Saturday, March 10, 2007

Poker and Picking Stocks OR What every Finance guy needs to know, Part I

I have been thinking recently about how to keep adding new things into my blog, without it turning into a "Today, it was cold" and "Wow, I'm drunk, look at me!" type of personal blogging. So like any good (or at least holding a job) columnist, I've decided to start my first multi-day post.

My first topic? Comparing Poker to Picking Stocks.

Some may go, "You're crazy. This is a HUGE stretch. Convince me." Otherwise will say, "Bah, poker is for fat old man with cigars sitting in back alleys. And I'm a 25-year old hotshot! How dare you compare me to them."

To both of you, I say, bear with me.

In Part I, I will discuss "Skills/Information you need to succeed"

1) Knowing where the game is being played
Probably the most important part of playing poker or the stock market is knowing where the game is being played. If you enter with $1,000, will you exit with a broken nose? Will beer be provided? How much cigar smoking do you have to do?

All very important things to know, BEFORE you even start playing.

2) Understanding the fundamentals
Its important to know the basics of both "games". Do you know when you're going to win and lose? In poker, you have a set of hand ranks that you should memorize. In picking stocks, you just have to remember one mantra "Buy low, sell high".

3) Calculating odds of success
Having good math skills is always a plus in both games. People get lucky all the time, but only those who understand statistics will win most of the time. In poker, the odds are easy to calculate. You know how many cards are out there, and the likelihood of you catching the hand you want. In picking stocks, the odds are difficult to calculate, as stock prices are difficult to model. But as most investment firms will tell you, being able to guess right a little better than 50% of the time is enough to make big money.

In Part II, I will be discussing "Different Types of Players". Stay tuned!

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