Business, Poker & Trading

Tony Hsieh, CEO of Zappos.com, wrote a book titled: Everything I Know About Business I Learned From Poker. Here are some of his notes in bullet-point form with my own trading-related comments thrown in. …

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EVALUATING MARKET OPPORTUNITIES
• Table selection is the most important decision you can make.
This is more important than most would admit. There are many ways to trade – different products, different time frames, different indicators. None are horrible, but none are inherently great either. The key is to find something that jives with your personality, focus on it, get good at it and do it over and over. This takes a bit of experimenting and tinkering. But it’s a huge relief too because a huge weight is lifted off your shoulders when you realize you only have to be good one thing. What trading table will you sit at?
• It’s okay to switch tables if you discover it’s too hard to win at your table.
$1000 in profits is $1000 in profits. A one-point move with AAPL counts the same as a one-point move with some no-name stock that no one follows. Certain stocks or products are inherently hard to trade for unknown reasons. There’s nothing wrong with getting up and finding a different table to play at. There are no bonus points or badges of honor for playing at any particular table. Your goal is to make money, period. So if the table you’re at is too hard, move to a different table. And then when you find a great table, hunker down and get to work.
• If there are too many competitors (some irrational or inexperienced), even if you’re the best it’s a lot harder to win.
This is related to the second point above. There are no bonus points from playing at a different table. While social media obsesses over APPL or AMZN or TSLA, you can go sit at a table that no one is paying attention to. Your profits still count.
MARKETING AND BRANDING
• Act weak when strong, act strong when weak. Know when to bluff.
This is one point that doesn’t apply to trading. You should never act strong or tough. You can’t bargain or negotiate with the market. It is boss; you are subservient to it. Way too many people have gone broke acting tough when they should have been scared and getting out of the way.
• Your “brand” is important.
Not in trading. Again, there are no bonus points for bragging about being a certain type of trader. Trade for the right reasons, not for bragging rights, not so your friends can label you a certain desirable way.
• Help shape the stories that people are telling about you.
This does not apply. As a trader, you need to live in the real world, not a fantasy world you’ve created in your mind. You can’t fake it in this business. You can’t mold a reputation. You bottom line is the final judge, regardless of social media perceptions. Live in a real world, not a fake world.
FINANCIALS
• Always be prepared for the worst possible scenario.
This speaks for itself. Control your risk, manage your positions and never ever ever, no matter how sure you are of something, put too much into one idea. If you’ve accepted what the worst case scenario is, you’ll be much more relaxed.
• The guy who wins the most hands is not the guy who makes the most money in the long run.
So true in trading. I know some traders who have 80-90% winning percentages but don’t make much, if anything, over time. As soon as they have a profit, they take it because they’re afraid to give it back. You can’t win big if you constantly take profits so soon. Your goal is to make money, not have a high batting average (although you’ll need a decent batting average). A small percentage of your trades will account for most of your profits. But you don’t know which ones. Take trades and manage them wisely. Shoot for 30-40% win rate. Look for that one “big one” every once in a while rather than lots of small wins.
• The guy who never loses a hand is not the guy who makes the most money in the long run.
You have to be willing to take a chance to make it in this business. You can’t win if you don’t play, so if you’re the type that hesitates, you need to overcome this trait. A trader who rarely or never loses is like a baseball player who bunts every at-bat. Sure, he never strikes out, but he also never hits a double off the wall.
• Go for positive expected value, not what’s least risky.
If you want least risky, trade utilities and REITs, but you’ll never make any money trading those.
• Make sure your bankroll is large enough for the game you’re playing and the risks you’re taking.
Money is your inventory. If you run out, you’re out of business, so make sure the risks you take are appropriate considering your situation. You learn by being in the arena playing the game. The risks you take should not be so be as to knock you out of the game before the learning has had a chance to take place.
• Play only with what you can afford to lose.
This goes beyond trading. Don’t trade your kids’ college fund (unless they’re newborns and you have plenty of time to get it back) and make sure you have lots of money in the bank to live on – you need a cushion. Don’t assume you can live off your trading income until it’s obvious, and don’t quite your job – when it’s time, you’ll know.
• Remember it’s a long term game. You will win or lose individual sessions, but it’s what happens in the long term that matters.
Traders need to grasp and accept this. Short term goals are very dangerous. They cause you to chase and tense up because you’re constantly under pressure to perform. But if you’re goal is to make $X over the next three months, you can have a couple losing trades and not worry about hitting your overall goal. Having longer term goals enables you relax, be human, make a few mistakes but stay on target.
STRATEGY
• Don’t play games that you don’t understand, even if you see lots of other people making money from them.
This a dangerous trap traders fall into. They see someone successfully trading a product, so they want to try. Or they see someone successfully using a certain indicator, so they give it a shot. But style drift is dangerous. There’s nothing wrong with changing tables, but before you jump in, know that you’re starting over, and a lot of seat time is needed.
• Figure out the game when the stakes aren’t high.
So true. Many decisions are made at night or on weekends rather than in the heat of the battle.
• Don’t cheat. Cheaters never win in the long run.
You can’t fake it in this industry. Your bottom line is your bottom line, no matter how highly or lowly you are regarded publicly.
• Stick to your principles.
Stick to your plan.
• You need to adjust your style of play throughout the night as the dynamics of the game change. Be flexible.
When trading, don’t change mid-game. If you’re confused or the game has changed such that you don’t recognize it, go to cash. Mental flexibility is needed, but changes are made from the safety of the sidelines, not in the heat of the battle. Protect what you have first. Then, proceed.
• Be patient and think long term.
Ditto the comments about having longer term goals.
• The players with the most stamina and focus usually win.
In business, if you can survive, many of your competitors will eliminate themselves. In trading, your biggest competition is the person in the mirror, and he’ll never go away. It’s better to conquer him than assume he’ll suddenly step aside and allow you to succeed. But having said that, the longer you can stay in the game, the higher the odds you’ll eventually “figure this thing out.”
• Differentiate yourself. Do the opposite of what the rest of the table is doing.
This doesn’t apply to trading. You need to do what’s best for you, and that may or may not have anything to do with others.
• Hope is not a good plan.
It’s not a ticker symbol either.
• Don’t let yourself go “on tilt”. It’s much more cost effective to take a break, walk around, or leave the game for the night.
Absolutely. Hit a rough patch? Don’t compound losses. Go to cash and take a break.
CONTINUAL LEARNING
• Educate yourself. Read books and learn from others who have done it before.
Yes but once you’ve found “your trade,” I’d hesitate to expose yourself to many other methodologies. It’ll just confuse you and cause you to second guess yourself. Read biographies and story books, but stay away from the how-to books once you’ve gotten pretty good.
• Learn by doing. Theory is nice, but nothing replaces actual experience.
My favorite trading quote of all time. Jesse Livermore said: The game taught me the game.
• Learn by surrounding yourself with talented players.
You do that here at LB. Not only with my writing but also with the many talented members on the message board.
• Just because you win a hand doesn’t mean you’re good and you don’t have more learning to do. You might have just gotten lucky.
Let me put it this way. Don’t let a good trade grow your ego to uncontrollable levels. Karma’s a bitch in this industry.
• Don’t be afraid to ask for advice.
At the end of the day, the only thing that matters is your bottom line. If you had to ask 100 questions to get there, so what.
CULTURE
• You’ve gotta love the game. To become really good, you need to live it and sleep it.
I don’t know anyone that didn’t lose a handful of friends on the way to successfully trading the market. Yeah, I know. It sucks. But if you want to be good, you’ll have to say ‘no’ to those Sunday football parties. At some point you’ll have to bury yourself alone in a room and study to lay the foundation for success. Even if you’re lucky enough to have a great mentor, you still gotta put in the time to internalize everything.
• Don’t be cocky. Don’t be flashy. There’s always someone better than you.
So true. As soon as you think you’re good, as soon as you think your you-know-what doesn’t stink, the market will whack you upside the head.
• Be nice and make friends. It’s a small community.
This isn’t always easy because this is such an emotional business. I believe in what Teddy Roosevelt said: “Speak softly and carry a big stick.”
• Share what you’ve learned with others.
Call it the boomerang effect. Share what you consider to be a “secret,” and it comes back 5-fold. Share your ideas, share your strategies. Odds are you haven’t figured something out that others haven’t already thought of. Throw it out there and you’ll get much more in return, and who knows, you may end up “stealing” a key element of your trading along the way.
• Look for opportunities beyond just the game you sat down to play. You never know who you’re going to meet, including new friends for life or new business contacts.
You never know. You start out trading, and you end up head of research for a major firm.
• Have fun. The game is a lot more enjoyable when you’re trying to do more than just make money.