Investment Advice from Poker Star: Focus on Decision-Making Process

Investment Advice from Poker Star: Focus on Decision-Making Process

A recent Barron’s article highlights an interview with poker star Maria Konnikova, a writer who has “parlayed her doctorate in psychology into a career chronicling human behavior and decision-making” and who advises investors to focus on their decision-making process instead of on losses or missed opportunities.

“The extreme ups and downs and uncertainties of the pandemic have left many investors grappling with feelings of angst, doubt or—in the case of the newly minted day trader—overconfidence,” the article says.

Here are highlights from the interview:

  • On the surge in activity by small, retail investors (through the Robinhood app, for example), Konnikova said she thinks such platforms “take advantage of people who have no idea what they’re doing and who might end up losing a lot of money.” For those tempted to speculate, she warns, “You can’t game the market.” Citing the work of Nobel Laurate Daniel Kahneman, Konnikova notes that most professional traders would make more money if “they didn’t trade at all.”
  • “Poker definitely teaches you that players that are too active, who make too many decisions, or play too many hands because they’re bored…they tend to lose money.”
  • For those investors who exited the market in the spring and are now afraid to reenter, Konnikova advises that they “identify the source of the fear and figure out if it is relevant to the decision. Is it rational or not? Is it based on past experience, or is it because you don’t fully understand what’s going on?” If the fear is based on concrete knowledge, she says, “it may be valid. But that is often not the case.”

Konnikova says, “I think every time you make a decision, you should write out why you’re making it and what your reasoning is. And also argue against yourself.” She says the focus should be on the decision-making process, “because that is the only thing you can control.”