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A Royal Flush in Investing - Investing Strategies
Playing penny poker with my kids actually improved my skills as an investor. You are now wondering what playing poker has to do with investments. Actually more than most people realize. Now we’re not saying that investing is gambling. However, we have noticed there are some lessons that can be learned from playing poker that are very useful and can be applied in investing.
We’ve ran across one common denominator that hit home with us. A number of great investors understand the similarities between playing poker and investing. For example, a Charlie Munger quote where he said, “Playing poker in the Army and as a young lawyer honed my business skills. What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.” Another quote we read came from a great fund manager who went to Boston College for his undergraduate degree and ran the Magellan Fund at Fidelity Investments, which was Peter Lynch and he said, “Investing without research is link playing stud poker and never looking at the cards.” Also there was a value investor who grew up in Tennessee, Sir John Templeton, the gentlemen who started the fames Templeton Growth Fund that used to play poker during his college years. In fact, he was so good of a poker player he paid a portion of his college tuition from his poker winning. It has been said, by the UK Guardian in his obituary, “a game at which he excelled.”
There is quite a bit that you can pick up from playing poker that applies to investing. In poker as in investing, you learn before you decide to put in money in the pot to first look at your cards. In investing this is referred to as Peter Lynch points out, relates to doing your research to ensure you understand the company behind the stock shares. Also, in poker you must be good at knowing when you have an edge as Charlie Munger says, so you know when to go all in. If you don’t have a good hand of cards then you should not place a bet and quickly fold your hand and wait for the next game to be dealt and hope you get a better hand. As an example, in poker, if you have a good hand, say a four of a kind, then you would bet your money and most likely start raising. In investing, after researching the company financial statements, marketing and industry positions and other related facts, i.e. the fundamentals you determine that the company has very strong odds of obtaining above average returns, and then you would allocate a higher percentage of your capital to that stock, because you have "a higher edge”. This is also referred to a good asset allocation. In contrast, in poker, if you did not even have a pair, then you should just fold your cards and not even put any money into the pot. In investing, this would be the same situation as researching the company information as mentioned above and concluding that there is no information to support this company making a return in the future. If you are not a poker player then maybe you should invest in a deck of cards, some chips and call up your buddy’s and start having a monthly poker night and play a few hands. Now for you beginners, a quick poker tip. Never play a single hand of poker with less than a pair in your hand. You will be surprised how many more pots you will win at the end of the night. You’ll thank me later.
Always look at your cards before beating in poker. And never invest capital in a stock without conducting detail fundamental investment research. This is one of the many benefits of our service. We find specific investment opportunities using security analysis research to find undervalued opportunities for our subscribers in our PWC STOCK REPORTSSM membership service.
At Port Wren Capital, LLC, we specialize in picking specific undervalued U.S. stocks using fundamental analysis developed by Benjamin Graham using a five step process. We have beaten the S&P500, DJIA and NASDAQ benchmarks since we started 5 years ago on our own investments. Discover the difference for yourself. To learn more contact us today.
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