Poker and the Stock Market

I was out of town this weekend in Southern NJ, Atlantic City to be exact. After finishing my business at the convention center, I traveled back to the newest casino, the Borgata where I was staying for the night. I don’t consider myself a gambler and have never enjoyed losing money at the tables. When I do gamble, my preferred games have always been craps and blackjack. Until recently, I had never played at a poker table in a casino environment but I enjoy the game of poker and have only played in backyard and basement games with old buddies. Many people consider the game of poker pure luck but this is not an accurate observation. Many factors run parallel with the game of poker and the game of stock market investing. Luck may play a part but rules, odds and money management are the largest components of the two entities.

When investing in the stock market, it is essential to have a sound set of rules or a system that has been tested in real time, no back testing or historical testing needed. After the system has been tested, the investor needs to follow rules in order to preserve capital and cut losses. The investor must also consider the odds of his/her stock making a gain or making a loss. Price objectives and targets should be a large part of every investor’s system. With proper money management and calculated expectancy, the investor should aim to trade only in situations where the odds are in his/her favor. In a strong bull market, it may not be wise to start shorting many stocks; the odds of making a big gain with this strategy could be very low. Another major component that works its way into investing is psychology and/or human emotion. Stocks are made up of human character traits, similar to the type of people that own them. Some stocks are risky and volatile while other stocks are conservative and predictable. The market repeats cycles and specific chart patterns because humans repeat their actions and character tendencies.

Now, back to the poker table; as I sat down and started to play, my first goal was to become familiar with the character traits of the players around me. With 10 players at the table, I had plenty of time to evaluate the people I was playing with, without risking a great deal of money. After several rounds of play, I was aware that the gentleman to my right would only bet high odd hands and would fold every other hand. He was very edgy and nervous and folded his cards with force when he was angry. The gentleman to the left would also play hands with high odds but I did see him call bets with some hands that were risky with lower odds. One gentleman across the table was the bluffer and always had a smirk on his face with a pair of dark glasses. I challenged this man on several occasions and paid to see his cards because I felt he had nothing. More times than not, I was right and still beat him with an average hand. I could go on but you understand the point I am trying to make: all poker players and investors bring their emotions to the table.

I won’t get into the exact rules of playing poker but I can tell you that only two players are required to bet per round while the other eight can view their first two cards without risking a cent. My game of choice is Texas Hold’em, the current craze across the country and one that excites me when I am in the environment. The two players required to bet represent the big and small blinds. If you are the dealer or anoy other players at the table, you can view your first two cards for free without an bet. If the hand is weak, you can fold and keep your gambling stake.

Here is where it gets interesting; if I have a decent hand, I can decide to call the larger blind and see the next three cards on the flop, which is still a low risk investment. If the flop doesn’t provide me with the cards I need, I can immediately cut my losses short by folding and wait for the next game. The same is true in investing; I can cut a loss short and wait for the next opportunity without risking the farm if I realize an immediate loss. If the cards are good and my probabilities of winning the hand are high, I can call the bet or raise the bet. A fourth and fifth card (the turn and the river) are placed on the table after the flop and betting continues with each round. Again, I can decide if I would like to call, raise or cut my losses short. The connection I am trying to make with investing in the stock market and playing poker relates directly to cutting losses short (capital preservation and money management) and my odds of winning the game (in the stock market this could be called expectancy).

In my opinion, the best game to play at the casino is $1-$2 no limit style. This means that the blinds are held to a minimum and it will only cost you a couple of dollars to see the flop in many cases. The “no-limit” aspect allows your upside potential to be unlimited which carries through to investing. If you cut losses short and ride your winner, the up-side potential in investing can also be unlimited, especially when using options (but that is for another discussion). Last night, I could see my first two cards for free, eight out of every ten hands and I could fold if they were no good. If they were good, I put money on the table after my idea. In the real world, the world of stock investing, you should always put money after your best ideas. The ensuing gain or loss will tell you if you are right. Again, for the umpteenth time in this article, the most important part of both games is cutting losses short and moving on without mixing emotions into the decisions.

All investors and poker players bring emotions to the table, some people control them better while other people employ better systems and understand the odds on a higher level. The bottom line is to understand the situation around you and to use a sound system to raise your odds. Never bet a hand that represents a low chance of winning and never ride a loss that could multiply overnight. Cut losses short and get out of the game and wait for the next opportunity because they are always around the corner.

Winning Poker Lessons From Warren Buffett

Dear Poker Player,

Warren Buffett is one smart dude. And RICH.

He’s the second richest man in the WORLD… right behind

Bill Gates. Forbes estimates that his net worth is $40

BILLION.

(How’s THAT for a bankroll?)

What’s interesting about Buffett is that he made his fortune

over a LONGGG period of time… by consistently beating the

stock market year after year after year.

He wasn’t one of those “overnight” dot-com billionaires.

He wasn’t “lucky” to be in the right place at the right

time.

He didn’t “invent” some new technology that changed the

world.

Nope… all he did was invest and “pick winners” over and

over. Since taking control of Berkshire 40 years ago,

Buffett has delivered a compound annual return of 22%.

AND JUST BY DOING THAT, he became the 2nd richest man alive.

OK– so why am I rambling on about 75-year old man who’s

good at investing?

The reason is because I’ve realized that there are DOZENS of

important parallels between the STOCK MARKET and POKER.

Here are just a few:

* The stock market is often considered “gambling”, due to

its unpredictable nature… just as POKER is often

considered gambling, even though it’s a SKILL game.

* The stock market has a heavy emphasis on odds and

mathematics… just like poker.

* The stock market is predominately a male-driven

industry… just like poker.

* The stock market has PLENTY of up’s and down’s, and

“streaks”… just like poker.

* And so on.

Of course, these are “surface” similarities.

Now think about the PSYCHOLOGY of poker and the stock

market… and how they’re often EXACTLY THE SAME:

* In the stock market, everyone dreams of buying that one

MIRACLE STOCK that will go from $2 to $200 and make them

rich…

In poker, everyone has their “pipe dream” of winning a huge

million-dollar tournament on ESPN.

* When a stock tanks, most investors FREAK OUT and

immediately make several bad investment decisions in a row.

It’s usually THESE decisions that hurt them the most.

In poker, this is known as “tilt”. Bad beats cause some

damage… but it’s usually the decisions you make AFTER the

bad beats that cause you to lose the game.

* Believe it or not, most stock investors come out on the

LOSING END over time… even though the market has

historically gone UP year after year.

Most poker players end up losing over time also, despite all

the “fish” out there to prey on.

* And so on.

OK, so you get the idea.

Lately I’ve been reading a lot of books about the stock

market… and especially about Warren Buffett. (Hell, I need

somewhere to invest all these poker winnings!)

Anyway, here’s what’s REALLY interesting:

Warren Buffett’s INVESTMENT APPROACH is almost identical to

the POKER STRATEGY I use every day.

And it’s the SAME approach used by top poker pros to

consistently win tournaments and ring games…

Interesting, huh?

Of course, it makes sense when you think about it.

If poker and investing are similar, then the guys who beat

the STOCK MARKET probably use the same techniques as the

guys who win at POKER.

And who better to learn poker from than the “KING” of the

stock market… and the 2nd richest man in the world?

*** WARREN BUFFETT’S WINNING APPROACH ***

Warren Buffett operates on PRINCIPLES. He doesn’t get caught

up in “hype” or emotion.

Below are the five MOST IMPORTANT principles that he follows… and how they relate to your poker game.

PRINCIPLE 1: PATIENCE IS KEY.

Patience, patience, patience!

It’s the number one mistake that causes most poker players

to lose… and it’s one of the “secrets” to Buffett’s 22%

annual returns.

Warren Buffett does not make an investment unless he is

absolutely 100% confident that it will make him money.

That means he PASSES UP a lot of great investment

opportunities.

Warren Buffett has said “no” to stocks that ended up

increasing by 10,000%!

But more importantly… he’s passed up all those other

stocks that LOOKED GOOD, but PLUMMETED later.

The problem is, us human beings are addicted to ACTION and

MOVEMENT and EXCITEMENT. We don’t want to just sit around

and WAIT.

But that’s EXACTLY what Buffett does…

He waits.

And waits.

And waits.

He KNOWS that sooner or later, a GREAT opportunity will come

up… and then he’ll jump on it.

It’s the same way with poker.

You’ve GOT to be patient. We all want to “get in there” and

make strong bets… bluff out opponents… and take down

lots of pots. We want ACTION.

BUT THAT’S NOT HOW YOU DO IT.

You’ve got to sit back… be patient… and WAIT.

Wait for good cards.

Wait for the PERFECT time to bust the manic at the table.

Wait for the PERFECT time to steal the blinds.

Wait for the PERFECT time to bluff out an opponent.

Wait for the PERFECT time to go all-in.

And then when you DO make a move…

PRINCIPLE 2: MAINTAIN A “LOW TURNOVER” PORTFOLIO OF JUST A

FEW STOCKS.

Buffett insists on keeping 10-20% turnover with his

portfolio. This means he generally holds onto a stock for

5-10 years… AT LEAST.

This is obviously OPPOSITE of how most investors do it. Most

investors are checking the tickers every HOUR– watching for

the slightest indication of movement or news.

More importantly… Buffett only invests in a FEW STOCKS AT

A TIME.

Now THIS is crucial, because it goes against everything

you’ve ever learned.

Growing up, you probably heard this advice a lot:

“Never put all your eggs in one basket.”

Right?

Well, Warren Buffett does the OPPOSITE.

He puts all his eggs in one basket… but… he chooses that

basket VERY CAREFULLY!

You see, Buffett believes that if you’ve done your homework

and you’re confident in your decision, there’s NO NEED to

“diversify”.

In fact, he believes this is the ONLY REAL WAY to get rich

in the stock market. Because if you buy LOTS of stocks, some

are doomed to go down… and that will hurt your gains.

Now think how this relates to poker.

In poker, most players risk money on LOTS of pots, and try

to get the best odds for each one… maybe 55%, 60%, and the

OCCASIONAL 70% or higher.

What PROFESSIONAL poker players do is only play those

OCCASIONAL pots with the best odds.

BUT, they risk more chips when they do it…

So instead of risking 20% of your chip stack five times…

you want to risk 90% of your chip stack ONE time. But you

choose that time VERY CAREFULLY!

For instance, let’s say the “average” poker player enters

three pots where he feels the odds are in his favor.

The three pots go like this:

1.) He risks 1000 in chips with 60% odds.

2.) He risks 1000 in chips with 50% odds.

3.) He risks 1000 in chips with 60% odds.

Now… MATHEMATICALLY speaking… there are EIGHT different

ways these scenarios can go. They are as follows (a win is

designated with “W” and a loss with “L”):

1.) W-W-W

2.) W-W-L

3.) W-L-W

4.) W-L-L

5.) L-W-W

6.) L-W-L

7.) L-L-W

8.) L-L-L

If he wins all three, he ends up with 3000 chips in profit.

If he wins two but loses one, he ends up with just 1000

chips in profit.

If he LOSES two but wins one, he ends up with 1000 chips in

losses.

And he if loses all three, he loses 3000 chips total.

Get it?

Now let me share with you the PERCENTAGES of the above

scenarios.

Watch out, this may surprise you.

If you were to play three pots as described above and risk

1000 chips for each one, and do this exercise 100 times,

here’s what would happen:

18% of the time you’d win 3,000 chips total.

42% of the time you’d win 1,000 chips total.

32% of the time you’d lose 1,000 chips total.

8% of the time you’d lose 3,000 chips total.

Your “net average” would be to PROFIT 400 CHIPS.

OK… that’s the “normal” approach.

Now let’s look at the WARREN BUFFETT approach.

Let’s say you entered just ONE pot and risked 3000 chips

(instead of 1000) with 70% odds in your favor.

Now watch what happens:

70% of the time you’d win 3,000 chips total.

30% of the time you’d lose 3,000 chips total.

Your “net average” would be to PROFIT 1200 CHIPS.

That’s TRIPLE the results over time!

The key is to get BETTER ODDS and RISK MORE.

I better interject here that I do NOT recommend being one of

those players who just sits back, waits for the “nuts”, and

then goes all-in.

Not even close.

In fact, if you’ve read my newsletters you know that I’m a

very aggressive player who loves to push action.

The KEY is that I BUILD THIS IMAGE through techniques based

on feeler bets, positioning, and sensing weakness.

AND WHEN THE RIGHT OPPORTUNITY COMES ALONG, I RISK AS MANY

CHIPS AS I CAN!

I know that when the odds are heavily in my favor, it’s time

to put my eggs in one basket and go for it…

PRINCIPLE 3: THE STOCK MARKET IS NOT ALWAYS RATIONAL OR

“EFFICIENT”.

There’s a popular stock market concept called, “Efficient

Market Theory” (EMT).

Most of the world’s leading business schools teach this

widely-accepted concept.

However…

Warren Buffett says that the EMT is a bunch of hogwash!

He’s actually gone on record saying that part of him LOVES

the fact that business schools teach this theory: It makes

things easier on him because his competition doesn’t know

what they’re doing!

Now… I’m not going to argue whether the theory is right or

wrong. It doesn’t matter for our discussion here.

What I find intriguing is what Buffett believes IS true

about the stock market…

You see, the EMT basically says that the stock market is

“efficient” in its pricing… and that most buy/sell

behavior is “rational”.

Buffett disagrees. He is CONSTANTLY scouting for

opportunities where he thinks the market is acting in an

IRRATIONAL manner… and then he jumps on the chance to buy

an under-priced stock.

In other words, a core part of his investment philosophy is

that the stock market is NOT efficient… and that there’s

always room to grow your “bankroll” when others act

irrationally.

It’s the same with poker.

When you’re playing Texas Holdem, you want to spot the

“sucker” at the table… the guy who is making IRRATIONAL

decisions.

This doesn’t only apply to amateurs, either. Even PROS have

“irrational” habits, tells, and “tilt” behavior.

Your OPPONENTS will open up millions of “profit

opportunities” for you… if you just watch closely.

And that brings us to the next principle:

PRINCIPLE 4: FOCUS ON THE VALUE OF THE BUSINESS, NOT THE

PRICE OF THE STOCK.

This one has almost a direct translation to poker:

FOCUS ON THE PLAYERS, NOT THE CARDS.

You’re not playing poker against the house… you’re playing

against your opponents.

With the stock market, everyone is always looking at the

PRICE of a stock to determine if it’s worth buying or

selling.

Buffett actually doesn’t even look at the price until LAST.

What he looks at is the VALUE OF THE BUSINESS.

He only invests in top-notch businesses that meet specific

conditions. He wants a business with strong growth prospects

LONG TERM, good management, and stable numbers.

Once he finds a business that meets these criteria, THEN he

looks at the price.

When the cards come out, what’s the first thing you’re

thinking about? What are you looking at?

You should be thinking about your OPPONENTS… the

POSITIONING at the table… the BETTING HABITS you’ve picked

up in the last few hands… and your opponents’ FACES as

they look at their cards.

THEN when the action comes to you and it’s YOUR TURN, you

should peek to see what you’re holding.

Opponents first, cards second.

PRINCIPLE 5: DEMAND A MARGIN OF SAFETY FOR EVERY PURCHASE.

Warren Buffett is actually a very “conservative” investor,

as are most poker professionals. He’ll only buy stocks that

he feels are practically “guaranteed” to go up.

You should demand a “margin of safety” on every hand you

play. This is actually much easier than it sounds.

Some of your tactics should include:

* Avoiding heads-up situations with players who have more

chips, and instead favoring those with fewer chips. (That

way if you go all-in and lose, you can still be in the

game.)

* Buying pots and bluffing when you have good positioning.

(That way you can get a read on your opponent and escape if

things go bad.)

* Only “chasing” draws when the pot odds are CONSIDERABLY in

your favor. (That way you end up way ahead over time.)

* And so on.

*** PLAY POKER LIKE WARREN BUFFETT ***

Perhaps the MOST IMPORTANT lesson I’ve learned from Warren

Buffett is to NEVER FEAR doing the “unpopular” thing.

His career PROVES that “going against the grain” is often

the BEST choice.

He doesn’t live by what others do… he operates on GUIDING

PRINCIPLES that “win” over time.

Whether it’s ways to leverage table positioning, tactics for

defeating common opponent styles, techniques for “stealing

the button”, or figuring out the right times to bluff…

…You’ve got to first learn the POKER PRINCIPLES. And then

you need the GUTS to stick to them.

So where do you learn these principles?

The best place to start is by joining my free Poker Tips

email newsletter. It’s jam-packed with Texas Holem tactics

and secrets that you can INSTANTLY use to increase your

winnings.

Join now, and your first issue will include this free

report:

“Avoid These Costly Mistakes When Playing Texas Holdem”

Inside you’ll learn the 10 most dangerous mistakes most

poker players make… and HOW YOU CAN AVOID THEM.

Talk to you soon.

Your New Friend,

Roy Rounder

Online Poker Vs the Planet of the Apes

Surely at one time or another everyone has witnessed a group of bourgeois canines playing anthropomorphic poker on one or the other of Cassius Coolidge’s series of paintings. But the man’s whimsical imagination wasn’t quite as far removed from reality as one might like to think. Perhaps you believe that chips and chimps do not go well together and that it sounds like something out of a Douglas Adams book, but if you ever played online against someone who had a great-ape photo for his icon, don’t be so sure it was just the excellent players irritating sense of online humor – you just may have lost a few thousand or more to an actual primate. If you thought using a stick to crack a walnut or a skull was the best an ape could do, in this early twenty-first century, when the world is on the verge of a Technological Singularity (think what an “intelligence explosion” can do to PC and online games), you, man or woman, had better think again.

Primate Programming Inc has established that great apes (sharing 97% of their DNA with us) make efficient IT specialists. Individuals are employed by PPI, undergo training and offer their services to PPI clients for peanuts. A later PPI discovery was that the same employees, for purposes of pastime or secondary sources of income, are capable of being taught to play online poker, evincing particular talent for no-limit Texas Hold’em.

If you still think this is a joke, please search “primate programming inc” on google. .

They favor no-limit poker, PPI informs us, because of their proclivity for playful (or half-playful) displays of aggression. In other words, the apes are naturally great at aggressive bluffing. In no-limit games, a player has the possibility to bet all they have at any time – this requires risky, aggressive play and the ability to bluff.

The anonymity of online games helps. There is no way to identify a player as non-human and human players confess losing thousands of dollars (to players later officially identified) when someone who played the early rounds with near to nothing and consistently displayed weak cards would suddenly “bet big”, have everyone call, and then – probably chattering with glee and typing with his/her toes – reveal aces.

The primate-players’ initial employment as computer programmers is not coincidental. It seems, according to PPI, that they independently develop programs which aide them during games. The nature of these programs has not yet been revealed. One thing is sure: “DrDestructo” and “ThePikerMan” could have a full-time professional (online) poker career, if only they wanted to. Outside the laboratory/office, they may neglect their training and prefer the old game of hurtling themselves at the bars of zoo cages and then grin their monkey grin at the startled adults and children. Still, as long as they are paid and fed regular, with bonuses, and are allowed to mate, David Sklansky and Ed Miller may need to update their No-limit Hold’em books in the nearest future.

For the past several years, Norm McAuliffe, a Yale biology Phd and the scientist heading the research team behind the discovery of programmer apes, has been investing money and effort into a Primate Poker Inc, “hiring” profitable ape-players to play for money in rotating shifts, 24 hours a day. He has been quoted as saying: “I’m completely committed to this business model. It is reasonable to say I am “all in”.”

Poker – It’s Not Just a Gentleman’s Game Anymore

Poker. Long thought to be a quiet gentleman’s game, it has changed significantly over the past decades. Whether it’s a formal, professional, casino game, or your home-based friends only game, poker is as much a social experience as it is a way of exchanging money amongst gamblers.

When a bunch of guys get together to play Poker, the competition extends beyond the playing table. Besides trying to beat each other out of money, the players often engage in a battle of wits, which manifests itself in a series of put-downs and one-ups-manship efforts. Guys spend as much time razzing each other as they do in trying to produce the best Poker hand. The point being, if a guy can knock you down a few pegs during the game, he feels like he’s won a little even if he doesn’t collect any pots.

In addition, if your opponent can be thrown off by a few off-handed quips, he sometimes tries to get back at you by trying to beat you with a hand that he probably shouldn’t have tried to play. It’s a great science of give and take, with which most women don’t get involved. Not that they can’t; it’s just that women tend to be more direct. Men like to use the backdoor to attack you at the poker table. They like to crawl into your brain and make you feel like you are not a real man. Guys will taunt you while you are trying to decide to whether or not to call the raise. And any guy will tell you that it’s all in fun. But it’s really a sinister thing that guys do to one another in order to gain the upper hand.

Most women tend to act more seriously at the Poker table. There are still good times being had during the game; but women normally don’t throw barbs at their opponents just for the sake of their reaction. Guys do. The better a guy knows his opponent, the more personal the jibes become. It’s wonderful fodder for an in-depth sociological study. But don’t hold your breath waiting for this study to become a reality. The results could really change the way Poker is played; and what fun would that be?

Let’s face it. Fun is what Poker is really all about. After all, it is called a Poker “game,” isn’t it?

What We Know About Poker Pro Fred Sarge Ferris

When you think of all-time greats in the poker world Fred “Sarge” Ferris has to be at the top of your list. Ferris played poker and played it well. Realizing that some people play poker for fun and some played it as a hobby, few of them had what it took to play for a living. Fred “Sarge” Ferris knew he did.

Fred “Sarge” Ferris grew up in the Great Depression and his father did everything to put food on the table. Living in poverty, his brother enlisted in the Navy and later became a well-known watchmaker and jeweler. He wanted to choose a different path. So he picked up gambling. He didn’t call it gambling. He was a consummate professional, never showing off his cards or giving away any information.

Although not much for publicity, Mr. Ferris started getting the attention of the other players and media as well. He started winning big pots, and high stakes cash games garnering the respect of his peers. His first big win came in a deuce-to-seven draw in 1980 winning $10,000. He then won $150,000 and a gold bracelet in the World Series of poker. After collecting his winnings, Fred Ferris was approached by a man named Stu Ungar.

Ungar did everything he could to convince Ferris that he could win the World Series Of Poker, but needed Fred’s help with the entry fee. Fred was unconvinced at first to help him out, after Ungar told him he had never played in a tournament before. Never the less, here stood a man so convinced he could do that Fred gave him a shot. Fred approached it as no different than playing cards; to him it was just another gamble. Ungar played masterfully, out dueling Fred’s arch rival Doyle Brunson to win the World Series of poker.

On April 22nd 1983 IRS agents approached Ferris in the card room and seized $46,000 in chips. It made headlines in on news circuits while sitting at Binion’s Horseshoe at high stakes games. The money was then reportedly seized because of back taxes Ferris owed to the federal government. One of the agents told Ferris to use the remaining money and buy a taco.

Fred “Sarge” Ferris and his scandal outrage the local Hispanic communities. Protesting that one of the agents mocked Ferris’ ethnicity. His parents were born in Lebanon but he was somehow mistaken for a Mexican. This was all a misunderstanding. Ferris said the agent was trying to be nice. The incident died off eventually.

During most of his life, he spent all of his time at the poker table. It seems appropriate to have his tombstone made out of a poker table, he died there. On March 12th, 1989, after playing in a high-stakes cash game, He suffered a massive heart attack. His funeral was held in Las Vegas. Many people attended his funeral. People came to show their condolences, some were happy he had died.

However after everything Ferris brought to the game he became the 18th inductee into the poker hall of fame. Later that year after a long investigation by both Las Vegas casinos and the Indian gaming commission, Ferris would be linked as one of five men who was in debt to the mob. To Fred’s credit the mob would never see their money.

He will be remembered for his accolades and achievements in the world of poker. His intelligence for the game and his techniques have earned him the respect of future poker players. Fred “Sarge” Ferris was called a “consummate pro” for a reason.