Intelligent Investor -> Big Bet Poker Player

I was finishing up Benjamin Graham's Intelligent Investor last night when I came upon the following:

Originally Posted by Benjamin Graham

"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate or differ." (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.) Similarly, in the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.

- p. 524, 2003 Edition.

Seems pretty applicable to big bet poker, no?

you are a poofter.

What's your problem reraise? We don't want any retarded posters on FTR, either respond properly or don't post

It's okay, he's my friend.

I agree, though - this thread has gotten 91 views and only half a comment.

I guess it is less interesting than I thought.

I read that, One up on wall street - Peter Lynch's book(worth reading if you're thinking about investing) and Buffet, the making of an american capitalist.

Seems to me, all the good fundamentals investors are card players. Peter Lynch has a whole chapter about how stock picking is like seven card stud, with 70 cards. you have some very good information, and some incomplete information, and your gut reaction to the folks who run the company.

Warren Buffet, and Bill Gates play cards together. Buffet was playing golf with his friends, he turned down a $10 "insurance policy" against an opponent getting a hole in one, that would pay of $10,000 - because he didn't have the odds. he knew a hole in one is less than a one in a thousand proposition. he was worth 2 billion at the time. His friends hassled him for days that he was to cheap to spring ten bucks.

The really really good value investors get their money in with the best of it, to the best of thier ability every single time a single dollar is on the line. I think poker has a lot to do with value investing. the one *big* difference is poker is a zero sum game, investing is a growth game. The other difference, there's no "bluff" in investing, they call that fraud.

Originally Posted by whileone

The really really good value investors get their money in with the best of it, to the best of thier ability every single time a single dollar is on the line. I think poker has a lot to do with value investing. the one *big* difference is poker is a zero sum game, investing is a growth game. The other difference, there's no "bluff" in investing, they call that fraud.

Thanks for the interesting anecdote about Buffett. I enjoyed it.

It seems to me like investing is a zero sum game, too. Any gains you make are "losses" to the person who sold you the security. (If they had not sold the security to you, they would have made the gain you made.) And everybody loses a little bit at a time to the brokers ("the rake").

Can you explain why you think investing is not a zero sum game?

Can you explain why you think investing is not a zero sum game?

Simple. Because the stock market is not a closed loop system. Companies hopefully are selling goods and/or services and make profits. So there is a constant influx of cash into the system, assuming a majority of companies are profitable.

Options trading is a zero sum game with commission subtraction from the game value (Or a gain if your an Invesment Advisor like myself!). Options have no intrinsic value beyond their exposure to the price movment of the underlying security. However stock market investing is not a zero sum game since the underlying investments have a postivie bias in their value. The population grows, efficiency grows, the economy grows and the value of the stock market grows over time.

With options (or poker) the sum of ones gains can never exceed the sum of the other players losses. However, with equity investing, one could buy a stock and hold it for a gain, then sell it to someone else, who then proceeds to make a gain as well.

Originally Posted by whileone

Can you explain why you think investing is not a zero sum game?

The person who sells the security is selling risk as well as equity. If a company or a person is risk-averse, they gain by lowering the risk of their portfolio by selling a secuirity, even if it has a high EV. If you think of each party to a security sale as having various points on which they are indifferent to certain amounts of stock/risk or money, it becomes obvious that the exchange wouldn't happen in the first place if it wasn't making each party better off in the short term. However, if one side is privvy to insider information, the exchange is more of a zero sum game, with one side taking advantage of the other party's ignorance. This, however, is illegal fraud.

Althought the stock may turn out to be worth more or less than the price at which it sells, if there is parity of information each party still gains from the sale by moving closer to their preferred level of exposure to risk.

If all mankind minus one, were of one opinion,
and only one person were of the contrary opinion,
mankind would be no more justified in silencing
that one person, than he, if he had the power,
would be justified in silencing mankind.

John Stuart Mill

I read that book, but's been awhile - don't recall that passage.

Actually, that quote could well be applied to life in general. There are many times it's difficult to have the courage to make what you know to be the best decision, and it's easy to fall into the pattern of doing what's comfortable or just following the path of least resistance.

Or maybe it's just me.

Originally Posted by Zangief

It seems to me like investing is a zero sum game, too. Any gains you make are "losses" to the person who sold you the security. (If they had not sold the security to you, they would have made the gain you made.)

I don't think so. Securities are commodities like any other which can be valued to differing extents by different people, and so two people can each mututally benefit from a trade. One person may not want the risk associated with a stock, and he'd prefer having the price of the stock in money than the stock itself, and the other may prefer having the stock than the price of the stock in money. It's not as simple as thinking in terms of whether or not the stock appreciates in the future.

A good investor is probably pretty good at bluffing when he's selling stock, too.