Business, Poker & Trading

Tony Hsieh, CEO of Zappos.com, is writing 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. …

EVALUATING MARKET OPPORTUNITIES
• Table selection is the most important decision you can make.
I could not agree more. There are many ways to trade. 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 is without a doubt the first major decision you as a trader need to make. What trading table will I 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 courage or honor for playing at any particular table. Your goal is to make money, period. There’s nothing wrong with jumping from table to table to find the one that’s most profitable for you.
• If there are too many competitors (some irrational or inexperienced), even if you’re the best it’s a lot harder to win.
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 you. 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.
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).
• The guy who never loses a hand is not the guy who makes the most money in the long run.
Trading is a game of risk. You can’t win if you don’t play, so if you’re the type that hesitates, you need to overcome this trait.
• Go for positive expected value, not what’s least risky.
If you want least risky, trade PFE, but you’ll never make any money trading PFE.
• 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.
• 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 until…well 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.
I wish traders would realize this. Short term goals in my opinion 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 else successfully trading a product, so they want to try. Or they see someone successfully using a certain indicator. 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 to study.
• 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.
This doesn’t apply…unless you’re able to plant friends in decision-making roles in government who can pass laws to your benefit.
• 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, I don’t advise changing mid-game. If you’re confused or the game has changed such that you don’t recognize it, go to cash.
• Be patient and think long term.
Ditto my comments about having longer term goals. Jesse Livermore said: “It was the waiting that made me the money.”
• 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, 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.
• 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.
• 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 don’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 (see today’s message board). 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. I share what I 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 no one has already thought of. Throw it out there and you’ll get much 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.
Doesn’t apply specifically to trading, but I know friendships have been formed on the message board. That’s nice.
• Have fun. The game is a lot more enjoyable when you’re trying to do more than just make money.