I had a memory pop up today from a lifetime ago when I used to be a semi-professional poker player.
At the time, I was building a business with a friend of mine who lived in Las Vegas. I would travel to meet him for a week of work. And each day after the market closed, both of us would head over to the Bellagio poker room.
The regulars at the casino called me “laptop” because I was always doing investment research on my computer between hands. And the wins from our poker sessions went directly into the business to help cover expenses.
If you don’t play poker, you should know that the game is full of odds and probabilities. And if you can calculate them correctly, you’ll win over time.
Quite frankly, the game of poker — specifically Texas No-Limit Holdem — is a lot like the game of trading!
There are so many correlations and lessons that translate between the two disciplines. If you’re a profitable trader, chances are good that you could quickly learn to be a profitable poker player.
Fish Can Win for a While… But Not Forever
There’s an old saying in poker:
In other words, there are winners and there are losers in poker. And if you don’t know who the losers are, you’re in trouble!
The same is true for markets.
There are winners and there are losers. And the losing traders eventually finance the profits taken home by the winners.
At the poker table, we call these losers “fish.” They’re typically the tourists who are in town to gamble and have a good time.
Fish love action!
They love to push their chips into the middle of the table and watch the other players squirm. They love to “get lucky” when their miracle card hits the board giving them the best hand. They love to “drag the pot” of chips when they win, oblivious to whether they played the hand well or not.
And you know what?
The game of poker is perfect for these fish.
Because the way probabilities work out, sometimes they’re going to win. And those wins keep them coming back to swim with the sharks.
Eventually their luck runs out and the fish lose. But they have a great time along the way!
Think about how this applies to the stock market…
Wall Street’s Fish Are No Different
Losing players in the market are very similar to the tourists in Las Vegas.
These traders are drawn to the action of the stock market. They like placing large bets — sometimes leveraging those bets with borrowed money — and winning BIG when their positions pan out.
(Ironically, some of the biggest fish on Wall Street are hedge funds and other institutional traders. Not all “professional” traders are profitable.)
Wall Street’s fish can score some huge wins.
When the market is trending higher and speculative stocks are in vogue, these aggressive traders can shoot the lights out. Maybe you’ve got a friend or neighbor who made a risky bet in the last year or two and walked away with a big score.
But speculative trading without managing your risk is a recipe for disaster. And in today’s market, there are tens of thousands of new traders making large bets without a plan for what to do when the market turns against them.
Many of these traders jumped into the market during the Covid lockdowns. They’re part of the whole “Robinhood generation” who are brand new to the market.
(By the way, I LOVE that Robinhood has introduced so many new people to the market. Our stock market is a great vehicle for building wealth and I want that market to be available to as many as possible! I just want to make sure there is education available so these new investors don’t make rookie mistakes with money they can’t afford to lose.)
Over the past month, many of these new traders have been introduced to their first significant pullback. And to be quite honest, this pullback really hasn’t been that big of a deal. (And it could have farther to go!)
I don’t say that to scare you… Just to point out that this pullback is a normal part of how markets function.
The good news is that if you trade like a shark through this period — managing your risk, sticking with your strategy, investing in quality stocks that have reliable profits — you’re going to do just fine.
In fact, you’ll do better than fine.
You’ll actually be booking profits from the tourists on Wall Street making the same mistake that gamblers do in Vegas.
It doesn’t matter if you’re new to this game of trading or a seasoned veteran.
Making wise and disciplined decisions with your investments will pay off. And my goal is to help you make as many of those profitable trades as possible!
Over the next few days we’ll be taking stock of the market action and the different areas of opportunity and risk. I hope you’ll stay tuned and follow along!
And please stay in touch! I love hearing from you. So feel free to reply to this email or drop me a note at [email protected]
Here’s to growing and protecting your wealth!