We Could Learn From Professional Poker Players

So, I am cable surfing the other night and I came across a documentary on professional poker players (I guess that I am too old to figure out how to watch TV on my computer).

One of the players interviewed made a great point about poker strategy.  Professional players know that if you run out of chips in the poker tournament, you are out of the tournament.  A big part of professional poker strategy is to have as part of your game plan a strategy to not run out of chips.  Professionals know when to be “all in”, and when to protect their pile of chips.  We could all learn a valuable lesson from that (and the lesson is NOT to play poker).

I believe Chicagoland individual company 401(k) participants and investors should think about adopting that same investment management strategy with their money.  With the stock market recently close to all-time high price levels, many individual stock market investors are worried about missing out on the free money.  For that reason these investors have remained all in the stock market, or “all in”.  There are dozens of studies showing how our emotions convince us to stay in at the top of the stock market – maybe even with a “bad hand”!

The completely opposite investment management strategy should come into place now.  Individual stock market investors should be more worried about how they can protect their stock market gains this year.  There is an old stock market adage that states that it is much better to lose an opportunity than it is to lose money.  That mindset should be part of how you are managing your stock market investments right now.

You can’t always be “all in” in poker.  A great player knows that he is going to be dealt winning AND LOSING hands, and that there is nothing he can do about it.  All he can do is strategize his play accordingly – especially if he has had a great winning streak.  The same holds true for stock market investing.  Once in a while you should plan to protect what you have.

Cheers,

Ed Downey