How Poker Makes You a Better Investor

Poker Hand in Front of Laptop With Stock Market Information Displayed

Investing is an exercise of the mind, requiring complete focus, attention to detail, and enough mental stamina to keep playing when everyone else wants to quit. High stakes trades can quickly devolve into deeply analytical situations where previous results are studied, information is gathered, weaknesses are discovered, decisions are made, and fortunes won or lost in a second.

Sounds a lot like poker, doesn’t it?

It should, because both of these activities use a lot of the same mental muscles and disciplines to bring about top results. Sure, a career in Wall Street doesn’t give you the experience to make the final table at the WPT, nor does a lifetime of poker let you pick a winning stock.

However, a good foundation in poker can give you a lot of tools that, when combined with experience, can really sharpen your ability to make good investments. Don’t believe me? Here are several ways being good at poker makes you a better investor.

Poker Is Investing on a Smaller Scale

When I’m teaching new players how to play the game, there are a few facts that I tend to gloss over. Basically, as I’m inviting them over for beer and pretzels, I want to do everything I can to keep them from realizing one thing—poker is math.

And most of the time, math isn’t fun.

Seriously, though, poker is a game of constantly evaluating probabilities (math), running statistics (math), counting cards (math that’s completely legal as long as you only use your brain), etc.

You know what else is a lot of math? Investing. It’s evaluating probabilities (still math), statistics (math again) and looking at stock market trends over time (math). This is why I would argue that poker is just investing on a smaller scale!

Playing Cards and Multiple Stacks of Poker Chips

Think of a poker hand as a potential investment. When you think there’s a good chance that hand will pay off, you invest more by raising, re-raising, and calling large bets. If you think there’s a lesser chance it will pay off, you call, don’t raise aggressively or fold to avoid throwing good money after bad.

That’s what you do when you invest. If you think the investment pays off, you invest more. If you’re not sure, you invest less or get out of the position all together.

Of course, the terminology is different, the way you collect information is different and the timeframe is different (a few minutes for a poker hand versus a few days, months or years for an investment), but the two are a lot closer than you might think.

Both Require Pattern Recognition

If you want to be good at poker, you’re going to have to get good at recognizing two types of patterns: yours and your opponents.

You need to know if you’re showing tendencies or tells and hide them so you stop giving other people information.

You also need to be able to tell what your opponent is doing by analyzing their tendencies and tells, tracking how well they’re doing over the course of a tournament (or multiple tournaments if possible). Then, you need to act on that information.

In investing, you also have to look at data and find patterns. Is a company, an industry, or a country acting like it did right before it tanked or are they saying the same things as they did last time they had a game changing idea? Those are patterns that affect whether you should invest.

If you’re day trading, you can even look at how a stock is performing over time and figure out the best time to buy and sell it. That’s all pattern recognition.

Therefore, I would argue that playing poker is a chance to repeatedly practice pattern recognition skills. Therefore, you can practice at the table and take that practice the next day to make more informed decisions when you invest.

Both Require Research Skills

Poker is a war of information, especially when you start to play competitively. You need to know as much as you can about the latest trends in poker, the latest “systems” to assure victory, and the wins and losses of others playing around you.

The only way to figure that is to do research.

“Research” is one of those words that can drum up mental images of college libraries and armloads of books, but as you’re reading this right now, you’re doing research. As you watch people play poker, you’re doing research. As you read books on the subject, watch movies about poker, or listen to podcasts, you are doing research.

You’re arming yourself with the data you need to get better.

If you want to invest, you have to do the same thing.

The problem with a lot of people who want to invest is that they pick a topic about which they know nothing: foreign currency markets, depressed real estate bubbles, high tech startups, etc.

On the surface, it’s not bad to research those things if they’re interesting, but if they’re not, researching those topics can be boring.

You research poker because you like it or you want to be better or both.

Research things that excite you and invest in them. You will find that all the time you spend doing research will be as exciting as learning more about poker and you will naturally do better.

Both Force You to Look at Opportunities in the Market

Consider this: you have pocket jacks and just flopped a third. Your opponents are betting, but they’re not being overly aggressive.

You know what you call that? A market opportunity. You have found a case when your investment (your hand) appears to be the best in the market and you should bet accordingly.

That’s investing, though, your “hand” in this case will be a piece of property, a tech stock, or a future that looks promising.

Poker Pair of Pocket Aces

As you invest more and more, you will find that the feeling of tossing money into the pot to invest feels a lot like betting a hand in poker. You will feel the same rush and, hopefully, find at the end of the day that you earned a big payout.

Strangely enough, you will also find that the skills you learn at the table that tell you to stay with a hand or muck it before the river will help you decide to whether to stay in an investment or get out.

Both Sharpen Your Mental Clarity and Ability to Process Information

Ultimately, both investing and playing poker are mental exercises that require you to collect significant quantities of data and make decisions with it.

I’ve already talked about pattern recognition and research as being vital to both poker and investing, since they arm you with data. However, having that data isn’t good enough because you have to take the information and put it into action.

In this case, for poker, putting it into action means doing all the normal poker activities you would expect, like calling, folding, etc. For investing, your decision is usually to buy or sell, but both of those things can be done to relative degrees.

What’s the same between them is that you need to make those decisions with clarity and focus.

Poker is an excellent tool because you will often have to make five or more critical decisions hand after hand after hand. If that doesn’t teach you to maintain mental clarity, what will?

Therefore, figure out what keeps you clear at the poker table and use that when picking stocks, when taking your money and investing a tech startup, or when buying a rental home.

You will find that the tools that keep you in the game at the poker table will keep you in the game when investing every time.

Conclusion

At the end of the day, poker and investing are a lot closer than people realize and success at one should lead to success at the other. I will always argue that the feeling I get when I’ve studied my opponents, considered the possibilities and made a decision at the poker table is a lot like the feeling I get when I decide to invest.

In both cases, there’s that feeling that I took the time to work the process, gather the data, and I’m as sure of the investment or bet as I can be. And that feels pretty good.

Beyond just that feeling, though, the ability to analyze and do math quickly, to see patterns where others don’t, to research, and to maintain mental focus are invaluable tools. I’ve learned a lot of these from poker and am now applying them to other areas of my life.

I can already see how playing real money online poker is a testing ground that’s improving my mental focus and I think, after a while, you will, too.