The Volokh Conspiracy blog posted today about the debate regarding whether poker is a game of skill or not. The Masked Financier tried to make a comment on the post but couldn’t do it after repeated blocking by the “spam” filter. It accused the Masked Financier of trying to sell “medication or gambling”. That sounds a lot like the Google Adwords filter, which won’t allow advertisements for gambling or medication, but it will allow advertisements for “3 Stocks Ready To Surge” from the improbable “Penny-Stocks-Exposed” website (watch this space).
Anyway, ever the resourceful investor, the Masked Financier decided to write a post about my thoughts here. Then I can link to this post from Volokh’s article without any stress.
Anyway, onto the main point of the post.
The main reason why the element of chance in Texas Holdem poker is overstated is because the vested interests analysing the game in the US (who want to keep it banned it online) never take into account how chance affects performance in the long term.
In individual poker games, there always is an element of luck involved once you have opted to play and are then affected by the cards that are dealt and the other players hands and betting moves.
However, by playing with a disciplined and well thought-out strategy the strong player can significantly reduce the effect that luck has on results in the long term. Bad beats will happen, but their effect will be outweighed by folding lots of bad hands and playing good hands well.
As a proponent of using Texas Holdem poker to teach investing, the Masked Financier proposes that investing is indeed very similar to Texas Holdem with respect to the effects of luck.
Once you have selected an investment, you simply cannot predict what will happen going forward with any precision. You could be lucky and the next day the company issues a huge profit upgrade, or you could be unlucky and it could be another Enron.
However, in the long term utilising a suitable risk management strategy can, as with Texas Holdem, minimise the effects of luck on investment returns.
Texas Holdem has suffered from negative publicity because the players are often loud, brash, and drink alot. Traders are nothing like that in the investment world. Oh, perhaps I should stop this train of thought. Or we might have to ban large parts of Wall Street from operating.
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