Poker Face

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Yes, this has to do with investing.  Just bear with me.

Phil Ivey moved out of his house at age 19, took a job as a telemarketer and drove to Atlantic City every weekend to play poker.  He would play eighteen hours a day and sleep under the boardwalk when he went broke. He aspired to be a professional poker player and has achieved his dream and much more.  He first won the World Series of Poker at age 23.  He is the youngest player to attain nine World Series of Poker bracelets and has a total of ten.  He has won tens of millions of dollars (he once won $16 million in three days). Phil is widely regarded as the best poker player on the planet.

I decided to study him in order to see if there was anything about his approach to poker that could improve my investment process.  I was particularly interested in three aspects of how he approached the game.  I wanted to know about his strategy, approach to risk management and his psychology.  Here is what I learned.

Strategy

He says his strategy is based on probability.  He calculates his odds based upon the known possible outcomes of each hand combination.  What’s interesting is that he says that at the level he plays, this does not give him an advantage because all top players understand these odds.

Risk Management

Poker requires an initial investment (called an ante) in order to see your first cards.  He sees this as a cost of doing business and gladly pays this amount to see if his cards warrant additional risk of capital. He will gladly quit the game (fold) and lose this small amount in order to see if there is a potential for a larger gain.  Losing is part of his overall strategy, as long as the losses remain small (by folding early).  His goal is to win the majority of the big pots he decides to play.  His winning percentage does not determine his success, but rather the size of the pots won or lost.

Psychology

As I suspected, psychology is what separates him from the top players in the world.  He has an uncanny ability to decipher his opponent’s cards by their physical signs, and what and how they say things during the game. Simply put, he can read people’s reactions and is masterful at hiding his excitement or disappointment.  That is his edge, and it is huge.

Here is what I’ve learned by studying him.

– He had a dream that was his primary focus.

– He put in thousands of hours into mastering poker and himself.

– He is fearless and aggressive when he perceives an advantage.

– He wins through skill over time, not luck on any given hand.

– He capitalizes on his opponent’s psychological weaknesses.

– He is not afraid to lose and embraces small losses.

– He is a master of personal psychology (both his and others).

Let’s apply these lessons to being an investor.

– Be committed to being a lifelong investor and do not waver.

– Put in the necessary time to understand markets.

– Be fearless in executing your strategy according to your plan.

– Investing is a probability-based venture that works over time.

– Poor investment behavior by the masses creates opportunity.

– Taking small losses is part of the game of being an investor.

– Execute your strategy flawlessly without emotion.

I apply these lessons as a way to gain an edge on the very sophisticated Wall Street competition.  Uncommon wisdom from strange places has been very profitable for me in the past, and I see these lessons as just another way to increase my chances of success.

Gregg