Poker, as many other things that have a certain macho flair in our culture, is a fairly popular pastime on Wall Street, and that’s fair enough.
But when Bloomberg TV hosts a celebrity poker game with hedge fund titans, strongly implying that there is a big overlap between the qualities required to be a great poker player and a great fund manager, we are looking at a paradigm of everything that is wrong with Wall Street.
Yes, poker is a gambling game, and investing is a form of gambling (don’t let anyone tell you different).
But if we think about what makes poker such a fascinating and enthralling game (and I was a relatively serious poker player in law school—playing mostly with finance types), it has very little to do with odds. In fact it’s the things that don’t have to do with odds that make poker interesting. Calculating the odds of a poker hand is trivial.
What makes poker interesting is that it’s a game of a) incomplete information; and b) psychology. By design, in poker, you don’t have all of the information, and you must take other players’ psychology into account to win.
Of course, at least in theory, our financial markets are designed to work precisely the other way around. In the game “financial markets”, all players have complete information, and decisions are supposed to be purely rational and numbers-based.
I would suggest that poker is a pretty good game for entrepreneurs, precisely because to be an entrepreneur is to deal mainly with the psychological, and to always have incomplete information. But for public markets investors, this is completely backwards.
Of course, it’s possible to be a great poker player and a great investor, just like it’s possible to be a great physicist and a great swimmer, but no one would suggest that what makes you a great swimmer would make you a great physicist or vice versa. But this is clearly what we’re led to believe with TV programs that put hedge fund managers together for a poker game, asking them for poker tips the way they’re usually asked for stock tips.
One exception aside*, poker will teach you all the wrong things about investment. A world where we ask our investment managers to be poker players is a world where we’re asking to be fleeced.
I guess it’s no coincidence Warren Buffett plays bridge.
(* What’s the one good thing about investment that poker can teach you? It’s this: what I would call psychological endurance. Once you’ve been playing poker for many hours, you will find yourself much much more likely to make an irrational, big bet. One which you know is irrational but, having had your psychological endurance worn down by many hours of stressful playing, you still do. Being able to keep your head when all about you are losing theirs is useful both in poker and in investing, and playing a lot of poker can help you with that.)