The Link Between Investing and Poker
- March 25th, 2020
Finance professors at The University of Alabama’s Culverhouse College of Business, Sandra Mortal and Sugata Ray have studied a correlation between poker and investing in a paper titled, “Hedge Fund Hold’em.” Yan Lu of the University of Central Florida’s College of Business Administration is a co-author of the paper.
They show hedge fund managers who are successful poker players tend to outperform other managers who are unsuccessful poker players by 1 to 5 percent. This research was discussed in a recent Forbes article “How Poker Makes You a Better Investor.”
From the article:
The researchers suggest a few reasons for the link between investing and poker. Specific skills in poker may carry over to investing. One skill is patience. This can be measured in portfolio turnover, and hedge fund managers who succeed in poker tend to hold onto portfolio positions longer.
Another is avoiding the disposition effect. The disposition effect can cause you to hold onto losing investments for too long, while quickly selling winners. Skilled poker investors are less likely to do this. Furthermore, the ability to read people can be useful both in poker and investing. The researchers also find that those investors who focus on fundamental stock selection have greater links to skill in poker, than those who invest with a purely quantitative approach.
Ironically though, having a big win at a major poker tournament, may not actually help fund performance after the fact.