Investing Like a Poker Player

What do world-class poker players and good investors have in common?

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On a recent business trip to Pittsburgh, PA, I had the pleasure of hanging out with one of the best advisers in the country, Michael Reese from Michigan. But it wasn’t his financial prowess that impressed me; it was his mastery of poker. That’s right, poker. So, it got me thinking: Can investors do better if they start to think like poker players? I say yes.

You can do better because world-class poker players think differently about money. Now, I’m not saying you should gamble with your retirement. Rather, there are certain attributes that when correctly added to your investment strategy can really juice up your returns and limit your losses. Before you’re you go “all in,” learn some of the common traits held by the world’s top poker players:

Know the odds. The best poker players only bet when they believe their cards have a statistical edge against the other contestants. How’s the market any different? Are you blindly investing with the herd or looking for the edge?

Know when to fold ’em. Casinos and Wall Street have one thing in common: They can’t control when you cash in and get up from the table. The most important thing you can do as a trader is limit your losses. In other words, when you place a trade, know your exit strategy. The best poker players lose more hands than they win, but they limit their losses by folding early on, and the big money is made on winning hands when the odds are in their favor.

Don’t bet with scared money. The best sleep insurance you can buy is to only trade with money you can afford to lose—money that, if you lost it, it wouldn’t change your lifestyle.

Check your emotions. Investing, like poker, should be emotionless. The hardest thing for novice and expert traders is to not let their emotions get the best of them, causing them to deviate from their disciplined strategy. Know exactly at what price you’re going to buy and exactly at what price you’re going to sell to remove the emotional aspects of investing.

Disciplined strategy. Are you a buy-and-hold investor? Do you invest for the long-term hoping for a good return? These aren’t strategies. It’s called being lazy—the way Wall Street wants you to be. The responsibility of preserving and growing your money rests squarely on your shoulders. You and only you can rescue your retirement dreams, and the process begins with implementing a money management strategy that limits your losses and lets your profits run. But you have to stick to it!

Taking back control of your financial future starts with implementing the best habits of the best poker players on the planet. If you can apply all of these common traits, then you’ll have an edge over the vast majority of investors and financial advisers.

Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.

Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100.  Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.