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Investing is hard. Elite investing (i.e. being part of the 2-3% of investors who make super-normal returns) requires immense emotional control and a supreme ability to deal with the stress of the rollercoaster of the markets. And not everyone can achieve that elite level of investing skill.
Some snake-oil sellers of emotional mastery tools and equipment for investors and traders (and for other situations in life) would have the general public believe that everyone can learn to deal with situations of extreme stress in the same way.
That is not true according to recent scientific research. Some people are better equipped to deal with extreme stress. It is that simple. But this is not a bad thing. People should be aware of their limits before they start to learn to invest. That way you won’t get out of your depth. And Texas Holdem Investing can help you with finding your depth.
Ben Sherwood wrote a fascinating article in Newsweek about “Lessons In Survival” which discussed the science that explains why elite military forces can deal with and recover from stress more effectively than the average soldier.
The main point of the article is that there are certain people who can biologically deal with stress better than the average person. These people have unbelievably steady heart rates both during and after stress situations. And their bodies produce more of two key chemicals – neuropeptide Y and DHEA. The chemicals help the frontal-lobe of the brain to continue to function in situations of extreme stress by over-riding the classic alarm and fear responses that would otherwise swamp a person’s critical thinking.
Dr. Andy Morgan of Yale Medical School went to some of the few places where the effects of stress on people can be truly analysed without ridiculous tests – the US Special Forces training camp at Fort Bragg and the US Navy Diving and Salvage Training Center in Florida. Usual “stress tests” to evaluate how people react in difficult situations involve unrealistic trials such as showing people scary pictures. At these facilities soldiers and divers are put through extreme “stress inoculation” tests that are scarily realistic. The Special Forces are subjected to the “Resistance Training Laboratory” where they go through prisoner-of-war simulations that would make Jack Bauer or James Bond wince.
And the results are incredible – some soldiers are simply biologically better equipped to deal with stressful situations, can function more effectively under pressure, and can recover more quickly from having being exposed to extreme stress. And clearly it is people like this who should be sent in for the most dangerous missions by the army and the navy. And no amount of emotional therapy and education can help people with volatile heart rates and lower levels of NPY and DHEA to overcome their body’s natural reaction of panic in stressful situations and to recovery quickly from stress.
And so how does this tie into investing and trading. Well, it is my opinion that everyone can learn to invest effectively for themselves to some extent. However, a large part of the process of learning to invest is to find out what type of investing you are suited to. And the biggest factor that determines what type of investing is appropriate for you is how you react to stress from putting your money at risk. Not everyone can operate in the day-trading market for oil stocks – the pressure is simply too much to handle.
Texas Holdem Investing will help you to quickly expose yourself to lots of different types of situations where you are putting money at risk using poker. Do you want to know if you can trade in fast moving markets with large swings and large positions at risk? Well, once you’ve learnt the Texas Holdem poker ropes sufficiently, try to play some $100-$200 no limit holdem cash games. You’ll soon find out how your mind reacts with having to make unbelievable decisions with limited information and while risking potentially thousands of dollars (or Euros, or whatever currency!). This is the arena where poker players like Phil Hellmuth and Chris Ferguson excel. If you can make money at this level then perhaps you have the mindset to be a great investors in high stakes markets – just like Warren Buffett when he puts on multi-billion option trades in the blink of an eye.
However, maybe you can win effectively at $5-$10 limit poker cash games until the cows come home, but once you move above that limit level you start losing money. If that is the case then you need to develop an investment plan that specialises in securities or asset classes with a lower level of volatility and plan to limit the level of risk exposure you have at each trade.
But by learning about this part of your emotional make-up early you are likely to save yourself a lot of your investment capital in the long run.
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