Poker And The Stock Market

[FARGOpokerND 22]

My friend is majoring in law, but also does a lot of good stuff in the stock market. He started up a stock blog and wrote a blog comparing poker and stocks. I thought it made for an interesting read so I decided to copy it here as well. Its written more for the stock people who are comparing it to poker...rather than poker to stocks

Poker and the Stock MarketThe stock market and poker seem to be two different world’s that are mutually exclusive but in truth they are very much alike.Admittingly, the stock market and poker do have their distinct differences. The World Series of Poker typically has a 60 million dollar pool while the S&P 500 has a market capitalization of 11.4 trillion dollars; there is no bigger game than the stock market. The most important difference, is that poker is a zero-sum game, what the winners win in aggregate the losers must lose (for the sake of simplicity of those who don't play poker, leaving out the rake here), yet the stock market is not anything like a zero-sum game, it is mathematically possible for every single person to make money in the stock market and over time the average person tends to make 8-12% per year on their investments.However, when it comes to the skills one must have to be successful in these two fields they grow increasingly similar.1. Leave your emotions at the door - Both these games cannot be played with emotions but rather MUST be played with a rational and logical sound mind. In poker when a player plays with his emotions it is typically called playing on "tilt". Just because one might get rivered does not mean they should play the next hand any differently than had they won the hand. When emotions become part of your game in poker, you will almost always lose. In the stock market it is the same way, you have to know when to be able to take a loss and run, you can't let your emotions get in way of reason. Chasing losses is just a way of guaranteeing more and more losses.2. Rake/Commission: Both games cost money to play in, from what I know about poker, the rake is usually 10% of the pot up until the rake capped off. To get in tournaments one pays a entry fee(a form of a rake) which is typically 10% for small stake tournaments and less for big stake tournaments. In the stock market, it is not free to buy and sell stocks/options, etf's ect. The commission may come as low as four dollars and as large as 50 dollars depending on the broker, stock, amount of shares, foreign/domestic. Both games have a price of playing.3. Skill and luck: Admittingly, poker has a larger reliance on luck than the stock market but both have luck involved. However, even in poker, luck is just a short term thing and with variance will always disappear over time. Someone could have the Ace of spades and Ace of diamonds and be against the 7 of spades and 2 of diamonds and could lose, of course that is a bad break and some might say bad luck, but if you run that 10 times the chances are the player with aces is going to win almost 90% of the time (88.74%). It is even remotely possible for the 7 2 to win the first five times it happens, but over time, that player will only win about 10.78% of the time. Luck is truly a short term thing. In stocks, I whole-heartily believe that there is always a reason why a stock goes up and goes down which one could take to mean there is no luck, but the luck becomes a dimension in the stock market because people are not always privy to the information of why a stock might go up and go down. I had a friend who owned a stock USBE with no idea that it might be bought out and double in price but that is what happened, this may be called luck. I have two friends who do daily research 4-5 hours a day on stocks and could tell you all sorts of information on why one stock should go up and one down but they have yet to be able to amass great gains(its only been a short time), is this bad luck?4. Professionals v. Amateurs: One of the draws of the WSOP is that any person who is 21 years old and has 10,000 dollars can compete against the worlds greatest players, what other sport can the average Joe with no talent go against the worlds best, off the top of my head I can't think of any. The amateurs watch the ESPN highlights and believe that cards are cards, and can always tell when someone is bluffing while watching on tv(even thought they are able to see the cards), why couldn't they take down Phil Ivey, for all we know I get pocket aces, he gets kings, and see ya later Ivey. The stock market is the same way, the professionals love to have amateurs in the game because its easy money for them to take, people always look at stocks and say "I KNEW Google was the next big thing, or that I owned Wal-Mart and Microsoft as IPO's(with splits one share of Microsoft would now be worth over 3 million dollars). People believe that Warren Buffet is no smarter than themselves. Arrogance and Ignorance might be the common theme here.5. It is not the Amount of Money: I have a friend who plays poker professionally, he refuses to talk poker in dollar amounts, choosing instead to talk in Buy in amounts, and this is because poker is a game of bankroll management. It’s not the amount of money you lose it’s the percent that you lose. Stocks are the same way, whether you make 500 dollars or 50,000 dollars this year in the market it means nothing without knowing how much % that is. If you had 1000 dollars and made 500 you made 50% gains, but if you had 1,000,000 dollars and made 50,000 you made only 5% gains.Finally: "Listen, here is the thing, If you can't spot the sucker in your first half hour at the table,then you are the sucker!"(Rounder’s): I think this one speaks for itself about poker, but it means the same things in stocks. There is a loser on every stock, there are bears and bulls and if the stock goes up or down, one wins and one loses. You have to do your homework and gain every small edge you can because if you don't know why the opponent thinks you are wrong, and then know why he is wrong for thinking you are wrong, you are the sucker.

http://daragingbull.blogspot.com/

[natedawg2 0]

good stuff, I should be playing the stocks