Picking Your Spots: At the Poker Table and in the Stock Market
Everybody runs hot and cold at different times, that’s just randomness and noise doing its thing. But the key is knowing that by consistently making good decisions, starting with picking your spots at the poker table, you can increase your advantage over your opponent so that, given a large enough sample size, you’re showing a 55/45, 60/40, or 70/30 edge. But, of course, this advantage also has to be calibrated for the stakes. Which is just to say that you’re probably making more money with a 60/40 edge at a serious poker room or casino setting than a 70/30 edge at your typical home game.
More to the point is that every little bit, every little edge counts and accumulates over time, even as you go through what feels like unbelievable streaks of getting rivered and blindsided by quixotic play. Similarly, good stock buying tips will still be susceptible to losers, but the point is with the right investment knowledge, you can increase your overall edge and show returns that are likely to beat the market over time.
Likewise, you need to ensure you play enough hands to more reliably show this edge. This is a big reason why people talk about having a diversified portfolio. By playing hands or choosing stocks in several different industries, you can decrease the volatility in your results, and investing in the stock market becomes closer and closer to smart strategy and less and less like playing “stock market bingo” with your financial welfare.
Of course, in many settings, including investment solutions and market access, the house also takes their cut. Thus, while you need to diversify your portfolio, younger and smaller investors must also guard against buying stocks in such small quantities and from investment platforms with trading fees that can overwhelm any edge that might be gained by creating a portfolio of individual stocks.