Investing Lessons Learned From Poker

By Peter Gorenstein

Granted, the stock market is a casino analogy is a cliche. But the truth is it's been used in countless investing stories because there's lots of truth to it. And, recent events with markets swinging 400+ plus points make it feel more true than ever. In the accompanying clip The Daily Ticker's guest Lance Roberts CEO and chief economist of Streettalk Advisors says poker, more than most parlor games "provides a great set of rules for the average investor."


So what are the lessons to be learned?

Investors don't need to be "all in."

Roberts says ignore brokers or pundits who advise investors to be fully invested 100% of the time. "In a game of Texas hold'em if you bet yourself all in every hand you will lose. Same goes for being 100% invested at all times." This is especially true for baby boomers headed into retirement. As he notes, being 100% invested during the crash of 2001-02 and 2008-09 did irrevocable harm to portfolios in after the 2-year bull market that followed. "Professional poker players they understand the risk versus the reward for every potential hand that they bet on," says Roberts. "And you know what? when they don't have a good hand they don't bet they fold and walk away."

Bet heavily when the odds are in your favor.

On the other hand, when opportunity does present itself, bet big. In most cases you don't want to bet it all in one hand or put too much of your portfolio in a few stocks but when there's panic in the streets and everyone is selling, that's when it's to bet big. (See: March 2009)

(Createwealth8888: Theory is cheap. How can we know when to bet bigger?)

Don't get emotional.

At the poker table it's important to keep your cool under pressure. The same is true in investing. When others are panicking it's important to keep your wits about you. "You want to be a seller when markets are rising and getting extended you want to be a buyer when people think that world is coming to an end," says Roberts.