|
Poker and trading.
Fellow Friends and Traders,
The World Series of Poker (WSOP) started this past week in Vegas. It is one exciting time here. I was playing poker, gin, 21 and craps long before I even knew what the S&P was nor how much money one could make trading. I seriously thought I could make a living becoming a professional gaming player. But that's what a wife and kids do. They killed the budding gamer in me but not the interest in things where knowledge and skill gives one an edge.
There are many similarities between trading and gaming - it's not called gambling in Vegas. Right now the hands are coming and they are not worth playing as the market awaits the next shoe to drop. In poker, this means playing tight. It means playing very few hands and entering into pots only when holding one of the best hands. Given the risks associated with a self-sustaining economic recovery, possible "W" shaped versus the expected "V" the appropriate strategy is to play tight now. Wait for the right hand. Mean while hit and run awaiting the right opportunities.
Given the challenges discussed in previous emails and the general risks associated with a self-sustaining economic recovery, as I said before, I believe the appropriate strategy is to play tight now.
Many parallels can be drawn between poker and trading/investing. Rather than give you my thoughts one of my favorite traders Doug Kass who has done a better job than I ever could hope to, so I'll let him spell out the game.
He too, speaking of poker, is of the belief that many parallels can be drawn between poker and trading/investing. Doug writes:
Back in early 2005, after playing in several events at Jack Binion's Gold Strike Casino in Tunica, Miss., I wrote about this subject, which I wanted to repeat, in its entirety, this morning.
Poker and trading/investing hold many similarities and after spending a brief period of time with the greatest poker player of all time, Doyle "Texas Dolly" Brunson, here are some of the parallels between both activities.
Poker, like trading/investing, is a game of people. In both activities, one needs to get inside one's opponent or the masses' collective heads in order to be consistently winning. Importantly, in both venues, one has to know what makes your opponent or the market tick; what is the mood of your opponent or the psychological condition of investors who set share prices?
Neither activity can be gamed just mathematically or statistically. Many computer programmers have tried to game poker and the stock market but they have failed owing to the inability to understand the perception of the moment as judgment requires a human mind.
So, after spending 18 hours a day (for four days playing poker in Tunica), here are some of the specific parallels I have observed.
Classes begin!
|
Pay Attention and It Will Pay You. Concentrate on everything when you are playing/trading. Watch and listen; remember to do both and relate the two.
Understand When to Play Aggressively. It's the Winning Way. Don't be a tight or a loose player/trader; be a solid one and recognize when it is time to press your bets/positions. To attain superior returns in poker and investing over the long run, grind it out (in stocks until you are up 30%-40%, and then if you have convictions, go for a 100% year). If you can avoid losing and put together a few 100% years, you can achieve outstanding long-term investment performance.
Tells. Look For Them and You Will Find Them. Poker players and stock markets have its giveaway moves that are very revealing. Learn to recognize them. History is your textbook.
ESP. It's a jellyroll. In those rare instances when all your card knowledge and market judgment/knowledge leaves you in doubt, go with your strong feelings and not against it.
Honor. A Gambler/Trader's Ace-in-the-Hole. A good reputation and respect from others will put you in good stead.
Be as Competitive as You Can Be. Go into a poker game and into a trade with the idea of completely destroying your opponent or scoring a major investment coup. If you win a pot or make a successful trade, nearly always play the next pot or make the next trade shortly thereafter -- within reason. Although the cards and trades might break even in the long run, rushes do happen and momentum often feeds upon itself. When you earn the right to be aggressive, you should be aggressive. When one has a tremendous conviction in a poker hand or trade, you have to go for the jugular.
Art and Science. It Takes Both. Both activities are more art than science -- that's why they are so difficult to master. Knowing what to do is about 10% of the game. Knowing how to do it is the other 90%.
Money Management. The same sound principles of money control apply to the business of tournament/professional poker and to successful investing. The way to build long-term returns or poker winnings is through preservation of capital and home runs.
The Important Twins of Poker/Investing, Patience and Staying Power. Come to the poker table or to the markets with enough time to stay and play for a while.
Alertness Is a Key. You must stay alert at all times.
So Is Discipline.
Never Let Your Mind Dwell on Personal Problems. Never play/trade when you are upset. Make a conscious and constant effort to discover any weakness in your play, and then eliminate them.
Control Your Emotions. Allowing your confidence to be shaken can turn a simple losing streak into a terrible case of going bad. Keep your emotions in check. When you lose a pot or make a poor investment decision, get up, walk around the chair or take some deep breaths. Don't lose your poise. If a trade or poker hand does not work out, walk away from the position/hand. Be confident enough about your ability to win afterwards.
Schedule Vacations. It is important to give both your mind and your body a rest. |
You now understand I hit many singles and doubles but I always go for the homes runs when they present themselves. My ideas - BTIM, HUN, FCX and HTS are just a few of the home runs I've hit these last few years.
Almost without question, the next shoe to drop is in the municipal area. The state budgets are in total disarray these next two years in the hundreds of billions and more owed to unions etc. in benefits. Just a heads up.
In summary, I would continue to raise cash and lower invested positions.
While the price momentum over the last two months is mouthwatering to investors, I would continue to raise cash and lower invested positions for many of the reasons I have recently expressed in previous emails.
Stated simply, I don't think we return to a "steady state" of the economy anytime soon, as the consumer remains exposed on many fronts. The new "normal" is anything but a return to past favorable market experiences of 7-9% returns per year.
There is a small bit of bad news going forward. My latest newest and greatest XPS Dell blew up. It is the only computer I have the ability to post charts so for the time being I cannot post and there will be no new Charts of the Week for at least a few weeks while I order and set up a new computer. Bear with me.
|
