clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Oct 27, 2006
- Messages
- 7,733
poker and stocks
Unlike the stock market poker, is a zero sum game. In fact it is negative expected value (EV) game. That is because the house takes a commission (a rake) from each pot in Vegas it is typically $3 or $4. Now for medium stakes No Limit Texas holdem (i.e. the TV game) a typical large pot is $300-$400 so there is 1% charge. In my home games the rake is much larger often as much as 5%, roughly speaking this means that it costs you $60-100 to play poker for night. This means that average player is losing money over the long term. Still there are plenty of poker players who make money.
Last weekend I watched a late 20s Army Sargent (E6) fund the lifestyle of the best poker player in Hawaii. The turn card was a fourth club (10 9 7 and 3 clubs) the young Sargent pushed his remaining $600 into a $400 praying that his pocket Aces were good. The 60 year old card shark thought for a moment before calling; no one on the table was at all surprised when he showed his Ace of Clubs. As the card shark stacked his $1600 worth of chips. I told the woman sitting next to me, "you don't really need to be a good poker player to make money you just need to avoid doing really stupid things!"
Last night it was my turn. A reckless player raised before the flop, I reraised him. The flop was Ace Jack and 4. I checked, he bet $200, I thought for a minute before raising my remaining $650. He instantly called.
I had three 4s and he a pair of Aces with a queen kicker. As I was stacking my $1500 in chips, I noticed a solid poker player say to her husband, "he always wins", he said to her "thats because he doesn't make mistakes.". I thought to myself, naw that isn't true I make plenty of mistakes playing poker and investing, I just don't make stupid impulsive mistakes.
The forums are filled with news articles and anecdotes of of people doing incredibly stupid things with their money. The stock market is no exception. I don't have to be the best poker player in the world to make money just better than 70-80%. I think the same is true for individuals with stock selection. The comparison between poker and stock market isn't entirely accurate, because a small fraction of the stock market pros, control a huge amount of the assets via fund. On the other hand the pros have some huge disadvantages. I am quite sure that plenty of the index fund managers at Vanguard, felt that investing money in NASDAQ stocks was stupid in 1999 and early 2000, but they had no choice.
Similarily we just witnessed bond and hedge fund managers force to liquid perfectly good bonds at fire sale prices because they had margin calls/redemptions. The individual investor can look at these situations and say I know a bargain when I see one I am going to buy my more of these beaten down issues. One doesn't need to time the market perfectly to do quite well within 20% of the top or bottom for individual stocks is plenty good enough and even for the market as whole.
Obviously, rebalancing serves a very similar function, and require much less work. So I would never say that sticking with index funds, and asset allocation is bad. I feel certain that doing so avoids make a dumb mistake, which is key to making money in long run for both stocks and poker. Still my believe in an efficient market continues to decrease.
Unlike the stock market poker, is a zero sum game. In fact it is negative expected value (EV) game. That is because the house takes a commission (a rake) from each pot in Vegas it is typically $3 or $4. Now for medium stakes No Limit Texas holdem (i.e. the TV game) a typical large pot is $300-$400 so there is 1% charge. In my home games the rake is much larger often as much as 5%, roughly speaking this means that it costs you $60-100 to play poker for night. This means that average player is losing money over the long term. Still there are plenty of poker players who make money.
Last weekend I watched a late 20s Army Sargent (E6) fund the lifestyle of the best poker player in Hawaii. The turn card was a fourth club (10 9 7 and 3 clubs) the young Sargent pushed his remaining $600 into a $400 praying that his pocket Aces were good. The 60 year old card shark thought for a moment before calling; no one on the table was at all surprised when he showed his Ace of Clubs. As the card shark stacked his $1600 worth of chips. I told the woman sitting next to me, "you don't really need to be a good poker player to make money you just need to avoid doing really stupid things!"
Last night it was my turn. A reckless player raised before the flop, I reraised him. The flop was Ace Jack and 4. I checked, he bet $200, I thought for a minute before raising my remaining $650. He instantly called.
I had three 4s and he a pair of Aces with a queen kicker. As I was stacking my $1500 in chips, I noticed a solid poker player say to her husband, "he always wins", he said to her "thats because he doesn't make mistakes.". I thought to myself, naw that isn't true I make plenty of mistakes playing poker and investing, I just don't make stupid impulsive mistakes.
The forums are filled with news articles and anecdotes of of people doing incredibly stupid things with their money. The stock market is no exception. I don't have to be the best poker player in the world to make money just better than 70-80%. I think the same is true for individuals with stock selection. The comparison between poker and stock market isn't entirely accurate, because a small fraction of the stock market pros, control a huge amount of the assets via fund. On the other hand the pros have some huge disadvantages. I am quite sure that plenty of the index fund managers at Vanguard, felt that investing money in NASDAQ stocks was stupid in 1999 and early 2000, but they had no choice.
Similarily we just witnessed bond and hedge fund managers force to liquid perfectly good bonds at fire sale prices because they had margin calls/redemptions. The individual investor can look at these situations and say I know a bargain when I see one I am going to buy my more of these beaten down issues. One doesn't need to time the market perfectly to do quite well within 20% of the top or bottom for individual stocks is plenty good enough and even for the market as whole.
Obviously, rebalancing serves a very similar function, and require much less work. So I would never say that sticking with index funds, and asset allocation is bad. I feel certain that doing so avoids make a dumb mistake, which is key to making money in long run for both stocks and poker. Still my believe in an efficient market continues to decrease.
