Step 8. Poker And Investing Costs

One of the most overlooked issues in both Texas Hold’em and investing is that of “trading costs” and bonuses and the effect that these factors can have on your long term success.  One of the key concepts to enable successful Texas Hold’em and investing is to understand the effect of small decisions in the long run and playing / investing expenses are areas where this effect is significant.

This major gap in Texas Hold’em and investing instruction material is critical and causes many potentially good players to give up at an early stage because of poor results that can be traced back to poor management of playing / investing costs.

In Texas Hold’em games, you have to pay the “rake” to participate in a particular hand.  In all but two hands on the table you have the choice of whether or not you want to pay the rake or not because you can choose to fold your opening hand if it is poor.  However, there are two occasions – the small and big blind – where you have to pay the rake even if your starting hand is poor.

Consider playing $1/2 tables where the small blind is $0.5.  On an average 10-hand table, you have to pay a “cost” of $1.50 per ten hands to play and more if you have potentially good starting hands.  Therefore, every 1,000 hands you end up paying a “cost” of $150 to simply sit at the table.  Then consider that the average winning hand in a $1/2 game will be approximately $18 you need to win 9 hands simply to break even.

If you automatically decide to call the small blind in every case (which is highly unlikely to be the proper thing to do) then you increase your basic entry cost to $200 – now you have to win another 2 hands (11 hands in total) to cover your entry costs.  If you decide to play poor starting hands that only have a small chance of winning then you are continually increasing your playing costs.

When investing, the trading costs dynamic is slightly different since there is no direct equivalent to the blinds where you have to make a trade.  You have the choice whether or not to make every trade and only pay commission on trades that you actually make (although in many cases you need to pay an annual maintenance fee for your trading account which then becomes like the blinds you need to pay in poker).  Therefore, the objective you must meet when developing an investing plan is to ensure that the average trade you take will at the very least have an expectation of covering its trading costs in addition to the expected return that you want to achieve from your investing.  If you do not develop your investing ideas with this in mind investing costs will significantly affect your investing results.