Part 1 of this post series discussed why sports analogies should be used with care when discussing their relevance to investing and trading. With those points in mind Part 2 goes through Dr. Bob Rotella’s 10 Rules on Mental Fitness from and notes some areas where the interpretation of Dr. Rotella’s rules for golf should be made with care in the context of poker and investing. Being an amateur golfer myself, I do have a little bit of insight as to how to make the transition. In the title of each rule there are brackets to indicate investment and poker related amendments.
Rule 1: Believe you can win (over the long term)
Generally in sports to do well the player needs to do a high percentage of things right. If an investor holds out that standard as being necessary it will only lead to heartbreak. It is a recognised fact that even the best investors and traders (and poker players) lose on up to 40-50% of their investments. But it is how they handle the losses (cut them) and profits (maximise them by letting them run as long as possible) that makes the difference. There is one golfing analogy that is somewhat appropriate here. The great Ben Hogan once said about golf that “This is a game of misses. The guy who misses the best is going to win”. It is the same with investing and poker. You need to believe not just that you can win, but that you can extricate yourself from your bad decisions effectively. This will increase your chances of winning in the long term.
Rule 2: Don’t be seduced by (near term) results
This rule is appropriate to poker and investing on both sides – the up and down. Near term results that have recently occurred should not influence your strategy and tactics. The natural volatility inherent in both poker and investing means that short term results can seem to be much worse or better than expected. Such deviation from long run expectations should be ignored, although given the strength of human emotions particularly in the face of losses this is easier said than done. Playing a lot of focused Texas Holdem poker can help to train your emotional responses in the face of such losses to prepare yourself for the larger field of investing.
Rule 3: Sulking (and going on tilt) won’t get you anything
This rule is true with sports, poker, and investing. Sulking and getting emotional about a situation that has gone against you is most likely to make your performance worse. Dr. Bob explains how Padraig Harrington’s acceptance of a terrible last hole in the British Open in 2007 was what helped him to move on to the play off and then win it despite his terrible play (and luck) on the 18th. Similarly, in investing (as with poker) it is vital to put bad investments (and hands) firmly behind you and move onto the next play.
Rule 4: Beat them with patience
Patience certainly is important in the poker and investing worlds, as it is with golf. One needs to wait for the right starting cards or the right type of investment that meets your screening criteria. However, the patience in poker and investing is somewhat different to that needed for sport. Tom Kite did indeed patiently shoot par on the last day of the US open, but he had to do a lot of work to hit par. The patience necessary in poker and investing is to be able to wait through long periods where nothing is happening and you are not making any plays.
Dr. Rotella’s advice to always make the conservative play is sometimes incorrect for investing and poker. When things do go your way with an investment or poker hand, typically those situations can be where you make the largest returns and you can often only hit the high returns with some level of aggression. Don’t throw caution to the wind, but do push your luck when it comes knocking.
Rule 5: Ignore unsolicited swing (and poker / investing) advice
The only person who knows how you invest or play poker is you (and perhaps your mentor if you have one).
Unlike golf, you are less likely to get unsolicited advice on how to invest or play poker. What you are likely to get is large amounts “tips” on the next hot stock or security. You should disregard all the “experts” and continue to focus on your own methods.
Rule 6: Embrace your personality
Dr. Rotella suggests that you should operate on the course according to your personality. Unfortunately, there is a prior decision you need to make regarding your personality and investing (or poker). That decision is: does your personality suit the markets or the poker table. Sometimes your current personality may not be the right one to embrace before you hit the tables or the stock exchange.
The good news is that with training it can be possible to manage (or at least tone down) the parts of your personality that won’t work in the worlds of investing and poker.
So, you may need to alter your personality and then embrace your personality.
Rule 7: Have a routine to lean on
Dr. Rotella is a proponent of making his golfing students develop a routine for each shot. This helps to focus the mind on the shot at hand by providing some “hooks” for the player to hang onto amidst the maelstrom of tournament pressure.
This is a very good piece of advice for poker players and investors. Too often these pursuits are glamourized based on the money involved and the rush of emotion. In reality the player or investor should focus on calming down and trying to follow the same consistent methods that is used for each hand and investment.
Such a routine is particularly helpful as a way of helping players and investors to re-focus after either a huge success or a big loss. Typically after such events your mind is likely to wander and having a routine to fall back on can help bring you back to your normal methods and pace of activity.
Rule 8: Find peace on the course (or at the table, or in the markets)
Apparently golfers that have practiced hard often freeze when they get onto the course because they have built up so much pressure in their head that they cannot enjoy the game. So Dr. Rotella advises that you make the course your sanctuary where you can enjoy things without a fear of making mistakes.
The poker and investing worlds are actually fantastically interesting, made more intense by the involvement of your money. But you should try to focus on the interesting parts of the game and the market, and not solely zero in on your possible or actual mistakes. You will probably enjoy things a little more, and with less pressure on yourself you are likely to perform better.
Rule 9: Test yourself in stroke play
Stroke play in golf is where every shot counts, not like some of the other game variants (such as “stableford”) where if you shoot worse than a certain score on a hole you can only lose so many points. So Dr. Rotella maintains that to really test yourself you should play strokes as often as possible. One of the key elements of successful stroke play is risk management, because if you don’t watch your downside you could end up taking lots of shots on one hole.
And so it is with investing and poker.
There are types of investing (like options) and poker games (like tournaments) where your downside is limited to your entry price and your upside is considerable. Like with stableford in golf, playing and investing in these “limited downside” types of situations too often can cause you to lose your downside risk management skills. So force yourself to test your poker and investing abilities in cash games and cash markets.
Rule 10: Find someone who believes in you
“No person is an island” – John Donne.
And the same goes for poker players and investors and traders. Although these pursuits are solo occupations, you can always benefit from support provided by someone you know and trust. In particular, such a support person can help you when things are not going so well. Just like Ben Hogan’s wife wouldn’t let him give up golf when it was not working out, when you got on tilt or have a bad run of investments it helps to have someone who believes in you to help keep you going.
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The Masked Financier is not the only investment professional who has reviewed Dr. Rotella’s rules and applied them to the investing arena. Please read Charles Kirk’s take on Dr. Rotella’s rules at the Kirk Report.