Going All-In: What Texas Hold 'Em Can Teach You About Investing


Sure, the initial hold 'em craze is over. Only the die hards watch the World Poker Tour on ESPN 35, or how ever many channels they have now. But all those things you learned when the craze was going strong can still help you out. Investing, like poker, takes a combination of well-honed skill and a dollop of chance if you're going to come out ahead. Here are some thoughts on applying your knowledge of one for success in another.

Know the Value of Your Hand

If you've played poker for any amount of time, you know that the hand you start with says a lot about how you play the rest of that hand. Do you fold? Push all-in? Make a value bet and hope for a helpful flop? Knowing the game well makes decisions like these automatic. In fact, most good poker players actually memorize the possible starting hands in order of their value so they know what to do with the cards they're dealt.

In a similar vein, it pays to learn about investing before you do it. Read some personal finance blogs, do a Google search on the investments you're interested in, look for reviews and discussions and comments that might teach you something you already know. Before you put your money into the game, know your options. Once you've invested, keep tabs on your money. While it's often best to leave your money in one place for a long time, the health of any fund can change. If you know the value of your money, you can catch these shifts before they're hugely destructive.

Play Your Cards

When you invest, like when you play poker, you can only play your hand. That includes the cards and the general state of who you are at the moment. You start with your cards, your chips, your level of exhaustion, emotional stress, and general health. Sometimes, the right decision is to leave the game, or stay out of it entirely. Similarly, right now may not be the time to invest or reinvest. Or maybe you'll decide to skip the strategy that's popular among your friends because your financial situation is different. No matter what the people around you are doing, remember to play your own hand. It would be nice to always get dealt rockets, but it doesn't happen very often. When you focus on what you really have in front of you, you can make accurate decisions based on what is, not what you wish could be.

Push All-In

If you've educated yourself in the ways and wiles of poker, you'll know your moment when it comes. You'll recognize the signs, see that telltale twitch on another player's face, or see your favorite hand in the hole. When that moment comes, you have to be ready to put your money and your skill on the line. Similarly, when you've done the research and assessed your current situation, it's time to invest that money. All the research in the world doesn't come to anything if you can't put your money down when the moment comes.

Ride the Waves

Even the best poker players take bad beats. It happens, just like every investment goes through periods where it loses value. In both cases, the people who come out on top are the ones who can weather those turns, outlast chance, and who are still standing when the tide runs back in their favor. Instead of losing your cool when you're losing money in your investments, be like the poker player who lives to play another day. Anger, frustration, and fear don't lead to rational decision-making. If you can't let those feelings go, take a step back and don't make any decisions until you can. Then, evaluate your situation and make your decision. You'll win and you'll lose, but if you stay in the game and keep your emotions in check, you'll be likely to come out on top.

May all your investments pay out!

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Myscha Theriault's picture

Sarah, you get my personal cool post of the week award. Very clever, and right on the money.

Sarah Winfrey's picture

Aww, shucks, Myscha. Thanks!

Guest's picture

Lots of articles on the internet refer to how playing poker can help you to learn how to invest.
But I think that poker can be even more effective as a tool to tell people if they even have the capability to invest.
As we all know, one of the most effective methods to save money when investing is to cut losses. But unfortunately for some people the best way to cut losses is not to invest at all (or invest in index funds with some sort of stop loss).
If you can't play poker for a significant time period (say at least 6 months), playing thousands of hands, and come out at breakeven or profitable, then you probably don't have the mentality to be a successful investor.
If you can't make money in a game where the rules and probabilities are well defined, how will you make money in the big bad world of investing.