It's time for poker players to start putting their money to work.

[hawk59]

[ QUOTE ]

2: What does it take to consistently beat the stock market (picking)?

[/ QUOTE ]

1) If you aren't comfortable putting 20% of your assets in a single stock then you shoudln't be comfortable putting 2% in. Concentrate your good ideas, avoid mediocre ones.

2) Good ideas can be explained in one paragraph and consist of one simple idea. Complicated ideas don't work out how you would expect. The mathematical version of this is that it's better to have one variable with a 95% chance of going in your favor than 10 variables with a 99% chance of going in your favor.

3) There is nothing wrong with being lazy for long periods of time, and is in fact preferable. Most people can't do this. If you concentrate your portfolio with 4 or 5 excellent investments at a time then you won't be needing to come up with new ideas very often.

4) Ignore everything else. Worry about what matters, and don't worry about anything else. 99% of what you think matters, doesn't.

I think Scorpion Man is making things sound much too exciting and complicated than is good for beginning investors. The fact is that if you have the right mentality then every so often you will find stocks where you can make multiples of your money with little to no risk, and these ideas can be explained to a 10 year old in less than 2 minutes.

[Scorpion Man]

[ QUOTE ]
1: Great thread.
2: What does it take to consistently beat the stock market (picking)? My parents have definitely made a good living over the years, getting out before the bubble, and according to them, they've beaten the S&P over the past ten or so years, and I don't doubt it. However, I can't help thinking they luckboxed their way into it. A poker analogy in your answer would be really nice.

[/ QUOTE ]

Tough one. My best shot:
1. Superior access to information (this can be gained legally or illegally or in the "grey" area where many professionals operate some of the time).
2) Superior analysis and understanding of publicly available information (some people understood the implications of the Fed's rate cutting campaign on real estate assets well before others figured it out, for example)
3. Luck. In a random world with bell curve type outcomes, after transaction costs, there will still be lots of people getting better than market returns. The easiest to see of luck would be overweighting of some factor (a few individual stocks, a sector such as oil, a capitalization tier (small has been much better), value vs. growth depending on the time period, and many other factors)...which is very likely to create returns meaningfully different than the market one way or the other. Whether this is "skill" or luck is difficult to say. You would have to understand what your parents did and what their reasons were.


Best poker analogy comes from tournament poker...are the guys at the final table the best guys or the ones that won the most coin flips?? It's a mix, usually. And, like in the stock market, you will never exactly know unless someone does it for extremely long periods of time.
4. Superior feel for some of the key aspects of market timing such as psychology. I believe that some people have this ability. It is easy to see how your parents have beaten the S&P over the last 10 years if they lightened up in the bubble. It was pretty tough not to beat the market over that period if you made that one timing decision correctly.


To answer your first question last...ugh that is like asking what it takes to beat the 10/20 NL game at party. Lots of experience, diligent effort, good folks to learn from, reading, working hard and a little luck.

[mrbaseball]

[ QUOTE ]
Why I think poker is relevant to being an investor (not irrelevant to trading, btw…I just think its excellent for investing)

1. Reading tells. Non professional investors do not understand that hundreds of millions of dollars are moved after a single meeting with top management, often on very subtle interpretation of what is said and how.
2. Understanding risk/reward. You can be a great investor and be wrong as often as right…its just key to be right big and wrong small.
3. Not going on tilt, withstanding negative variance. Investing is a wildly emotional business for most people. If you allow these emotions to affect your decision making its very expensive. I have seen it ruin careers.
4. Pattern recognition (I believe this is numero uno). Stocks, like poker, lend themselves to saying “when this set of events/circumstances/factors converge…the outcome is generally xxx.” This was my strongest skill as an investor.
5. Math. Nice, but not crucial.
6. Related to #3…ability to handle losing on a constant basis (gross losses, not net).
7. Comfort and skill in making decisions in an environment of partial information.
8. Intellectual arrogance…by this I mean that the best investors’ believe that they have the ability to see things more clearly than others and can make money despite the Efficient Market Hypothesis…you have to think you are just flat out smarter than most of the other people in the market. You have to have this confidence in poker, too (I understand it’s a fine line between reckless arrogance and confidence...)


[/ QUOTE ]

Actually these are the exact same reasons trader would give.

1. Reads are key in trading. Decifering those fed statements, breaking news, numbers. In the pits it's the entire game. Reading the brokers, knowing who's stuck and who isn't, undertanding what is happening with order flow and what big players are doing what. This is why a lot of pit guys have trouble transferring to screen trading because they lost their reads.

2. Same for trading. The old adage "cut your losers short and let the winners run". A trader not understanding risk reward doesn't last at all.

3. Tilt kills traders. I've seen guys lose it all and then some totally due to tilt in an arena where the stakes are unlimited. You can keep trading until the close even without chips!

4. Pattern recognition is what technical screen trading is all about.

5. Ditto

6. Ditto

7. Ditto

8. Ditto

All that said I feel that both successful traders and investors have an easier time transferring their skills to poker than poker players have transferring theirs to trading or investing. Although a poker player will have advantages over those who never really dealt with a lot of risk/reward types of decisions.

[Falang]

I asked somebody whom I respect, with much more experience in these matters than me, to give me his opinion on SM's credibility. This is what he had to say:

(this person is a frequent poster in this forum whose name all of you would recognize)


[ QUOTE ]
He seems like a total BS artist. No track record, a pandering style of replies, that speaks to gamblers, etc.

I'll get involved in the thread but I cannot do anything till next week as I am very busy now. I wrote on this a year ago- here is the link.

Bottom line: the risk inherent in an active poker BR means you CANNOT take additional risk with savings. Active poker players need to be in cash and bonds until the cash exceeds 2 years of living expenses. Note that this is 4 times the 'conventional wisdom' about savings back-up.

This guy is pitching TRADING the money and he's just winking and nodding-- saying he has gains except for 1 year when he was down 2%. This is highly Clintonian English he is speaking. Poker players take enormous risks and do not need to be adding risk via investment of savings until and unless those savings get abnormally large, something like 5-7X avergage income for the last 10 years.

[/ QUOTE ]

[Scorpion Man]

Ahhhh. Hard to know where to start. In terms of generally advising pro poker players how much they need to live on....ummmm....I never did and I am not...I don't know how much it takes, I don't play poker for a living. All I said was that you don't need to keep all your money in cash....just enough so that the normal variance of being an investor leaves you with a BR you are comfortable with.

In terms of the other stuff, it's fairly insulting and worth a good laugh...but I am happy to play dueling resumes, tax returns, and bank statements with anyone on this board...happy to bet the "respected" poster I am worth at least 10 and probably 50 times what he is worth (i have no idea who he is so its kinda hard to be specific) and put cash on it and use the moderator of this forum as escrow. Falang, since you were so kind to do some good research, how about we start with me putting up $20k vs your $1k for 20 to 1 that I am exactly who I say I am. I am very happy to give your confident friend 100 to 1 since he is so busy. You name the escrow person on this board, and we are good, ok?

I am dead freaking serious. Money is available in cash, no need to delay. Let's move right ahead...who would you like to choose as the moderator? I will pay the moderator 20% of my gain for his trouble.

The other stuff I would say is tempting but too obnoxious so I will restrain myself.

In fact, it might be entertaining and fun to start a market around this. We can line up sides (kinda like they do in prison fights) as to my net worth, etc. People lay odds, and I will reveal to third party as I discussed. Hell, this could be fun.

thanks for the input. cheers, folks.

[Falang]

I didn't say whether I agreed or didn't. I'm still just reading. I respect his opinion and just wanted to get his input, I also thought others might like to here an outside opinion.

If he wants to come in here and compare penis girth with you, I guess he will...somehow I think he'll be able to show a bit more class than that...

[Newt_Buggs]

[ QUOTE ]
He seems like a total BS artist. No track record, a pandering style of replies, that speaks to gamblers, etc.

I'll get involved in the thread but I cannot do anything till next week as I am very busy now. I wrote on this a year ago- here is the link.

Bottom line: the risk inherent in an active poker BR means you CANNOT take additional risk with savings. Active poker players need to be in cash and bonds until the cash exceeds 2 years of living expenses. Note that this is 4 times the 'conventional wisdom' about savings back-up.

This guy is pitching TRADING the money and he's just winking and nodding-- saying he has gains except for 1 year when he was down 2%. This is highly Clintonian English he is speaking. Poker players take enormous risks and do not need to be adding risk via investment of savings until and unless those savings get abnormally large, something like 5-7X avergage income for the last 10 years.


[/ QUOTE ]
Your friend doesn't seem to know poker very well. Good professional poker players can easily earn enough money to save up funds beyond what is necessary to handle the swings at their chosen limit. As I was rising through the ranks of SNGs for fun I did some risk of ruin calculations when I was at the $55s and found that I almost had the bankroll to handle the variance at step 5s ($1065). I don't know much about investing, but investing in low risk, low return bonds seems like a very poor choice for pros under 25 years old, which is most of them.

[cardsharkk04]

This logic may be faulty, but I just figure since I have a lot money before my 21st birthday I can afford to be risky with it, because even IF I lost a lot, I would still have a lot of money compared to what any normal 21 year old would have. I want to go big or go home. I have 70% of my poker winnings invested btw.

[hawk59]

[ QUOTE ]
Tough one. My best shot:
1. Superior access to information (this can be gained legally or illegally or in the "grey" area where many professionals operate some of the time).
2) Superior analysis and understanding of publicly available information (some people understood the implications of the Fed's rate cutting campaign on real estate assets well before others figured it out, for example)

[/ QUOTE ]

Scorpion Man,

Come on, don't put on the "Let me tell about this thing called INVESTING" tone and then say stuff like this to beginning investors. Guys, you really shouldn't be listening to any of this if you want to have real success.