Getting Back Into the Swing of Things
Poker, Patience, and Profit
Welcome back to BGS!
As some of you know, my wife and I welcomed our first child late last year. To say the least, my time and focus has been elsewhere. However, I am excited to get back to what I love doing…
I want to start my comeback with a quick analogy to speculating. I was talking with a friend about poker and trading when this thought experiment came to mind.
Just like poker, speculating in the stock market is a game of odds and strategy. It's all about playing the right cards at the right time, taking calculated risks, and knowing when to fold. However, if we were to liken investing in stocks to a poker room, the dynamics would be quite different.
When you sit at a poker table, you have to pay the ante and the blinds. This forces money out of your pocket and induces action. Prolonged periods of inaction at the poker table will actually cost you money. When speculating, there is no cost to being patient. There are no ante or blinds.
This is a huge advantage if you think about it.
A quick thought experiment:
Instead of sitting at one table, you now have the opportunity to observe ten tables simultaneously, see every player's cards, and make bets on the players you think will win. Unlike sitting at one table, you get to pick your table and hand that you want to play. This is similar to being able to pick what stock you wish to bet on. And WHEN you want to.
Moreover, you'd occasionally get an exclusive glimpse of the "flop" before anyone else. This is like watching the market and picking up on subtle clues its offering. For example, what names are showing relative strength while the market pulls back? What stock is showing accumulation?
This ability to gather information and wait for the right moment is the key to successful speculation.
The Art of Patience in Speculation:
As you walk around the room, you have the chance to analyze every table and each player's cards. This unique perspective allows you to make informed decisions and choose which players to bet on. Similarly, in stock market speculation, patience is essential in determining the right investments. As you research different companies, industries, and market trends, you're gathering the information you need to make educated bets on the stocks with the highest potential for returns.
2. Waiting for the Right Moment
In this poker room scenario, you have the advantage of seeing the flop before anyone else, giving you valuable insight to help you place smarter bets. In the world of stock market speculation, this is akin to waiting for the market to reveal crucial information that can impact stock prices (trend confirmation, relative strength, accumulation etc)
By staying patient and waiting for the right opportunity, you can use this information to your advantage and make better bets.
3. Playing the Odds
Just like in poker, speculating in the stock market is all about playing the odds. By observing multiple tables and having access to exclusive information, you can identify the situations where the odds are in your favor. Similarly, a patient investor will wait for the right market conditions and information to make calculated bets on stocks that have a higher probability of success.
Now, if I told anyone who plays poker they could step in this magical poker room and see everyone’s cards, they would probably say yes. And if I told them that if they were patient, sometimes they would even get to see the flop before anyone else, they would be ecstatic. By waiting patiently for those opportune times, it would be hard to reason that anyone with an understanding of poker and risk would not be able to make a living from this room.
Yet, put someone in front of a computer screen with flashing tickers, and all of a sudden their patience fly’s out the window. There is no cost (maybe opportunity cost, but we are not counting that here) to being patient when speculating in stocks.
Like our thought experiment, it pays to be patient when speculating. It takes time for the market to setup and provide proper low risk entries offering attractive risk/reward profiles.
With patience and discipline, you'll discover that, akin to our imagined poker room, the stock market transforms into a wondrous realm teeming with lucrative opportunities over time.
So, the next time you feel the urge to hastily enter a trade, pause and ask yourself, "Is this the optimal hand, at the most favorable table, with the advantage of knowing the flop ahead of others?" If the answer is no, take a step back and go for a walk.
—NS