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How Poker Can Help to Develop Better Financial Decision-Making Skills

Posted on the 21 March 2018 by Consumerfu @ConsumerFu
The psychology of poker

Poker is a multi-faceted card game. It’s full of peaks and troughs and, more importantly, it requires you to take responsibility for your own actions and make the right decisions with every hand. In that context, playing poker can enhance many skills and personal qualities essential for making big life decisions, notably your personal finances. Many people claim that poker should be viewed differently to many other types of gambling games. That’s because the balance between luck and skill is far more weighted towards skill in poker. In essence, poker players teach themselves to think logically and outmanoeuvre their opponents by taking advantage of players that act on impulse and refuse to take into consideration everything from pot odds to the percentage chance of a card appearing on the turn or river.

As a poker player, you condition yourself to make the right decision more often than not. If you can manage that, there’s a good chance that you will go on to make money. The same principles apply when managing your personal wealth. Within this article, we’ll take a look at four key areas that poker can help you to make sound investment decisions in while protecting your capital in the best way possible.

Strategy and planning

With financial investments, you need to know your own strategy: when to invest, when to hedge your investments and when to cut your losses. It’s the same with all forms of poker. Strategy is everything in poker. You’ll decide whether you’re a loose-aggressive player – someone who’s happy to play almost any two cards dealt – or someone that’s considered tight-aggressive – someone that waits patiently for the right cards and plays them confidently and ruthlessly. With financial investments, you need to decide whether you’re going to play loose-aggressive or tight-aggressive. Loose-aggressive investors are those who try to pick up lots of small profits like day traders. Tight-aggressive investors are those who only invest when the conditions fit their strategy.

In terms of planning your poker strategy, you will often look to get involved in pots where you can get full value for your hands; investing into the pot when you’re getting the right price. Avoiding calling pot-sized bets to chase straight or flush draws is essential to at least break even. On the flip side, staying involved in a hand when opposing players bet too small in the context of the overall pot size is key to long-term profits. Value-based poker strategies translate directly to the investment world. Smart financial investments are those where you buy a share that’s undervalued compared to its book value. In the midst of the global recession, the investors that survived and even thrived in the economic downturn were those who acknowledged those undervalued assets while others ran scared.

The ability to deal with unforeseen circumstances in a calm way

Learning how to manage your tilt

The need for emotional stability is great in both the poker world and the financial world. Being able to keep your emotions in check – even in the face of bad luck and adversity – is important to avoid unnecessary drains on your resources. In poker, there is a psychological condition called ‘tilt’, which causes players to play hands over-aggressively in a bid to chase unfortunate losses in previous hands. It’s equally important for financial investors to avoid emotional investments that don’t fit the strategy. It’s important to accept mentally that you will never be able to avoid making bad decisions, but there are ways of making them less bad. Instead of viewing mistakes as a sign of weakness, mentally strong poker players and investors view errors as a natural part of the game; it’s the variance that stops humans from being perfect in every way. Furthermore, those players and investors that take the time to understand what caused their bad decisions have a much better chance of minimizing those errors in the future.

Another important motto for poker players and financial investors alike is to cut losers short and let winning positions run. You might have a killer hand pre-flop but, if the flop and the turn cards aren’t kind, you need to accept that as a form of variance and learn not to get too emotionally attached to a hand. Although folding a hand after investing a sizeable amount of chips into a pot is an admission of defeat, it’s important to consider the number of chips you’ve saved in your stack by not taking the hand further. It’s the same with investing in a stock that you might have once considered to be a red-hot trade but is now in freefall. Cutting your losses ensures your capital lives to fight another day and can be put to better use on an investment in more favourable trading conditions.

It’s also important to remember both at the poker table and in financial investments that, if you can neutralize your emotions, it is possible to take advantage when other players and markets go on tilt instead. It’s not uncommon for investors to go on buying frenzies in the stock market that go beyond all rational thinking. This is known as mass market psychosis. On a smaller scale, if you’re playing a cash game or a Texas Hold’em multi-table tournament, your survival will often be based upon others who bet irrationally.

Improves decision-making – even under pressure

Poker teaches you how to adapt to ever-changing situations at the tables, improving your decision-making even under varying extremes of pressure. No game of poker is ever the same. One pointless card in one hand could be the key to a full house in another. Furthermore, whether you’re playing cash games or tournament poker, the table dynamics are also changing as different players come and go. As a poker player, each time something new happens at the table, it’s important to take the time to re-evaluate your situation and adapt to the new information by tweaking your playing style, if necessary. The quicker you can adapt to the diversity of players at the tables, the more you can profit from various pressurized game scenarios.

Pressure and deception are also rife in the financial markets too. It is not uncommon for the managers of hedge funds to adopt a technique labelled in the trade as ‘doing the reverse desk’. This is when a hedge fund sells a small percentage of its holding in a stock in order to pick up more of the same stock at a cheaper price from other hedge funds that follow like sheep and attempt to copy the trade. You need a clear mind to see through all the market noise and make the right investment decisions, even when you’ve got those sweaty palms and the lights are flashing all over your trading screen.

Helps to encourage risk-taking and increases confidence in your own investment decisions

One of the biggest things poker players and financial investors have in common is that they are both risk-takers. It’s very difficult to win at poker or in the stock markets without accurately weighing up risks and rewards. In poker, a risk-reward analysis is important to ascertain the probability of winning each hand you play in. As we’ve already discussed earlier in the article, if you have a straight or flush draw, you need to be able to calculate the odds that the card will appear on the turn or river. This will make it clear what an acceptable size bet is in relation to the chance of winning the entire pot. Sometimes, this analysis can become clouded somewhat when you’re playing an opponent rather than their hand. What we mean here is that, in some cases, you may consider raising above what you’d normally consider a good value bet based on the strength of your hand. This would be considered a sensible move if your opponent has a propensity to show weakness and fold when faced with a large raise.

The same sort of risk-reward analysis is essential in all investment decisions, whether it’s stocks or real estate. You should adopt the same approach as the poker pros and weigh up the value of each investment. For example, if you’re interested in purchasing real estate, research the average sale price of the area and attempt to forecast its potential value over time or based on improvements made to the property.


In summary, poker trains you to always put things into context and to evaluate all possible outcomes. Some people might attempt to preach that life is simpler than it actually is. But, in truth, the best way to succeed in life and particularly in your financial decisions is to analyze everything in granular detail so that you have a plan for every eventuality. Failing to plan is planning to fail, as they say. If there’s one takeaway from this article that you should keep close to you at all times, it’s that poker teaches you to think very carefully before you act. That principle is applicable to all forms of wealth management but not enough people remember it!

Category: Advice

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