Jan 27, 2018
4 Reasons why Poker Pros Crush the Stock Market
By RTR Dennis
Famed poker pro Vanessa Selbst recently announced that she’s retiring from poker to pursue a stock market career. Specifically, she’ll be working for Bridgewater Capital, the world's largest hedge fund.
"[Bridgewater] feels a lot like poker did back in the day – a bunch of nerdy kids collaborating to try to beat our opponents at a game. It’s also really freaking difficult,” Selbst wrote on Facebook.
This caught the eye of Aaron Brown, who wrote The Poker Faces of Wall Street, a book that explores the similarities between trading stocks and playing poker.
Brown is also a poker player and has become friends with Selbst over the years. He recently retired from working on Wall Street for over 30 years, where he spent time with Morgan Stanley and other firms.
Given Brown's experience in both trading and poker, he's definitely a good source for how poker pros are able to do so well on Wall Street. That said, let's look at the author’s recent comments on why poker players make such a smooth transition into investing.
Stock Traders and Poker Players must be Good at Analyzing their Decisions
Both successful poker pros and investors put thought into every decision they make. But what separates the greats in both professions is their ability to analyze their decisions after the fact.
“People who haven’t had that experience find it very difficult to separate the decision from the result,” Brown said.
In other words, not every decision that results in success is a good one. Likewise, not all decisions that result in losses are bad. The key is to consistently make good decisions so you end up a long-term winner.
Poker Pros and Investors must Put Losses behind Them
Brown explains that one of the best skills a poker player or trader can have is a "zero memory attitude." This alludes to the ability to quickly forget losses and move on.
“You can’t let recent events affect your thinking,” he said. “People tend to make very different decisions after gains and after losses, and that’s just fatal to trading, People tend to get more stubborn after taking big losses and stubbornness is a real problem.”
Spotting Patterns is Helpful in Trading and Poker
Patterns can develop in both the stock market and poker. And those who are good at "pattern analysis" will have a leg up on the competition.
For poker players, this means watching for opponents' betting patterns and what cards they play in certain situations. For investors, they need to study years' worth of data to analyze the market.
“Figuring out what’s random and what’s not, that’s the key to everything,” said Brown. “People tend to overreact to random events, and they tend to under-react to signals, things that aren’t random.”
Poker Pros and Investors can Work Together for Success
Poker is played as an individual game. But players sometimes work together through Facebook groups, forums, and Skype sessions to improve as a collective unit. Fedor Holz and a group of German players are the perfect examples of this.
Investing works in the same manner, where people can pool their money together and trade in groups. Bridgewater Capital is an extreme example of this, while there are plenty of smaller hedge funds and groups too.
Brown touched on this point by discussing how these partnerships can ease the burden of losing, and create more joy when you're doing well.
“The highs are not as satisfying because you’re not sharing them,” he explained. “The lows are lonelier, but you are spared the pain of letting other people down or worrying that the financial world is coming to an end.”
The four points above show the parallels between poker and investing. And they also reveal key reasons why poker players are able to experience success in the stock market.
Selbst has definitely proven herself to be good at analyzing decisions spotting patterns, and dealing with losses. That said, she should do very well at Bridgewater Capital.