Investing And Poker, Be Great At Both (Part 2)

By Joe Ponzio on July 14, 2007

In Part 1, shortly after my brother, Ben Ponzio, won a World Series of Poker bracelet, I decided to draw a comparison between poker and investing. In reality, the similarities are scary. If you are great and one, you can (and should) be absolutely great at the other. The traits of a successful, long-term poker player and those of a successful long-term investor are almost identical.

On any particular hand, a hundred different spectators can give you a hundred different opinions on what you should do. Is your opponent bluffing? Should you raise? Fold?

When looking at successful, long-term poker play, no matter what the crowd tells you, there is only one play that will result in more winnings than losses: Make the right move, regardless of the outcome.

The Right Move When Investing

The idea of the above "Golden Rule" of poker is this: You can not control how the cards fall. But, if you play perfect poker, though you may lose money on this particular day, you will make money in the long-run.

When investing, if you consistently make the right move, no matter what your stock price does on a particular day, you will make money in the long-run. It is, for lack of a better term, the "Golden Rule" of investing.

What Is The Right Move?

Whether you are talking about poker or buying stocks (as businesses), the right move is always the same: Put your money in only when you are a favorite to win. To take it a step further: The bigger the odds of you winning, the more money you should put in.

Now, you can choose to gamble in poker, "splashing" around and playing mediocre (or downright bad) hands because you have a ton of chips, a feeling, or a date. You may get lucky, but you'll lose in the long run.

You can also choose to gamble in investing—trading stocks or buying mutual funds because you have a ton of money or a feeling. You may even feel you need to because retirement (or some other goal) is right around the corner. You may even get lucky, but you'll lose in the long run.

Investing Is The Perfect Poker Game

Imagine a poker game in which there were no blinds and antes. Imagine that you could see a billion hands without ever having to play one—and it never cost you a cent. In fact, the casino would routinely come over and give you a few more chips while you waited.

In this game, there are only two starting hands—pocket Aces and 7-2 offsuit. Everyone is dealt one or the other—with one caveat: Every time you go all-in, everyone has to call.

A crazy situation, no? Let me ask you this—would you sit back forever and wait for pocket Aces? Would you ever put your money in with 7-2 offsuit?

The stock market is the perfect poker game. It is a place where you can sit down at the table, see millions of hands (stocks), collect money from the house (interest) while you wait, and only commit your money when you look down at pocket Aces.

Let everyone else gamble with 7-2.

Also Filed Under "How to Think About Investing"

• Buffett On Mr. Market
• The Graham And Dodd Method
• Buffett's Timeless Advice To Stock Investors
• Your Commitment to Business Investing