December 24, 2007

Poker vs Trading



The best article about trading I've come across in a while is actually not about trading. It's about Poker. I am not a Poker player but some of the things mentioned in the latest Economist's article could very well be said about trading. To wit:
"The object is to control the swings of luck with skill, figuring out how to win the maximum with your luckiest hands and lose the minimum with your unluckiest one".
"Over the long run, a player with a head for calculating odds and a feel for the psychology of the game, such as bluffing, will always overcome an untalented opponent."
"The skill is in the betting. And it is apparent in the fact that you can win without the best hand. More than half of all hands end without the cards being shown, not because one player got lucky but because he managed to persuade the others, given their analysis of the available information and the size of the pot, that it was sensible to fold."

It seems Poker also has its share of skill vs luck controversies:

"Online poker sites have reams of game-by-game data. These could, in theory, be used to show what makes some players better than others, and what defines their skill (bluffing? Shrewd betting based on the rapid calculation of odds? Or both?). Through research in this area has been thin on the ground to date, number-crunchers are starting to rise to the challenge......These efforts may produce fascinating results. Or they might reveal nothing much. Even if the data highlight strong trends, it may still not be clear which are caused by skill and which by luck..."

One thought I've had while reading this is that, if we're ready to accept that good Poker players are more than just lucky and that, whatever the nature of their set of skills, they are more skillful than the other players, why is it so controversial (among a certain set of people) to say that good traders (or investors) are skillful and not lucky only.

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