Poker face optional

Chas Craig, BridgeTower Media Newswires

A recent Barron's article interviewed psychologist, author, and poker star Maria Konnikova with the aim of drawing parallels between poker, a game of skill and chance, and investing. The interview provided several useful investing nuggets and commentary on the current environment discussed below. But the big takeaway is to focus on your process since it is the only thing you can control and not dwell on losses or missed opportunities. Of course, this is easier said than done, but beyond investing, this is probably some of the best life advice one could receive.

When asked to explain the phenomenon of an army of new day traders entering the market amidst so much uncertainty, Konnikova explained that it is the classic Dunning-Kruger effect, which predicts that the most ignorant people on a subject will be the least aware of their own ignorance. Konnikova further explained that "with so many things being out of our control, people see this as a way of reclaiming agency and being able to actually play with risks, but on their own terms, or so they think." In her view, many traders think they are playing poker, but they are at a roulette table.

In encouraging investors to eschew overactivity, Konnikova pointed out that her poker experience has taught her that players who mistake activity for productivity, and play too many hands, usually lose money. Her solution, inactivity must be an active choice. It cannot be the result of fear or inertia. In her words, "If you have a good reason for doing what you're doing, trust yourself, trust it. Don't second-guess it."

The point about inactivity being a profitable strategy at the poker table reminded me of a Vegas trip I took about 10 years ago. My brother and I spent a great deal of the trip in the poker room. Specifically, we played limit hold 'em where players are limited in the amount they can bet in contrast to the no-limit games played by Konnikova and others on television.

Only one other man was at the table of 20 or so players. It became obvious to us that he was a local and played this game for a living. His strategy: He sat patiently, sometimes for hours on end, without playing a hand. He simply looked at his cards and folded, paid his blinds, and enjoyed whatever was playing through his headphones. Then, he would make max bets. Usually, at least a few drunk tourists would play against him, having not realized he existed until moments before. Invariably, the hands he played were essentially unbeatable (I did see him lose one hand). Although the betting was limited, with so many people around the table, the pots typically got large, large enough to make a decent living from.

Since players are limited in the amount they can bet in a limit game, "reading" your opponent or "bluffing" are not nearly as important as they are in the no-limit games. For this reason, I think limit hold 'em is probably a better, though imperfect, analog to investing than the more nuanced no-limit sort which tends to self-select more experienced players. For example, if your brokerage account has not made a trade in a year and then you aggressively buy a stock of interest, the person selling you those shares does not know the implications for your confidence level, nor does he get to look at your poker face or lack thereof.

Bottom line, unlike poker, steely eyes are not required for successful investing. What is required, however, is a disciplined process.

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Chas Craig is president of Meliora Capital in Tulsa (www.melcapital.com).

Published: Tue, Mar 16, 2021