Playing poker shares similarities with the business world, particularly when one thinks about trading on the stock market. These similarities allow us to take lessons learned at the felt and apply them to both business and everyday life decisions, and vice-versa.
One of the easiest, yet often regarded as the most important, business lesson you can learn from playing poker is risk management, although in the poker world we tend to refer to this as bankroll management.
Business lessons: Bankroll / risk management
We have highlighted the importance of bankroll management in detail on this very blog previously – click here to read the most recent bankroll management article – but in a nutshell, bankroll management is making the sum of money you have available for playing poker (your bankroll) dictate what stakes you play for in order to minimise the risk of going broke through losing spells.
In the business world, risk management is equally as important because if you take too many risks, you will eventually go broke, which results in your business folding. Renowned trader Lex van Dam, was quoted in a PokerNews article that “there are old traders, and bold traders, but no old bold traders,” which essentially means that if you want to stay in the game for a long period of time, you need to control your exposure to risk.
Business lessons: Ignore short term variance
Likewise, if you’re in the business of investing, you should be looking at a long-term return on your investment. While it is true that many people “scalp” and hope to make a quick buck, it is more popular to choose a company based on detailed research that is going to mature into a bigger, stronger company that allows you to reap rewards much later down the line.
This can be learned from poker in the sense that many poker players, almost always those who are losing players, seem fixated in the short term and the variance caused by such a small sample size. By focussing your attention on the long term, which is much longer than you would care to think, and by making bets and plays that will net you money in the long run, you will become a profitable poker player eventually, and that is all you can really do.
Business lessons: Perform extensive research
In order to improve at poker, or even get a foot on the first rung of the ladder, you need to invest some time and effort into researching the nuances of the game. Attempting to learn the ropes by putting some money in your account and jumping straight into real money poker games, as I did several years ago, is a recipe for disaster. By researching subjects such as starting hands, bluffing, pot odds, implied odds, and the hundreds of other areas of strategy before you begin playing for real money, you stand a higher chance of succeeding.
Research is also critical to success in the business world, too. Whether you’re thinking of starting on a new business venture and are looking to see if your idea is viable, to considering investing in an entity, doing so without the necessary groundwork beforehand could see you losing plenty of hours sleep, and probably as much money as lost shuteye.
Business lessons: Test your theories and strategies
Yet another business lesson you can learn playing poker, although admittedly more link to the world of trading, is paper trading. In poker, when you learn a new skill, or want to try a new strategy, many top professionals advocate dropping down several levels of buy-ins, or even playing for play money, while you become used to playing in this new style.
Traders often do a similar thing in that when they create a new strategy for, say, entering the market to purchase a new equity, they will often perfect their strategy via what is known as paper trading, which is the play money equivalent in the trading world, until such a time they are confident their system works effectively.
Other crossovers include, but aren’t limited to, talking to your peers about ideas, strategies and systems, discussing ideas with those who are more successful than you, developing your own ideas and not simply following someone else’s lead, keeping a cool head in times of adversity, and knowing when it is time to give up on an idea and cut your losses.