Sunday, March 11, 2007

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

Today, I want to break down the type of investors, using poker players as comparisons. The first four personality types tend to lose all their money to the last four, with the middle guy going even. I have enumerated, so that being #5 is normal, and going to 1 to 9 is rare.

1) The Talker A - Loud mouth, probabilistically due for a win
This man will talk like A, but he also will play. Unfortunately, he's just terrible at the game. He just enjoys throwing money at it, 'cause he figures, hey, he'll win some time.

2) The Talker B - Lots of of steam, can't afford a coffee
This man will talk on and on about his "winning" strategy, his big wins, the fun he has, etc, but if you ask about coming for a game or a good stock tip, he'll be the first to change the subject.

3) The Inexperienced Guy
This man trembles when he approaches the game. He's unsure of to say, how to play, or if he's even holding cards correctly. In poker, we call him a whale. In stocks, we still call him a whale. However, in stocks, in a few weeks, we'll call him broke.

4) Unlucky
This man knows how to play, comes for the money, but never seems to know when to stop. Over the course of play, he'll win some, and then give it all back. This man tends to be addicted.

5) Even Steven
This man goes for sure plays. Unfortunately, sure plays always pay out very little. Any hint of risk is enough to get this guy to tuck-in his coat tails and run. This risk-aversion causes him to lose the little gains he gets from his sure picks.

6) Lucky
This man started with a quarter 5 years ago, and its turn into a quarter billion today. No one knows why, but he can just pick 'em. He's the guy who would find a winning lottery ticket in his pocket without remembering buying one. He'll miss a bus, and win a car. This man was just born lucky.

7) Experienced Guy
This man had his ups and downs, and has begun to see some patterns. He'll play with some risk, but isn't willing to take bigs ones. The experience steadies his hand, and ensures he doesn't play on emotion alone, if at all.

8) The Rich Talker B - Rags to Riches Story
This man can charm the spots off a leopard, and he could sell you sand in a desert. He talks smoothly, is very intelligent, and it gets him far in life.

9) The Rick Talker A - So much money... and it keeps coming
This man was born rich, so he's always got interesting stories. He has up and down days too, but since he's got so much money, one of his zany ideas is bound to make it big, and add another $1 billion to his stash.

So where do you fit in? Tomorrow, in Part III, I teach you how to go from 5 to 7. If you're 4, well, tough luck.

1 comment:

Richard said...

I love the analogies here :)