Poker and Stock Trading Psychology

Stock trading psychology is more advanced than poker psychology because it’s based on much better research. James Montier’s Behavioral Finance and The Little Book of Behavioral Investing discussed much of this research.

His Little Book contains a marvelous chapter, “The Perils of ADHD Investing.” Some investors seem to have Attention Deficit Hyperactivity Disorder…“an overt focus on the short term… [which conflicts] with any fundamental view of investing… Not only do we desire quick results, but we love to be seen as doing something.”

In one experiment people bought shares above their fair value, even though they couldn’t resell them. “Participants were simply trading out of boredom.” Poker players frequently do the same thing.”

Worse yet, “the urge to act tends to intensify after a loss.” After making a losing investment, people want to get even quickly.

So do poker players. We know that “tight is right,” but it’s boring, especially when we’re losing. To recoup our losses quickly, we play cards we know we should fold. Our rational minds may recognize our mistake, but our emotions command, “do something.”

We Must Sacrifice Fun.

Montier wrote, “Investors…expect investing to be exciting…Investing should be dull.” We shouldn’t let our desire for excitement cause mistakes.

My Poker Winners Are Different agreed: “Profits vs. Fun [is] the most basic trade-off, and it can be so painful that many players won’t make it…One of the most fascinating poker questions is: Why do so many people play so badly?…The answer is surprisingly simple: It’s more fun to play badly than well… profit-maximization makes such extreme demands that only a few, extraordinarily disciplined people usually play their A-game, and nobody always plays it.”

We Need Patience.

Impatience causes hyperactive investing and poker playing. Despite knowing we should wait for better opportunities, we often can’t control our impatience.

Montier wrote: “Patience is the weapon you can use to prevent yourself from becoming an ADHD investor… Warren Buffet often recommends waiting for a ‘fat pitch… you never have to swing…you wait for the pitch you like… Holding cash is uncomfortable, but not as uncomfortable as doing something stupid.’”

Mason Malmuth made the same point: “The key to successful gambling is simply to ‘get the best of it’ and then to ‘make the most of it.’”

“Getting the best of it” means not acting without an edge, the crude equivalent of Buffet’s “fat pitch.” “Making the most of it” means acting decisively to get the edge’s full value. Winners do both very well, while losers lack the patience to wait for an edge and don’t act decisively enough to get its full value.

How Can We Develop Patience?

Unfortunately, it’s much easier to say, “be patient,” than it is to develop patience. If you’re naturally impatient, I have four recommendations:

1. Adopt Roy Cooke’s monthly mindset
2. Check out tommyangelo.com
3. Read my books
4. Read Larry Phillips’ Zen and the Art of Poker

Roy told me, “I play by the month. I mentally quantify winning and losing in monthly terms, not by the day or session. My monthly mindset stops me from fighting to get even in bad situations and more importantly tends to lower the mental anguish of poker.” Roy’s monthly mindset is just one way to lengthen your time perspective. In fact, anything that stops you from trying to get even today helps to develop patience.

Tommy’s website describes his approach for developing patience and general self-control. Tommy is extraordinarily patient and self-controlled, and his recommendations can increase your patience. His approach and Phillips’ book overlap extensively.

My books don’t focus as intently on patience as intently as Angelo or Phillips, but self-control is their dominant theme, and patience is just one element of self-control.

I’ll emphasize Phillips book because developing patience is its basic objective. “The book is a calmative. Its theme is patience. But not patience of the usual kind — or even of the poker kind — but patience of the soul, and of the heart…

“In poker you’re going to be cold a lot more often than you’re going to be hot… And, since this is the case, patience becomes a necessity and a virtue… the secret to poker – at least for the majority of players – could be summed up in three words fold… a lot.”

The book states 100 rules that will help you to play patiently. I’ll list some rules and occasionally add a comment or a little of his explanation.

2: Don’t get irritated or angered by long sessions of folding.
4: Don’t feel like a martyr when folding.
7: Regard patience as a central pillar of your game and strategy…Don’t be put off by it when it doesn’t seem to be working… Beneath the surface it’s working.
10: The long run is longer than you think.
13: Occupy yourself while you’re not playing… watch how others play, look for tells. Waiting for good cards is less boring when you’re busy studying your opponents.
15: Begin by playing tight, but don’t forget to stay tight. It’s easy to start out playing tight, but then get caught up in the rhythm of the game… Catch yourself when you start doing this. Tell yourself to go back to more conservative play.”
30: Don’t expect a certain card to appear. Bad players do it all the time… and then are crushed when it doesn’t.
31: Don’t get overconfident… egotistical, arrogant… Humility is a central aspect of Zen.
33: When things start going right for other players and wrong for you, back off… It’s astonishing how many players step up their involvement… The probable explanation for this is that we are endlessly optimistic. Part two of this series quoted Behavioral Finance: “Perhaps the best documented of all psychological errors is the tendency to be over-optimistic.”
36: Don’t take the game personally. The poker gods are not out to get you personally (although it may sometimes feel that way).
39: When you take your emotions out of the game, the other players’ emotions become visible. When we are focused exclusively on our emotions… the emotions of others tend to be obscured.
42. Your worst opponent and worst enemy is always yourself. Phillips, Montier, and I agree completely on this point. Stop blaming others and accept the responsibility to control yourself.
41: Master yourself, not the game… In many poker games … the skill level of the players will be approximately equal… Therefore, the main edge you will have will be mastery of yourself.

I put this one slightly out of order and will stop here because it’s the most important rule, not just for poker players, investors, and traders, but for everyone. Our first priority should always be mastering ourselves. It’s also what Roy Cooke practices and Tommy Angelo and I teach poker players. ♠

Do you often wonder, “Why are my results so disappointing?” Ask Dr. Al, [email protected]. He has published five books about poker psychology, five on other psychological subjects, and is David Sklansky’s co-author for DUCY?