which increase at time intervals (and also you only need to pay brokerage when you decide to bet rather than to take part).
Looking back i can see some big similarities but glad i let poker go a long time ago and quit whilst i was ahead. The odds are much better in investing and i can control them a lot better.