Texas Holdem Investing

TEXAS HOLDEM INVESTING
An Introduction
Learn to Invest – Texas Holdem Poker Style
By The Masked Financier
Copyright © 2005-2010
TexasHoldemInvesting.com
Disclaimer Texas Holdem Investing
Texas Holdem Investing ™ is an educational method and the author is not A New Approach to Investor Education
an investment advisor or intermediary.
I have written this introductory book for Texas Holdem Investing ™ after spending a
The Texas Holdem Investing ™ material is intended to assist people who number of years in the financial markets and finding that many of the investor
have decided to put money at risk in the financial markets or in financial education programs miss some of the most important elements required for
market instruments but it does not recommend a particular strategy or successful investing.
investment. There are serious risks inherent in investing money in the
markets and in market instruments. It is the individual responsibility of Texas Holdem Investing ™ is not a “get rich quick” scheme for investing, nor does it
each reader/investor to assess these risks in the light of their own financial guarantee sure-fire positive returns. However, it does provide interesting
circumstances and investment requirements and in consultation with their information regarding how to think about investing. Texas Holdem Investing ™ also
own investment advisors as appropriate. provides a framework to help learn about some of the main principles of investing
through the medium of Texas Holdem Poker.
Texas Holdem Investing ™ demonstrates poker and investment concepts
and gives examples of investment scenarios only for education and To all of the readers of my website (www.texasholdeminvesting.com), and of this
illustrative purposes. It is the responsibility of each reader to assess the book, thank you for your time and attention. I hope that this document will provide
merits and risks of the poker and investment strategies and to assess the some measure of reciprocity for your support.
different investments and asset classes that may satisfy the relevant You have my permission to post this document, email it, print it, and pass it along at
criteria in deciding whether to invest in particular asset classes / no cost to anyone provided that you do not make changes to the content of the
securities / instruments or not. document. In fact, I would encourage you to make copies of the document, with
Texas Holdem Investing™ cannot and will not guarantee or represent that the one request that you ask any recipient to sign up to the Texas Holdem Investing
any poker or investment strategy or investment will produce a positive ™ mailing list at the website. In order to save bandwidth you can always direct
result. Each reader of this material implicitly and explicitly accepts that people to the download link at the website which is located here.
poker involves high levels of risk of monetary loss and that the value of The right to sell this document for any monetary amount either online or as a
investments can fall as well as rise and act accordingly. physical document is strictly reserved for the author and the author’s agents alone
It is ILLEGAL in many countries to organise / host / play Texas Holdem as are all other media rights of reproduction for monetary and commercial
Poker for monetary reward both with respect to games played physically or purposes.
on the Internet or similar computer platforms. Legal penalties for this If you wish to contact the author you can send an email to:
activity in these countries are severe. This book and its author strongly
discourage such activities. This book and its author strongly advise that maskedfinancier@texasholdeminvesting.com.
people wishing to play Texas Holdem Poker in any format check which
methods are legal in their country.
Copyright © 2005-2010 1
Table of Contents I N TR O D U C T I O N
INTRODUCTION.....................................................................................................2 Congratulations. You have made a wise decision in your investing career by reading
WHO IS THIS BOOK FOR?......................................................................................3 the introductory Texas Holdem Investing™ book.*
TEXAS HOLDEM INVESTING™ SKILLS....................................................................5 The Texas Holdem Investing™ method could help to set you on the path to
investing wisely for the long term. At the same time it could help you to profitably
STEP 1. TEXAS HOLDEM VS INVESTING................................................................7
enjoy a hobby that is gaining popularity at an astonishing rate – Texas Holdem
STEP 2. THE BASICS – TEXAS HOLDEM AND INVESTING.......................................8 poker.
STEP 3. THE TEXAS HOLDEM / INVESTING BUSINESS PLAN...............................12
The Texas Holdem Investing™ method describes how to develop a positive mindset
STEP 4. MANAGING YOUR EMOTIONS...............................................................15 for your investing decisions. The active educational environment of Texas Holdem
STEP 5. PROBABILITY...........................................................................................16 poker is expected to teach investing habits more rapidly and permanently than
traditional passive methods of investing tutorials. At the same time, playing Texas
STEP 6. PERFORMANCE ANALYSIS – PREPARATION...........................................19 Holdem poker well could help you to build your investing capital so your investment
STEP 7. STARTING CAPITAL / DEPOSIT BANKROLL.............................................22 decisions are leveraging off greater resources.
STEP 8. POKER AND INVESTING COSTS...............................................................24 It is impossible to forecast how much (if any) investment wealth you may generate
STEP 9. GAME AND MARKET SELECTION............................................................25 from the Texas Holdem Investing™ method. It will depend on how much time and
effort you put into following the method and practicing its principles regularly.
STEP 10. BANKROLL / MONEY MANAGEMENT..................................................27
However, the skills that you can learn could help you to generate positive investing
STEP 11. POSITION – A VITAL FACTOR IN INVESTING AND TEXAS HOLDEM......28 returns and wealth accumulation over time with a reduced expected level of
investment risk.
STEP 12. STARTING HANDS.................................................................................30
STEP 13. THE (INVESTMENT) FLOP.....................................................................32 The Texas Holdem Investing™ method starts by teaching the principles of playing
Texas Holdem poker at low levels of betting, (referred to as “low limits”). With a
STEP 14. AFTER THE (INVESTMENT) FLOP: (INVESTMENT) TURN & RIVER........35
minimum of investment you can quickly become familiar with the rollercoaster ride
STEP 15. MOVING FORWARD.............................................................................39 of wins and losses that are expected to eventually characterise your investing
career. This technique gives you consistent exposure to the experience of financial
loss and gain and how to manage these situations. However, this experience is
*
Please refer to the Disclaimer on page 1.
Copyright © 2005-2010 2
gained at a low monetary level that should not affect your wealth. This WHO I S T H I S B O O K FO R ?
type of experience is a powerful method of reinforcement learning that
“Investing is not a game where the guy with the 160 IQ beats the guy with the 130
can help you to experience and absorb the essential emotional aspects of
IQ. Once you have ordinary intelligence, what you need is the temperament to
investing. Most importantly, when you make a mistake with real money
control the urges that get other people into trouble in investing.” – Warren Buffett
in Texas Holdem poker or investing your subconscious registers it in a way
that makes it less likely to happen again. The Texas Holdem Investing™ This book has been written for anyone who would like to improve their investing
method can help to provide you with inexpensive exposure to making such skills.
mistakes in a way that few existing investing education programs can
match. Anyone can use this method, even with no previous investing The investment education literature available often seems to fall into two
experience. categories in terms of its view on peoples’ investing ability and therefore the best
way to provide investment training.
By practicing the skills shown in the Texas Holdem Investing™ method you
could learn how to potentially accumulate an investment portfolio • Most people do not have the required ability to invest in a way that can “beat
irrespective of what type of investment or asset allocation you choose to the market”. Therefore, people should practise a simple form of investing which
specialise in – equities, bonds, and commodities are just a few examples. is selecting asset classes and allocating capital to so-called index funds for the
This is because the skills acquired from the Texas Holdem Investing™ relevant asset classes which will replicate market returns.
method are the fundamental skills necessary to increase the likelihood of • Most people do have the required ability to invest and achieve better returns in
investment success. Although the number of possible outcomes the market. Therefore, people should learn how to “pick stocks (or whatever
encountered when playing Texas Holdem poker is tiny compared to the other type of asset)” to beat the market.
massive number of outcomes in the investment market the principles
required for success in each field are remarkably similar. Therefore, the The Texas Holdem Investing method fundamentally disagrees with both of the
principles you learn from the Texas Holdem Investing™ method could be above thought processes. It is both wrong and arrogant to state that no-one should
applied successfully throughout the rest of your investing life in any of the invest (or “only the professionals”) because it is impossible to “beat the market”.
wide range of investment markets. Equally, it is both wrong, and dangerous to state that most people can develop to a
high level of the required skills to achieve better returns than the market.
The commentators who make statements about what type of investing is suitable
for “people” are generally speaking to their own agendas, and surprisingly so in
some cases.
Copyright © 2005-2010 3
• John Bogle denounces stock picking and then recommends that you • David Einhorn (Greenlight) majored in government studies in college, and then
invest in Vanguard index funds. spent two miserable years in investment banking before founding his hedge
fund with less than $1 million.
• Warren Buffett preaches the gospel of fundamental value based
investing where he concentrates his investments in a small number of Competent investing of your own funds can be an excellent way of increasing your
assets and then says that most people should invest in diversified index net worth. Although investing well cannot guarantee untold riches you shouldn’t
funds (less competition for Warren?) deny yourself the chance to learn effective investing because of fund industry
advertising which says that Wall Street and The City know what is best for your
• William Bernstein talks about the benefits of asset allocation and then
money. It is clear that they don’t given the excesses of the financial services
mentions that value investing as developed by Benjamin Graham does
collapse that started in mid-2007.
work.
Most people can and should try to learn the main elements required to make good
Everyone is likely to have some sort of capability to invest their financial
investment decisions regardless of the choice of investment vehicle. Texas Holdem
capital well given the correct education and training.
Investing™ can help you with this process.
To demonstrate this, and answer the question “who can invest”, it is
interesting to analyse the diverse backgrounds of some of the great
investors. There is no cookie-cutter template in terms of background,
education, or career that these
• Ken Griffin (Citadel) is the Michael Dell of the hedge fund world having
started out trading convertible bonds in his Harvard dorm room.
• Steve Cohen (SAC Capital) did economics at Wharton but apparently

learned the ropes of risk taking with money while playing poker in
between lectures.
• Jim Simons (Renaissance Technologies) was a mathematics professor at

Stony Brook University.
• Bill Gross (PIMCO) initially joined the Navy and then played blackjack
professionally before moving into fixed income management.
Copyright © 2005-2010 4
T E X A S H O L D E M I N V ES T I N G ™ S K I L L S stating that you can turn small amounts (e.g. $1,000) of investment capital into
large amounts (e.g. $10,000) in a short timeframe. It almost never happens this
Texas Holdem Investing™ teaches a number of important investment skills
way but as a result beginners start out with far too little investment capital and
that are generally overlooked by traditional investor training:
then lose all their capital after a couple of poor decisions. Texas Holdem
• The importance of emotional discipline when putting money at risk in Investing™ can show you how to determine an appropriate amount of starting
investments and how you can develop this discipline through practice capital for your investment strategy and how you can accumulate some or all of
in the live “money at risk” environment of Texas Holdem poker. it by playing Texas Holdem poker profitably.
• The importance of probability analysis in the context of making • The importance of developing and using screening criteria with discipline for
investment decisions to put money at risk and how you can learn this investment decisions so that you minimise the emotional aspect of investment
analytical skill using Texas Holdem poker as a starting point and decisions. Although such criteria are often described in conventional
learning tool. investment education programs the tutorials seldom show how to acquire the
discipline to always apply investing screens. Texas Holdem Investing™ teaches
• The importance of risk management in the context of investing. you how to develop your own screening criteria that suit your investment
Traditional investment education generally focuses on how to make program and then how to apply them in a consistent fashion which can bring
decisions that lead to profitable investment decisions with either little much greater stability to your investment process and performance.
or no focus on how to deal with the loss-making situations. This book presents the Texas Holdem Investing ™ method in 15 steps using the
Unfortunately, it is the loss-making situations that usually have a much following logical structure and should be read and studied in this order.
greater impact on investment performance than profitable
investments. Bernard Baruch, one of the great Wall Street investors Step 1. Texas Holdem Vs Investing – An explanation of the remarkable similarities
was quoted as saying “Even being right 3 or 4 times out of 10 should between Texas Holdem poker and investing in securities.
yield a person a fortune if they have the sense to cut losses quickly”. Step 2. The Basics – Texas Holdem And Investing – Learn the fundamentals of Texas
Texas Holdem Investing™ can show you how to acquire disciplined risk Holdem poker and find out about the books to help you to accelerate your early
management skills that you can apply to your investment portfolio. Texas Holdem poker and investment education.
• The importance of knowing how much starting capital is needed for Step 3. The Texas Holdem / Investing Business Plan – The Business Plans you need
your selected investment strategy. Conventional investment and how to write them before you start playing Texas Holdem poker and before
education almost never focuses on this vital element of your you start your investment portfolio.
investment approach. The majority of beginner investors are
influenced by the standard investment tutorial promotional material
Copyright © 2005-2010 5
Step 4. Managing Your Emotions – Understanding and managing your Step 13. The (Investment) Flop – Learn how to play (or not) on the flop and develop
emotions related to money and investing through the unique training your own strategies for the “investment flop”.
provided by playing Texas Holdem poker.
Step 14. After The (Investment) Flop: Turn & River – Learn how to play (or not)
Step 5. Probability – How to use probability theory to develop a rational after the flop and develop your own strategies for the after the “investment flop”.
system for analysing your investment decisions and Texas Holdem poker
Step 15. Moving Forward – The ultimate Texas Holdem Investing ™ trial which can
play.
show you if you are ready to start being a successful investor and which could
Step 6. Performance Analysis – How to prepare yourself to conduct produce starting capital for you investment portfolio.
suitable performance analysis in both Texas Holdem poker and investing
People who follow the Texas Holdem Investing ™ method have the opportunity to
and how to use it to continually improve your investment decisions.
potentially become better investors while learning a great new pastime. If you
Step 7. Starting Capital and Deposit Bankroll – Starting your Texas Holdem study and apply the Texas Holdem Investing ™ method diligently it could help to
poker bankroll accumulation and how to apply these skills to calculate and guide you to create investment wealth more effectively and possibly with lower risk
start your investment capital. than many other investor training programs.
Step 8. Trading Costs (And Bonuses) – Understanding and minimising

trading costs.
Step 9. Game And Market Selection – How to select the types of Texas
Holdem poker games and then the corresponding investment markets that
are likely to suit your playing and investing capabilities.
Step 10. Bankroll / Money Management – Determine the amount of

capital you would need for each game, session, and investment. How to
decide when to stop playing and converting this into “stop loss” rules for
your investment money management.
Step 11. Position – The importance of position in Texas Holdem poker and
the corresponding vital factor in investing – liquidity.
Step 12. Starting Hands – How to play Starting Hands in Texas Holdem
poker and then how to apply these skills to investment situations by
developing effective screening criteria to assist your investment decisions.
Copyright © 2005-2010 6
S T E P 1. T E X A S H O L D E M V S I N V E S T I N G • When practiced by serious people they are done with the objective of making
money.
“All I bring to the party is twenty-eight years of mistakes” – investor quote
in Market Wizards • There are elements of luck in both fields in the short run but in the long run the
skill of the player / investor should be expected to result in financial gain.
Before you learn how to play Texas Holdem poker well and then find out
how playing this exciting game can help turn you into a skilled investor, it is • They both require a knowledge of probability and statistics to be able to
important to understand the reason why Texas Holdem poker is such an perform well.
effective medium for acquiring practical and usable investment experience.
• They both have unavoidable expenses associated with playing – in poker it is
Peter Lynch – one of the most well known US money managers – has the “rake” and the “blinds”, in investing it is commissions and platform costs.
written that one of the most valuable educational tools for a would-be-
investor is playing poker. Other investment titans also have great regard • It is possible in both fields to learn a great deal about your performance by
for the skills that an investor can learn from playing Texas Holdem. These analysing your wins (good investments), and even more so, your losses.
include:
• They both require the player / investor to cope with risk and also to avoid risk
• Bill Gross – the chief investment officer of PIMCO, the world’s largest in equal measures.
bond fund and generally regarded as the world’s top bond investor.
• Finally, and in many ways most importantly, there is an emphasis on being able
• Jeff Yass – a poker fanatic who founded Susquehanna, one of the to know and control your emotions when playing / investing to ensure that
world’s largest options trading firms. decisions are as rational as possible.
• David Einhorn – the founder of Greenlight Capital, one of the most Learning the skills that are required to be a good Texas Holdem player can help to
th
successful hedge funds of recent years, who finished 18 in the World increase your understanding of how to invest sensibly, profitably, and with low risk
Series of Poker in 2006. levels.
There are many similarities between Texas Holdem poker and investing:
• They are both ultimately solo occupations.
• If you want to invest, trade, or play Texas Holdem successfully you

need to develop a business plan and learn the patience to adhere to
this plan.
Copyright © 2005-2010 7
S T E P 2. T H E B A S I C S – T E X A S H O L D E M AND • A “limit” game structure where there are limits on the size of bets that can be
I N V ES T I N G made in each round and therefore for the whole game
Texas Holdem poker is often described as a game that can be learnt in a • A “pot limit” game structure where the maximum bet that can be made is equal
very short space of time but which takes a lifetime to master. The to the amount of money that has already been bet at that point in the game
“learning” in this statement refers to getting to know all the rules of how (referred to as “the pot”)
to play an actual game. The “mastery” in the statement refers to achieving
• A “no limit” game structure where there are no limits on the size of bets that
a high level of knowledge about the strategy of the game.
can be made at each round in the game.
Investing presents a similar problem for the new entrant. It is very easy to
When describing a game the terminology is usually along the lines of 1/2, 2/4, 3/6
learn how to buy and sell whatever financial instrument you are interested
etc. – 3/6 means is that the betting is done in multiples of 3 and 6 depending on the
in but it takes a long time to learn the skills required to do so profitably.
round of betting and the minimum bet is 3. In this case the “Big Bet” refers to a bet
With these concepts in mind this section describes the game play of Texas of 6 i.e. the amount of each raise in the last 2 rounds of betting in a “limit” game.
Holdem poker, the basics of investing in the markets, and then draws some
Betting Terms: In Texas Holdem poker there is 1 way in which you can decline to
parallels.
bet and 4 ways in which you can bet. These are:
TEXAS HOLDEM POKER BASICS
• Fold – you are not betting at all or not matching any bets that have been made
Cards: Texas Holdem poker uses a standard 52-card deck. and throwing your cards away.
• Check – you are staying in the game and not making any bet at this time. You
Dealer: A disk (usually white) moves around the table during the game.
can only check if no-one else before you has bet and your check is outplayed if
This is known as the “dealer button” and represents which player is the
someone ahead of you bets.
notional dealer for the game. The “dealer button” is important because it
dictates your “position” in the game which is a vital part of the decisions • Call – you are matching any bet(s) that has been made before you.
you make. The betting starts from just to the left of the dealer and moves
• Raise – you are betting more than all players before you. You generally must
clockwise around the table.
raise in multiples of the betting size for the round being played and there is
Betting Structure: Texas Holdem poker games are generally structured in 3 generally a limit on the number of raises that can happen per round of betting.
ways: • Re-Raise – you are betting more than all players before you, including one or
more who had previously raised the betting level. If your re-raise is the final
Copyright © 2005-2010 8
raise that reaches the maximum number of bets for the round then Straight 250 to 1
you have “capped the betting” for that round.
Blinds: The player immediately to the left of the dealer posts the “small Three of a 48 to 1
blind” which is usually 1/2 (sometimes 2/3) of the minimum bet. The Kind
player to the left of the small blind is the big blind and must post an
Two Pair 21 to 1
amount equal to the minimum bet. Without blinds, players could simply
wait for premium hands and not play every other hand since they would be
losing nothing for their patience. Therefore, the blinds force play to take One Pair 2.4 to 1
place.
Hand Rankings: The objective of the game is to achieve the best 5 card High Card
combination according to the following hand ranking table.
Hand Cards Probability

(Odds)
P R E -F L O P R O U N D (R O U N D 1)
Royal 650,000 to 1
Straight Each player is dealt two cards face down (your “hole cards” or “pocket cards”) and
Flush
the first betting round takes place. The first player to act is the player sitting to the
Straight 72,000 to 1
left of the big blind. In this first betting round, players have the option of calling,
Flush
raising, or folding. If the pot is not raised, the big blind can raise or has the option
Four of a 4,200 to 1 of checking since the big blind has already posted the minimum bet. Each bet or
Kind raise is equal to the minimum bet. For example, as per the Texas Holdem rules, in a
$1-$2 Limit Texas Holdem game, one player could bet $1 and another player could
Full House 700 to 1 raise to $2. Generally there is a limit to the number of bets that each player can
make per round – usually 4. Therefore, in a game of $1-$4 Limit Texas Holdem the
Flush 510 to 1 maximum that could be bet by each player in this round would be $4.
Copyright © 2005-2010 9
T H E F L O P (R O U N D 2) TEXAS HOLDEM POKER BOOKS

Three cards will then be dealt face up in the middle of the table. These are Clearly the preceding introduction to Texas Holdem Poker is just that – an
the “community cards” which every player can use to make their best introduction. Therefore, you should consider acquiring some books to further your
poker hand. This betting round is known as the “flop”. The first player to education on the game.
the left of the dealer button begins the betting on this round and all
The Texas Holdem Investing ™ website has a page with links to some
subsequent rounds. Players may bet, check, call, raise, or fold in turn.
recommended books.
Once again, the bets are equal to the minimum bet which would be $1 in
the example above. TEXAS HOLDEM POKER DECISION FRAMEWORK AND INVESTING
T H E T U R N (R O U N D 3) Having gone through the basic rules and gameplay of Texas Holdem Poker it is
A 4th card is then dealt face up which is known as the “turn” card. The instructive to point out the similarities between the decision frameworks for Texas
bets on this round are equal to the maximum bet. For example, in a $1-$2 Holdem Poker and investing.
Limit Texas Holdem game, one player could bet $2 and another player Although the following piece simplifies the nature of decisions in both Texas
could raise to $4. Holdem and investing, it illustrates clearly the remarkable closeness of the mental
T H E R I V E R (R O U N D 4) frameworks required in both fields.
A 5th card is then dealt face up which is known as the “river” card. Again Texas Holdem Decision Framework
the bets on this round are equal to the maximum bet. 1. Review your pocket cards – decide whether or not to “invest in the hand”
The winner is the player who can make the best five-card poker hand using based on the cards and the other players.
his two hole cards and five community cards. Players can use one, both, or 2. Review the flop, turn, and river and also analyse the continued play of the other
none of their hole cards to make the best hand. If two players use the five players and decide whether to:
community cards in the middle of the table they would split the pot
regardless of what their two hole cards are. a. Stay in the game without betting to determine how it develops; or
b. Bet more money to increase potential pot size based on a favourable

development for your pocket cards; or
Copyright © 2005-2010 10
c. Fold your hand and forgo your money in the pot based on a subconscious while you can learn the technical basics of how to invest in the
negative situation for your pocket cards. securities of your choice. You can incorporate your investment learning program
into the business plan that you develop as described in the next chapter.
Investing Decision Framework
This book does not aim to teach readers the basics of investing because they are
1. Review and research and investment opportunity – decide whether or
different for each type of security, despite the fact that the psychology is often
not to invest in the asset based on its characteristics and market
similar.
dynamics
Therefore, Texas Holdem Investing ™ website has a list of books that are
2. Review the performance of the asset, changes in its fundamentals and
recommended as investment classics for an introduction to investing. They should
external forces, and market dynamics and decide whether to:
be incorporated into your general learning program for investing.
a. Stay in the investment with no further investment to see how
the asset performs; or
b. Increase your investment based on favourable developments

associated with the asset and / or market; or
c. Cut the investment and accept any losses based on a negative

situation for the asset’s performance
INVESTING BASICS
Learning the basics of investing is not something that can be achieved in as

short a space of time as the basics Texas Holdem Poker. After you have
selected the type of securities that you wish to invest in you should spend
a considerable amount of time in teaching yourself the fundamentals of
investing in that type of security.
Ideally, you would learn the investment basics while beginning to play
Texas Holdem poker. Playing Texas Holdem Poker can help to ingrain the
fundamentals of investing psychology and risk management in your
Copyright © 2005-2010 11
S T E P 3. T H E T E X A S H O L D E M / I N V ES T I N G B U S I N E S S to operate in. These fundamental factors will be broadly similar for all players
PLAN and investors.
WHY YOU NEED A PLAN 2. Sections of the plan that relate to the particular Texas Holdem poker game type
or investment market that you select to participate in and will vary according to
The majority of people who start playing Texas Holdem simply get some the game and market features.
money together, learn the basics of the game rules, and then start playing
in real money games. FUNDAMENTAL PLAN ELEMENTS
The usual outcome of this approach is generally the loss of the initial stake, The fundamental elements that your business plan should address are:
followed by getting another stake together, followed by another loss, and
1) Education Strategy – This is one of the most important and an often neglected
so on. In most cases the amounts involved are never huge but still – when
part of a business plan, particularly for investors. Educating yourself properly
does anyone ever lightly give away their money so easily? However, one of
about how to play Texas Holdem poker and how to invest is absolutely
the other outcomes – and this is crucial – is that the person is no wiser
essential. The solution is not to simply buy a few well known books, start
about how to play Texas Holdem poker well.
reading them, and start putting your money at risk straight away. You need to
Unfortunately, this type of haphazard approach is similar to the one develop a plan for acquiring the best learning material, embedding it into your
adopted by many people who decide to manage their own investments. memory over time, and then slowly beginning to implement it with real money.
Many studies have shown that people spend more time deliberating on Also, probability theory and its applications is one area that should be a
their next clothing purchase than on a typical investment decision. This is fundamental part of your learning plan – again an area that is often either
despite the fact that the amount of money involved in the investment neglected completely or learnt haphazardly. However, you have helped your
decision is often considerably larger than that in the clothing purchase! education plan by reading this book – now you need to follow through and put
it into practice!
This section shows you how to develop a comprehensive business plan for
both your personal investment strategy and your Texas Holdem poker 2) Bankroll / Investment Capital Strategy – This will specify what your starting
development. capital is and how you plan to increase it. In investing, your capital plan will
need to link in with any savings plan that you have in place which will help to
There should be two main types of section in your business plan.
increase your bankroll at a pace that fits with your investing progress.
1. Sections of the plan that are standard for any type of Texas Holdem
3) Performance Measurement and Analysis Strategy – A vital part of your plan
poker player or investor. These address the fundamental aspects of
which is generally overlooked in the rush to start playing poker or investing.
your strategy regardless of the type of game or market that you select
Copyright © 2005-2010 12
This will need to address what measurements you should use for according to your choice of investment market. You must research the
monitoring performance and what tools you will need to record these fees charged by these services to ensure that you choose the one that
measurements regularly. provides the best value for money. However, it may not always be the
service with the lowest fees that is the best option.
4) Hardware, software, and services requirements – For both poker and
investing it is important that you spend some time researching what GAME / MARKET SPECIFIC POINTS
equipment you need to be able to operate efficiently. This part of the
plan should cover the following: The game-specific issues that your business plan should address are:
a. Computer(s) and monitor(s) needed with an emphasis on 1) Adapting your skills to the specific game / market types you will operate in –
ensuring that there is sufficient processor power and RAM There are different skill levels and skill types required to play at different game
speed so that you can run as many applications as necessary. types e.g. limits in Texas Holdem poker. Playing at lower limits requires
This can be critical because some poker strategies involve developing an ability to stick rigidly to specific rules regarding when and how to
playing on more than one table at a time and for investing it play no matter what run of results you are currently enduring. Playing at higher
can often be useful to have two or more screens. limits (or in no limit) requires a greater level of inventiveness to allow you to
adapt to the wider range of situations that will arise. In investing the parallel is
b. Software needed to achieve optimal performance from the adapting your skills to the specific market and securities that you decide to
hardware being used. The main issue here is to ensure that trade in. For example, asset allocation investing is likely to require a large
you have the appropriate Operating System e.g. Windows XP element of rule-based decision making compared to trading in options or
that will run efficiently on your hardware and allow you to use futures.
all appropriate application e.g. poker site downloads or
security monitoring programs. 2) Accumulating your bankroll to the specific game types you will play in – Lower
limit games will have different (lower) bankroll requirements to play. As
c. Services that you need to sign up for to ensure that you can expected, you will also need greater bankroll to play at higher limits and survive
smoothly conduct your poker playing and investing the greater volatility. In investing the parallel is acquiring capital that is
particularly including the transfer of cash from bank accounts sufficient for the specific market and securities that you decide to trade in. For
through to accounts where you play poker or make example, trading equities on an unleveraged basis is likely to require less capital
investments. In the case of poker you should set up an than trading in options or futures.
account with one of the payment brokers. In the case of
investing you need to sign up with suitable trading companies 3) Deciding on your limit / investment size movement plan – This will dictate
how you will move up or down limits according to the rate at which your skills
Copyright © 2005-2010 13
increase and the rate at which your poker bankroll increases. This is flop and after the flop to the end of the game. The investment parallel is a plan
one of the most crucial elements of your whole business plan because for how you will conduct each investment / trade that you select – why you
it is the area that the majority of players neglect to consider. Moving enter the trade, what profit and loss targets you have set, and why will you exit
up limits too quickly is generally the biggest bankroll destroyer of all. the trade.
Similarly, in investing moving up the amount of investment per trade
START YOUR BUSINESS PLAN NOW
too quickly is likely to reduce the value of your investment portfolio.
You need to have a clear set of rules regarding how you can move up You need to continue with this book in order to learn the information that will
limits / trade larger amounts of securities. Equally, you need to clearly enable you to properly put together your business plan. However, it is vital to start
define why and when you will move down limits / trader lower your plan straight away, even though you do not have all of the knowledge
amounts of securities. These rules should be based on results necessary to complete it. This will ensure that you start your approach to Texas
achieved over specified periods of time. In the context of investing Holdem poker and investing in a disciplined manner – a trait that can help your
your “limit movement plan” will also incorporate when and to what results as you progress and improve.
degree you will use margin (borrowing). Using margin is similar (but
not the same) to moving up to very high limits in Texas Holdem poker
and should only be done when considerable experience and bankroll
has been acquired.
4) Game selection plan – This will describe in detail how you decide to
enter a game based on the number of players, level of betting, and
other relevant factors. This plan may change depending on what limit
you are playing at. The corresponding plan for investing is how you
decide on whether or not to invest in a particular market given
prevailing conditions and expected news e.g. you are focusing on
investing in S&P500 construction stocks but you know that this week
there are housing figures due to be announced and you have no idea
what they may be. Therefore, you stay out of the market for this
week.
5) Game playing plan – This dictates how you will actually play in the
games that you select to join. It will specify how you play before the
Copyright © 2005-2010 14
S T E P 4. M A N A G I N G Y O U R E M OT I O N S decision processes are often made with the luxury of time, a luxury which one does
not often have in the financial markets or at the Texas Holdem table.
"More money is lost by players who know what the right thing to do is, but
don't do it, than for any other reason.” – Ken Warren – author of The Big It is the emotional aspects of Texas Holdem and investing that are typically the
Book of Poker most difficult to master. Decisions that involve putting our money at risk are
amongst the most emotionally-charged decisions that we make at any stage during
Texas Holdem players and investors generally lose money for two main
our lives. And more importantly, the emotional response to gains and losses in
reasons.
situations where money is at risk, such as Texas Holdem and investing, are among
The first is that they do not take the time to acquire the necessary skills the strongest emotions that investors encounter.
and conduct the necessary planning before beginning to put capital at risk.
Operating in a disciplined way according to your plan and achieving a good
The second is that their emotions overcome the good decision-making knowledge of the Texas Holdem game / investment market can reduce the part that
skills and plans that they have acquired. emotions play in your future decisions related to putting your money at risk – both
in Texas Holdem and investing.
UNDERSTANDING YOUR EMOTIONS
TEXAS HOLDEM POKER & EMOTIONAL TRAINING
Achieving an understanding of human emotional responses in the context
of money at risk and in particular your own emotional makeup in this The advantages of using Texas Holdem poker as a training ground for your investing
context is one of the most important requirements for Texas Holdem poker decisions are twofold. Firstly, you can start at very small levels of your money at
and investing. People generally make poor financial decisions and this trait risk - considerably lower levels than are possible in the majority of investing
can worsen when the timeframe for making financial decisions is methods. Secondly, you can practice very rapidly at lower levels and so train
shortened. The human mind is hard-wired to make decisions with the yourself very rapidly about how to deal with your emotions in the situations of
burden of a number of biases that have been well-documented by the winning and losing money. Although some methods of investing do allow people in
academic field of “behavioural finance”. The decision-making of the certain countries to start at smaller levels e.g. spread-betting in the U.K., no form of
average Texas Holdem player or investor is riddled with these common investing allows you to go through the emotional rollercoaster of making hundreds
biases that are difficult to overcome without a concentrated effort to of investment decisions in a week or a month. Texas Holdem poker allows you to
recognise them and prevent them from interfering with results. The do this because you can play upwards of 10 hands per hour on one table and can
majority of investors and Texas Holdem poker players bring their normal even play more than one table in the case of online play.
decision-making methods to putting capital at risk. However, normal
Copyright © 2005-2010 15
REMOVING YOUR EMOTIONS S T E P 5. P RO BA B I L I T Y

The two main methods of removing emotion from your Texas Holdem play “If you don't get this elementary, but mildly unnatural, mathematics of elementary
and investing are: probability into your repertoire, then you go through a long life like a one-legged
man in a rear-end kicking contest. You're giving a huge advantage to everybody
1) Use rule-based systems for evaluating hands and probabilities as much else.” – Charles Munger – Vice Chairman of Berkshire Hathaway (USC Business
as possible and apply them rigorously regardless of what your School Commencement Speech – 1994)
emotions are advising. You should note times when your emotions
advised a different approach that would have resulted in a bad Texas Holdem and investing both present you with uncertainty and limited
outcome and then build up a record of the hypothetical results of your information about each situation that you analyse. In Texas Holdem you don’t
emotions. This enables you to see the negative effect of relying on know what cards will come next or what exact cards your opponents hold. In
emotions and reinforce the need to stick with a rule-based approach. investing you don’t know how a company will perform after you have purchased its
securities or the condition of its internal business capabilities before you invest. In
2) If you suffer a bad string of results you should stop or reduce the level futures trading you don’t know the intentions (if any) of the market participant that
of your playing. In these cases, human nature makes it almost has taken the other side of your trade.
impossible to make rational decisions free of emotional disruption. In
Texas Holdem you “go on tilt” when you start to make poor decisions Fortunately for Texas Holdem players and investors there is a rational method for
because of bad results. A similar mindset can overwhelm you in dealing with the problem of uncertainty – using probability theory.
response to poor investment outcomes that may have been beyond
Probability theory, which has become the bedrock of decision-making for Texas
your control. Therefore, it is necessary to achieve the skill to realise
Holdem players and investors alike, has a fascinating background. It came to exist
when you are in such a mental framework and cease to play or invest
because of a problem that frustrated gamblers in the middle of the 17th century in
so that you will not suffer needless losses because of emotional
France. Chevalier de Mere, a keen gambler, posed the so-called “problem of
interference.
points” question to Blaise Pascal, one of the greatest mathematicians of all time.
The same approach is necessary when approaching your investment The question was as follows:
decisions. Adhere rigorously to your rule-based decision process and
Two people, A and B, agree to play a series of fair games until one person has
reduce / cease investing in the market if investment results cause your
won six games. They each have wagered the same amount of money, the
emotions to interfere in your decision-making processes.
intention being that the winner will be awarded the entire pot. But suppose,
for whatever reason, the series is prematurely terminated, at which point A
has won five games and B three. How should the stakes be divided?
Copyright © 2005-2010 16
Pascal shared this problem with another great mathematician – Pierre right six times out of ten (and legend Bernard Baruch has also been quoted similarly
Fermat – and their letters about the problem formed the basis for modern as noted previously).
probability theory.
CALCULATING APPROXIMATE DRAWING ODDS
EXPECTED VALUE
It is vital that you are able to calculate the probabilities of success with your current
Their letters also formed the basis for the concept of Expected Value – an hand. For ease of use in the context of Texas Holdem it is better to calculate the
extremely useful concept for Texas Holdem and investing. Expected Value odds of success (referred to as “drawing odds”) – they can be converted into
in poker means that you think about your hand in terms of what would probabilities if necessary.
happen if you had this hand many times over and over.
The first step in this process is the ability to know what cards can improve your
Essentially, you need to think of each hand in term of long-term outcomes current hand. This is often referred to as “counting your outs” and is described in
with that hand rather than the current situation in isolation. The detail in the “Analysing the Flop” chapter.
“expected” outcome may not always happen because an opponent will
When you know how many cards can improve your current hand you can then use
draw an unlikely card and beat your hand but this should not alter the way
the following method to approximate the probabilities associated with your current
you play hands. Good Texas Holdem play focuses on ensuring that your
hand.
process for making decisions is fundamentally rational. This basis will
ensure that outcomes will invariably work in your favour in the long term 1) Determine how many unseen cards there are – in the case of a calculation on
regardless of what happens in the short term because of “bad beats” – that the flop it will be 47 (52 – 2 pocket cards – 3 flop cards), in the case of the turn
dreaded situation when your excellent hand is beaten on the last card by 46, and the river 45.
somebody who started out with the worst hand possible.
2) Divide the number of cards that will not help you by the number of outs that
Good investment decisions require a similar decision making process that is you have determined. This will give you your drawing odds.
followed regardless of past results and that focuses on long term
investment objectives. The swings of the market mean that the short term
outcomes of your investment decisions are very unpredictable but a good
decision making process will significantly increase the likelihood of long
term success with your investments. Peter Lynch has been quoted as
saying that for an outstanding investment track record you only need to be
Copyright © 2005-2010 17
EXAMPLE: MEMORIZING IMPORTANT DRAWING ODDS

Consider the case where you have 4 cards of the nut flush on the turn.
In Texas Holdem there are a number of important outcomes that you should be
There are 46 unknown cards = 52 cards minus your 2 cards minus 4 cards familiar with in the context of your pocket cards e.g. on the flop the odds of
on the board “hitting” three-of-a-kind by matching your pocket pair on the turn, and river (this is
called a “set”) is approximately 22.5 to 1. Therefore, you should only bet if you are
9 of the unknown cards will help to give you the nut flush.
getting a return of 23 to 1 on your bet.
37 of the unknown cards will not help your hand
It is important that you can quickly recall the probabilities associated with the
Your pot odds are 37-to-9, or 4.1-to-1, which rounds approximately to 4-to-
possible improvements to these situations. Ideally, you would memorise as much
1.
as possible these important probabilities so that you will have more time to think
Therefore, you will only bet in this situation if the pot is at least 4 times the about your overall game strategy without having to perform mental calculations.
size of the bet that you need to make to stay in the game.
* Note that virtually the same odds will apply on the Turn since there are still 46 cards that are
Now you will have a numerical basis for making your poker decisions based unknown rather than 47 on the Flop.
on the expected value theory. It is important to remember that the odds
of getting dealt certain cards is only a probability. It reflects the
ODDS AND INVESTING
percentage of the time that you will “hit” the hand that you are drawing to
As with many of the comparisons between Texas Holdem and investing, playing
– not the percentage of the time that you will win the pot. You may not
Texas Holdem teaches the basic principle and it can then be applied more broadly
get a card that will improve your hand or another player may improve their
to the wider possibilities in the world of investing.
hand to a greater degree than your hand.
The difference is that in Texas Holdem it is very easy to calculate the odds since
There are many odds calculator programs available for Texas Holdem.
there is a finite and well defined number of outcomes i.e. “outs” to the hand that
These can monitor your hands and advise you of the probabilities.
you hold. In investing the number of outcomes (or “outs”) and their associated
However, some online poker sites and obviously all casinos will not allow
probabilities for a particular investing choice are not as clear or easy to calculate.
these programs. Also, there is no substitute for being able to perform the
calculations yourself. It will help improve your decision speed which can Based on your investment strategy and chosen securities for investment you must
be important because often there are limits on the time permitted to call, define the “outs” relevant to each investment situation i.e. occurrences that will
check, or raise. improve the value of the security that you are holding. When you have determined
what your “outs” are for the investment you then need to work out the
Copyright © 2005-2010 18
probabilities associated with these “outs” and what expected level of S T E P 6. P E R FO R M A N C E A N A LYS I S – P R E PA R AT I O N
increase in security value they will cause.
“If you can’t measure it, you can’t manage it”
MEMORIZING IMPORTANT INVESTING NUMBERS
The above quotation is said to have been stated by Peter Drucker, a renowned
In investment it is also useful to be able to recall important numbers management consultant. It was targeted at the world of operating companies,
quickly in order to speed up your investment decisions. This is particularly where Drucker was pointing out that if a management team is not able to measure
useful in situations where for some reason you need to make a quick an aspect of a business it will never be possible to manage it properly. Obviously
investment decision or if your trading style involves quick decisions in short this is because management will be unable to ascertain how performance of that
term volatile situations. aspect is evolving and how it responds to changes in strategy.
An example of such an important number that you should memorise is 72 The more appropriate quote for Texas Holdem poker and investing is “If you don’t
in the context of the well known “Rule of 72”. This rule states that to measure it, you can’t manage it”. Apart from replacing "it" with "yourself" the
determine how long an investment will take to double in value you divide other one word difference is important – the first “can’t” is replaced with a “don’t”.
72 by the expected rate of return e.g. if the expected return is 10% per In business sometimes there are processes that are difficult to measure, and so
year it will 72 ÷ 10 = 7.2 years to double in value. perhaps management have to come up with an alternative method for
measurement. No such excuse exists for poker players and investors. The statistics
that need to be measured to monitor and analyse performance are well known.
And typically it is relatively easy with a little of self-discipline, to both obtain your
results and analyse performance statistics using computer software.
One of the most important parts of monitoring performance is the preparation

necessary to ensure that a poker player / investor can adequately record results
and then convert the results into information that can be used for performance
analysis. Without sufficient preparation before starting to play poker and invest,
trying to monitor performance will be very difficult down the road.
And not measuring and analysing performance is likely to make it very difficult to
achieve positive returns from both Texas Holdem and investing.
Copyright © 2005-2010 19
This section deals with the issue of making the appropriate preparations to Typical investors display the same careless attitude to tracking their progress. The
ensure that you can easily and effectively monitor your returns in as much good investments (just like the good hands) stay uppermost in the mind and the
detail as required to help consistently improve your skills and results. poor investments (just like the bad beats) are often forgotten.
ONLINE VS OFFLINE However, it is generally the bad Texas Holdem and investment decisions that teach
us the most about what to do and what NOT to do going forward.
The recent arrival of internet Texas Holdem poker has led to a vast increase
in the number of people who now play the game. It has also led to a huge MONITORING SOFTWARE
leap in the ability of players who choose to play online to keep detailed
In previous times Texas Holdem players and investors had to use the trusted pen
records of their performance. Online tools can extract and analyse your
and paper to maintain records of and analyse their poker and investing history.
hand history which can be downloaded from most online sites’ software
There was not much analysis that could be done with such records but it was better
programs. Unfortunately, for players who prefer to play offline, or who
than none at all. However, the computing power available to the average person
have to play offline for legal reasons one has to stick to the trusted
has changed all that. Now it is possible to analyse your complete hand history and
notebook and pen. But whatever recording and analysis tools are to hand,
all of your investment decisions in detail .
preparation for your performance analysis is a vital part of your Texas
Holdem Investing ™ program. Therefore, there is no excuse for the serious Texas Holdem player or investor to not
track their past performance rigorously and to learn from both good calls and
T Y P I C A L (B A D ) P E R F O R M A N C E M O N I T O R I N G
mistakes. Recording and analysing past performance not only educates you about
The typical Texas Holdem player plays poker reasonably regularly, picks a your behaviour and decision making skills. It also enforces discipline on your Texas
random a table at the casino / on the internet and then starts to throw Holdem playing and investing – and we know at this point that discipline is one of
chips in. The amount won or lost is unpredictable from one session to the the keys to success.
next, with every good session goading the player into thinking that a
There are a number of software packages available for analysing your Texas Holdem
winning streak is in progress and that more should be risked. The ultimate
and investing performance.
effect is predictable – a return to the average result – which usually results
in a drop of bankroll to zero after allowing for the rake. Despite reading POKER STATISTICS FOR MONITORING
numerous books on how to play Texas Holdem, the player never spends
time checking out past performance or looking at the behaviour of fellow Poker analytics software provides various statistics that demonstrate the pattern of
players. your play. Some of the statistics will become easier to understand when you begin
to play but it is important to grasp the basics of them before you start. This can put
Copyright © 2005-2010 20
you in a much better position to analyse your performance in your early Turn, and River. As your play improves you will only play to Showdown with good
stages – the point at which you are most likely to lose money! The cards and your W$SD should move above 50%.
following descriptions also provide some broad numbers regarding what
BB/100 – B I G B E T S WON P E R 100 HANDS
your statistics should be if you are playing well. These are rough guides
and will vary according to the type of game you play. In the early stages of This statistic is more relevant to limit games of Texas Holdem rather than no-limit
your poker career there are 5 performance statistics that are most relevant games. It shows how much you have been winning per 100 hands. Since it makes
that can help you improve very quickly from a standing start: no sense to measure your performance in individual hands, you must determine
your winning performance in relation to a more statistically significant number of
VP$IP – V O L U N T A R I L Y P U T $ I N P R E -F L O P
hands. Although 100 hands is still a low number it is better than 1 or 10 for
This shows how often did you bet (excluding the Big Blind) or call a bet Pre- measuring performance. This statistic takes your average winnings per 100 hands
Flop. This statistic shows how well you stick to the primary rule of Texas and converts it into the number of “Big Bets” for the game of Texas Holdem being
Holdem – fold your poor pocket cards before the flop. Good players will played. A good Texas Holdem player should win at a rate of roughly 2 Big Bets per
generally have a VP$IP of less than 20%. Beginners usually have VP$IP 100 hands – 2BB/100 e.g. a $5-10 limit player should win an average of $20 per 100
levels of as high as 50%. hands.
W$WSF – W O N $ W H E N S A W F L O P DISCIPLINE IN MONITORING

This shows how many times you win if you see the flop and should be The most important part of performance analysis is having the discipline to
approximately 35% for good players. continually update your poker software with your hand history from all poker
games. In countries where online poker is legal software can typically import your
PFR% - P R E -F L O P R A I S I N G %
hand histories. If online poker is not legal in your jurisdiction then you will have to
This describes the percentage of times that you raised before the flop. It rely on the trusted pen and paper for recording and then input the information to
should be very low for Texas Holdem novices, possibly as low as 2%. As the analysis software program. Having input this data it is then necessary to take
you improve your Texas Holdem skills your PFR% should increase but some time to analyse the change in your statistics and ensure that they are moving
should not go above 7%. in the correct direction. It is also useful to analyse any unusual statistics i.e. if your
winning statistics for a powerful hand e.g. KK, are lower than would be expected.
W$SD – W I N $ AT SHOW DOWN
You should determine if there are any reasons for this unexpected performance and
This shows the percentage of hands that you win at Showdown, and correct any mistakes in your play if necessary. Only this type of discipline can help
therefore how effective you have been at folding weak hands on the Flop, you to learn from your past performance and improve from analysis of the results.
Copyright © 2005-2010 21
INVESTING PERFORMANCE ANALYSIS S T E P 7. S TA R T I N G C A P I TA L / D E P O S I T B A N K R O L L

In investing there are a number of important basic statistics that you need When anyone is starting a new business that will involve risking their money they
to record in order to effectively analysis your investment decisions. will first put together a business plan. One of the most important parts of this
business plan is how much initial capital is necessary to fund the enterprise. One of
• % Winning Investments – The % of winning investments as a the main reasons for this is that businesses generally require a certain amount of
proportion of total trades made investment before revenues are generated. Therefore the business owner needs
• Average $ Win Per Investment – The average win per successful sufficient capital to survive this period and possibly an extra amount for
investment contingency reasons.
• Equity Line – In this context your “Equity” is the total amount of capital Unfortunately people rarely apply the same rigour when entering the business of
that you have placed in your investment fund at the start of your putting money at risk with Texas Holdem or investing. Part of the problem is that if
investing career. The Equity Line traces the growth (or otherwise!) of you are starting a business that involves producing and selling goods or services it is
your Equity over time as a result of your investment decisions. Ideally necessary to put thought into what will be required to start off both operationally
your equity line should exclude the effect of adding or removing and financially. Texas Holdem or investing does not require you to produce
money from your investment capital. something and as such the starting capital requirement could theoretically be very
small. All you need to be able to do is have sufficient cash to place your first bet or
You will find that many investment software programs produce some of invest in your first security or asset class.
the more basic statistics on your investing performance. However, often
the best solution is to become familiar with the spreadsheet (Microsoft INSUFFICIENT CAPITAL / BANKROLL
Excel, OpenOffice Calc, Google Docs) – which will provide you with the
This lack of planning is a flaw that affects many Texas Holdem players and investors.
power and flexibility to analyse your investing performance in the most
Instead of viewing these activities as a business they are often treated like a game.
appropriate way for both the market(s) you trade and your investing style.
The lack of planning ensures that you will fail to appreciate the downward swings
that could significantly reduce your capital.
This usually causes people to begin Texas Holdem or investing with insufficient
capital. The immediate result is that when you lose money you start to think about
how much money you have lost. This in turn begins to affect your decision making
process, usually negatively. In general this manifests itself as taking greater risks
than should be taken in order to recoup losses. This kind of pattern can cause you
Copyright © 2005-2010 22
to lose your starting capital quite quickly without you being able to tell of this is total loss of bankroll without learning sufficiently about their game and the
why. need to inject new funds into their bankroll.
In other cases insufficient capital will mean that if you are hit by a bad run As you improve over time the bankroll required in terms of Big Bets can be reduced.
of cards in Texas Holdem or if you suffer an initial string of investment As a rule of thumb, if you have started out to play Texas Holdem as per this book by
losses that you lose all your capital before probability is able to work in the time you have increased your initial bankroll from $500 to $1,000 you should
your favour. Probability would be expected to work in your favour in Texas then be ready to move to the $1 - $2 level where you will now have a bankroll of
Holdem and investing if you make rational decisions. But it is necessary to 500 times the Big Bet. It is important to note that the $500 you have added to your
stay in business long enough for the laws of Pascal and Fermat to help you bankroll should be purely from playing games and should not include bonuses or
out. new bankroll. Using this as a hurdle ensures that you are giving yourself sufficient
time and game play to learn the skills necessary to move up a limit level.
You need to consider the size of your Texas Holdem bankroll both with
respect to your overall bankroll and with respect to the bankroll you take It is also useful to keep in mind the principal of bankroll management when playing
into each game. In both cases the amount you need will be dictated by the sessions of poker rather than just hands – this is described in further detail in
size of the Big Bet in the limit games that you are playing in. section 10.
TOTAL BANKROLL / CAPITAL When analysing your investment bankroll requirement you should develop a similar
logic and process to the one above based on the risk levels of the securities that you
In Texas Holdem the size of your bankroll will be determined by two factors have selected for investment.
– a) how much spare money that you can set aside for your Texas Holdem
SEPARATE YOUR BANKROLL / CAPITAL
playing, and b) what limits you are playing at.
The best way to deal with the capital you need for Texas Holdem or investing is to
When you are starting to play Texas Holdem seriously you should start to
set the capital aside into a separate account where you do not add to or withdraw
play at the $0.50 – $1.00 limit to ensure that you cannot lose too much of
from it externally. When you separate your bankroll like this it lessens the tendency
your bankroll through poor play when you are learning. Ideally at this level
of people to think of it as money that they can use to buy something or in the case
your bankroll should be 500 times the Big Bet i.e. $500 in this case. This
of losses money that they could have used to buy something.
should provide more than sufficient scope for you to learn and not lose
your entire bankroll. BANKROLL AND YOUR BUSINESS PLAN
Many starting players will start at a limit that is too high and with a
To conclude, in your business plan (see section 3) there will be a section where you
bankroll that is too small for the limits being played. The inevitable result
deal with the amount of starting bankroll / investment capital you need. Careful
Copyright © 2005-2010 23
thought and analysis is required to arrive at this number because it will S T E P 8. P O K E R AND I N V E S T I N G C O S TS
dictate how you start your Texas Holdem or investing career.
One of the most overlooked issues in both Texas Holdem and investing is that of
In particular, your starting investment capital will depend significantly on “trading costs” and the effect that these factors can have on your long term
the type of securities that you intend to trade and the method that you success. One of the key concepts to enable successful Texas Holdem and investing
intend to use. Obviously, the higher level of risk and volatility associated is to understand the effect of small decisions in the long run and playing / investing
with your intended trading strategy, the higher level of starting investment expenses are areas where this effect is significant.
capital is required.
This major gap in Texas Holdem and investing instruction material is critical and
causes many potentially good players to give up at an early stage because of poor
results that can be traced back to poor management of playing / investing costs.
In Texas Holdem games, you have to pay the “rake” to participate in a particular
hand. In all but two hands on the table you have the choice of whether or not you
want to pay the rake or not because you can choose to fold your opening hand if it
is poor. However, there are two occasions – the small and big blind – where you
have to pay the rake even if your starting hand is poor.
Consider playing $1/2 tables where the small blind is $0.5. On an average 10-hand
table, you have to pay a “cost” of $1.50 per ten hands to play and more if you have
potentially good starting hands. Therefore, every 1,000 hands you end up paying a
“cost” of $150 to simply sit at the table. Then consider that the average winning
hand in a $1/2 game will be approximately $18 you need to win 9 hands simply to
break even.
If you automatically decide to call the small blind in every case (which is highly
unlikely to be the proper thing to do) then you increase your basic entry cost to
$200 – now you have to win another 2 hands (11 hands in total) to cover your entry
costs. If you decide to play poor starting hands that only have a small chance of
winning then you are continually increasing your playing costs.
Copyright © 2005-2010 24
When investing, the trading costs dynamic is slightly different since there is S T E P 9. G A M E AND M A R K E T S E L EC T I O N
no direct equivalent to the blinds where you have to make a trade. You
There are a number of different types of Texas Holdem game formats available to
have the choice whether or not to make every trade and only pay
play, in the same way as there are many different investment markets that one can
commission on trades that you actually make (although in some cases you
choose to invest or trade in.
must pay an annual maintenance fee for your trading account which then
becomes like the blinds you need to pay in poker). Therefore, the LEVELS OF RISK AND REWARD
objective you must meet when developing an investing plan is to ensure
that the average trade you take will at the very least have an expectation There are different levels of both risk and reward associated with each of the
of covering its share of trading and maintenance costs in addition to the different Texas Holdem game types, and even within the different game types
expected return that you want to achieve from your investing. If you do depending on the limits being played. Each of the various investment markets have
not develop your investing ideas with this in mind investing costs will different levels of risk and reward associated with them.
significantly affect your investing results.
When you begin to play Texas Holdem you should start off with the game types and
PLAYING / INVESTING COSTS REDUCTION limits that have the lowest levels of risk. This will ensure that you do not lose
significant amounts of your bankroll because of a lack of skill and experience.
It is important to pay significant attention to reducing your playing / When beginning your investing career you should also exercise care in choosing the
investing costs because, unlike the whims of the cards and the markets, initial markets that you invest in to ensure that you are exposed to as low a level of
they are an aspect of your Texas Holdem and investing that you can firmly risk as possible until you have acquired the skills to increase the risk levels of your
control and have no excuse for neglecting. investments.
Texas Holdem offers one major way of reducing your playing costs - be as INCREASING RISK LEVEL
selective as possible when choosing which starting hands to play, in
particular when you are playing on the small and big blinds. There are 2 ways of progressing to a higher level in Texas Holdem – one is to stay
with the same game type e.g. limit and progress to higher limit levels, the other is
The scope of investment costs reduction will depend on the market and to move on to new game types that have progressively higher risk levels e.g. pot-
security types that you have selected for your investment strategy. You limit or no-limit. In the markets you can remain in the initial market that you have
need to become familiar with the trading costs associated with your selected and increase the size of your investments or you can move on to other
selected market(s) and then determine a cost-reduction strategy that will markets that are inherently more risky because of the nature of the underlying
work while not causing you to make poor investment decisions purely for factors that drive the market.
the sake of costs reduction.
Copyright © 2005-2010 25
The way in which you increase your level of risk should be closely characteristics. However, its price characteristics indicate that it may be a poor
connected with your bankroll and money management approach – both investment at this point in time because there are too many sellers in the market.
for Texas Holdem and investments. Therefore, you need to consider your Therefore, you may decide not to make this investment.
overall skill levels and bankroll amount before changing limits. This is
discussed in more detail in the “Bankroll / Money Management” chapter.
MONITORING GAMES / INVESTMENTS BEFORE SELECTION
It is vital to monitor each Texas Holdem game that you are considering
playing in before you actually join in on the action. The obvious statistics
will be the number of players (which should be 8-10), and the average pot
size (which should be higher than average for the limit level which would
indicate more careless betting by the players but not too high which would
recklessness on the part of the players). Some games may look profitable
according to basic statistics but turn out to be unprofitable because of the
play of some or all of the participants e.g. they could be very “loose”,
always betting to the end of each game regardless of pocket cards,
resulting in some terrible bad beats for you.
Before making decisions regarding investment in a particular security (or

set of securities) you should also take some time to monitor the
performance of the selected security/ies in detail. Although the basic
screens that you use to select investments may be satisfied by an
investment’s performance, further examination of the underlying drivers of
a security’s performance may make it an unsuitable investment.
For example, you may be using an investment screen that selects securities
which are good value according to your selected investment
measurements e.g. price-earnings ratio. This screen selects a “value”
security that you then analyse for 2 weeks based on its price
Copyright © 2005-2010 26
S T E P 10. B A N K R O L L / M O N E Y M A N A G E M E N T In Texas Holdem you cannot extract the maximum possible value from a hand
unless you have sufficient bankroll to bet correctly if necessary and therefore force
Bankroll management (in Texas Holdem) and money management (in
your opponents to bet also and increase the size of the available pot.
investing) are the concepts that will keep you alive in the long run.
Unfortunately, this subject is often left until after the details of how to pick In investing, you should put more capital into a successful investment if you do not
stocks or play hands because it is not very exciting. It is boring because it have a sufficient amount left to outweigh the transaction costs of increasing your
involves using your discipline to protect your bankroll but without it you investment size.
will find yourself digging into your pocket and taking from your living
SESSION BANKROLL MANAGEMENT AND “S T O P L O S S E S ”
expenses to fund your investing or Texas Holdem game.
The reason for the importance of bankroll / money management is that in You will generally find in the investment literature that professional investors tend
Texas Holdem you will never win all of the time and in investing you will to avoid placing too much of their investment stake in one stock position. Similarly,
always have losing trades. Not only that, but there may be prolonged as a control mechanism when playing at lower limits you should avoid placing too
periods where you lose money continuously – even when you are playing much of your entire bankroll at risk during one playing session.
or investing well – with a consequent disastrous effect on your bankroll. Having automatic triggers in your Texas Holdem and investment systems removes a
The inevitable fluctuations in the results of your Texas Holdem games and certain degree of emotion from your decision processes. Given the dangers posed
investment decisions mean that it is essential to have a bankroll that is to these occupations by emotional over-reaction this can only help to improve your
sufficient for the limits that you decide to play and assets you invest in. performance, particularly when you are still in your learning phase.
The reason that learning to preserve your bankroll is so important is MOVING DOWN LIMITS
because money you don’t lose can buy the same items (and assets) as
money you win. Furthermore, money that you don’t lose can be kept for It is important to ensure that part of your bankroll strategy is to move back down
the hands and investments that go your way to maximise your returns. limits if your bankroll has suffered because of poor play or a poor run of cards.
BANKROLL PER GAME / INVESTMENT If for example you have moved to the $1-2 limit level based on achieving a target
bankroll of $1,000 and your bankroll subsequently falls below $1,000 you should
Successful Texas Holdem and investing is only possible when you make then move back down to the $0.50-1.00 limit until you have rebuilt your bankroll to
good decisions. You cannot make good decisions if some of the options $1,000 (once again not including bonuses).
that you would like to utilise are not available to you because of
insufficient bankroll in the context of a game or investment. In general players do not have the discipline to follow such a strategy. It can be
emotionally difficult to drop down limits because it means that it will take longer to
Copyright © 2005-2010 27
recover your losses. However, it is the only way to ensure that your S T E P 11. P O S I T I O N – A V I TA L FA C TO R IN INVESTING AND
bankroll is protected in the long run. If you want to play Texas Holdem TEXAS HOLDEM
long enough to learn how to apply the skills to investing then this is the
“In the long run we are all dead” – John Maynard Keynes
only option that will work.
In the long run all Texas Holdem players are dealt the same cards.
INVESTMENT MONEY MANAGEMENT
The main difference between consistent winners and losers in Texas Holdem is how
As with all of the comparisons between Texas Holdem and investing, your
the two categories of player understand the value of the cards that they have been
money management rules in investing will be dictated by the investing
dealt and how this value changes because of position on the table and the betting
strategy that you have adopted and therefore may not be based on hard
actions of other players in the game.
and fast rules as with Texas Holdem.
Investors make selections from the same field of securities and their selections are
The first decision that you need to make is the initial size of each
based on an understanding of the accurate valuation of securities. Deriving an
investment you will make. This is equivalent to selecting the starting limit
accurate valuation for a security is based on understanding the position of the
level at which you will play Texas Holdem.
security in the investing cycle, the behaviour of other investors regarding the
You will need to determine you starting investment bankroll based on the security, and market level dynamics.
expected worst case scenario that could occur should you suffer a string of
POSITION IN TEXAS HOLDEM
adverse investment results based on your chosen investment strategy.
Position used correctly in Texas Holdem is probably the most important tool in
You should analyse the potential performance of your intended investment
helping you to understand the value of the hand that you currently possess and
strategy based on historic market movements to determine what could be
therefore crucial in helping you to play profitably.
the worst case outcome.
Position is significantly undervalued in Texas Holdem by many inexperienced and
poor players. Acting after other players gives you an informational advantage. By
observing the betting behaviour of the other players you will glean information
about the quality of the opposing hands still in the game.
Copyright © 2005-2010 28
POSITION IN INVESTING In investment markets investing in a more liquid stock will allow you more flexibility
regarding your investment strategy because you can be more certain that if the
The investing analogy to position in Texas Holdem is based on the time that investment outcome begins to differ compared with your expectations it will be
you take after initially considering investing in a particular security until easier to exit the investment quickly even if the investment quality is below
you actually make the investment in the security. If you take very little average.
time to make your decision you are effectively putting yourself in the
equivalent of an early position Texas Holdem player. You will have less
information with which to make a well-studied investment decision
regarding the value of the security and whether an investment provides
significant upside.
Investors who are in “early position” are like business entrepreneurs –

sometimes they can strike big time but they generally get overrun in the
white hot competition of an early stage market. In the stock market it is
safer and more profitable to wait and see what happens with newer stocks
(or a stock that is “new” in your analysis) otherwise you may end up taking
on too much risk. It is even more important to consider your investing
“position” in the early stages of your investing career when you are more
likely to make mistakes because of a lack of information.
POSITION AND I N V E S T M E N T “L I Q U I D I T Y ”
One of the key concepts related to investing is liquidity and this is

significantly influenced by the number of participants in a particular
market.
The concept is similar in poker with respect to the number of players in a

particular Texas Holdem game. Larger numbers of players in the game
mean it is easier to play with certain types of hands that have lower values
as starting hands.
Copyright © 2005-2010 29
S T E P 12. S TA R T I N G H A N D S EVALUATING POCKET CARDS & POTENTIAL INVESTMENTS

W H Y NOT TO “GET INVOLVED” The key to successfully playing your starting hands is to know how to evaluate the
strength of your pocket cards. The value of your pocket cards is dependent on the
In Texas Holdem, as in investing, there is far too much education about
following factors:
how and why to make decisions about “getting involved” in the game and
about how and why to make decisions when you are already involved (or • Your actual pocket cards. The actual cards will determine the initial strength of
“committed” as it is often described in Texas Holdem). Unfortunately, your hand and the number of “outs” that you will have to improve your hand
there is very little education about how and why NOT to “get involved”, when the community cards are dealt. Investment opportunities that have good
and how to emotionally deal with NOT being involved. There are many “outs” have a number of ways in which they can increase in value.
reasons for this:
• You position and relative position (see “Step 11: Position – A Vital Factor”).
• Teaching about how not to play Texas Holdem or how not to invest in
• Number of players at the table and number of players who stay in the game.
securities is not terribly exciting
• How much money you need to invest initially. The amount of money that you
• It may appear to be more simple to teach someone how not to play or
need to put into the pot will affect the game probabilities.
invest and the perceived value and price of such education is low
In investing, the equivalent situation to putting a value on your Texas Holdem
• It is boring.
starting hand is deciding on whether an investment in a particular security is good
All of these reasons are incredibly wrong! value for your investment capital. You should avoid investing in a security where:
People do not realise that learning how to not lose money in Texas Holdem • It does not have a wide range of “outs” to help performance improve (poor
and investing is at least as important as learning how to win money. In pocket cards situation).
fact, many of the great Texas Holdem players and investors would argue
• You have not had sufficient time to assess the potential performance of the
that learning how not to lose is even more important than learning how to
security (poor position)
win.
• The potential upside from the security if it performs well is not good (small pot
The starting place in Texas Holdem for ensuring that you do not lose
because of small number of players causing reduced pot odds)
money needlessly is the way in which you play your starting hands. The
key analogy in investment is the way in which you analyse the investment • The investment required in the security to achieve a sufficient return is too
choices that you face and decide whether to commit your capital or not. great (a pre-flop raise increases the initial investment required and reduces pot
odds)
Copyright © 2005-2010 30
The difference between the two fields is that the rules for evaluating your hand tables in Texas Holdem. Instead, there are a number of screening system
pocket cards in poker are easier to learn and apply than the rules for guidelines available which can be used as a basis for your screening filter. Many of
determining whether an investment is good value. these guidelines are based on the investment strategies of well-known investors
who have made their methods public. There are also many screening tools
SCREEN-BASED ENTRY available on the internet - some of them free - that will enable you to develop your
Deciding which Texas Holdem pocket hands to play and which investments own screening system.
to make should be based on a screening strategy that will only create Therefore, when you have gained the benefits of using a screening system for your
situations for you that provide a positive risk-reward ratio in your favour. Texas Holdem starting hand selection, you will be ready to develop your own
You will find that such a screening strategy will mean that more often than screening system for your investment decisions. This should be based on a
not you will be “sitting on your hands” during games of Texas Holdem and combination of sound investment theory combined with your own attitude to risk.
during the investment markets. As an example, Buffett would often make investment based on a “safety margin” of
The foundation to successful Texas Holdem play is having the ability to fold some sort for each stock he purchased. This would provide him with some
poor starting hands. The majority of starting hands should NEVER be downside protection in the event of the investment not performing as he expected.
played, particularly if you are in early position. You need to decide if you need such a safety margin built into your own investment
decision process and then develop your screening system appropriately.
Similarly, in the world of investment choices the majority of investments
should never be selected for your portfolio, particularly if you are in the
equivalent of “early position” because for some reason your information
about the investment is of poor quality.
INVESTMENT SCREENING SYSTEMS
One of the most amazing examples of screening in the world of investment

is the investment decisions of Warren Buffett in recent years. His
screening method focuses on only purchasing securities that provide
excellent value for the cost of investment in addition to a strong industry
position.
Unfortunately, there are no clear cut initial screening systems available “off
the shelf” in the investment world in the same way as there are starting
Copyright © 2005-2010 31
S T E P 13. T H E (I N V ES T M E N T ) F LO P true of investment, where if the outcome at the Investment Flop stage of the
process does not match your original expectations you should exit the investment.
“Cut your losses and let your profits run” – well-worn investment proverb
The best way to avoid poor decisions on the Investment Flop is to continually
“There's no sin in being wrong; the sin is in staying wrong.” – another(!)
question the reasons why you are still in the game or investment at that point.
well-worn investment proverb
Your answers to these questions will help to show you whether you should exit at
The flop is the most essential part of a Texas Holdem game and it is the that point or move on.
stage where decision making skill is most important to ensure your success.
Great poker players keep asking themselves why they should stay in the hand and
When playing starting hands you will only be playing hands that have high
look for a reason to fold. Great investors always question their security positions
values but when the flop hits the value of your hand can change
and try to find reasons for closing their positions.
considerably so that you will end up playing a wide range of hands with
values ranging from excellent to terrible. It is crucial that after the flop has WHERE IS THE “I N V E S T M E N T F L O P ”?
been dealt you can quickly evaluate your current situation regarding being
favourite or otherwise and then play your hand appropriately based on In Texas Holdem the Flop is easy to define as it happens at the same time in every
strict rules. game. However, in investment markets you need to define your own flop for each
investment that you make.
Every investment also has a flop element to it, and how to define the
Investment Flop is almost as important as knowing what to do at that In Texas Holdem, the flop is essentially when you see more cards and betting that
point. Knowing what to do at the Investment Flop is a critical part of change the value of your pocket cards. Therefore, in an investment the flop would
successful investing because it will dictate in large part whether or not the likely be a particular event or length of time (or both) after which the underlying
investment will be successful. Learning how to recognise what has criteria of the investment decision will have changed and affected the value of your
happened on the Investment Flop and react to it will be a significant factor investment.
that influences your investment outcomes. “M I S S E D ” F L O P
Unfortunately for both Texas Holdem players and investors, hope generally
It is ironic that most Texas Holdem books focus on what you should do on the “flop”
dominates rational decision making at the flop more than any other part of
when you “hit” good cards when in actual fact this happens in the minority of cases.
the game or investment process. If a player has two pocket cards that are
Even more ironic is the way in which these books start off with flop strategies for
completely missed by the flop the hand should be folded. There should be
the strongest hands – by definition the hands that are least likely to occur in the
no hope attached to possible improvements on the turn or river – this kind
of decision making will only cause losses and emotional pain. This is also
Copyright © 2005-2010 32
real world. In the majority of cases you will be missed by the flop and will b) The actual movement of the security price in your favour.
not be hit by any cards that suit your pocket cards.
In Texas Holdem, it is reasonably straightforward to elaborate the various strategies
Therefore, it is vital that you can both realise when you have not been “hit” that one should use for different types of flop.
by the flop and realise what you should do at that point.
It is not so easy to specify similar post Investment Flop strategies that will have as
As an example of realising when you have not been hit despite appearing broad a scope as the post-flop strategies in Texas Holdem. Therefore, it is
to be in a hopeful situation, if you have second or bottom pair with no necessary to develop your own analogies between different flop types and
overcards you may think that you are not in a poor situation. In reality, if investment situations.
there is any action on the flop from your opponents you should simply fold,
DOMINATED HANDS
analyse the rest of the play by your opponents, and look forward to the
next hand. Regardless of the way in which your hand has improved on the flop it is important
to watch out for hidden aspects of the situation that could destroy your apparently
In investing the analogy to a missed flop is where you have selected an
good progress.
asset based on certain criteria remaining in place or occurring and then
those criteria fail to stay in place and / or occur after you have invested. In Texas Holdem this could arise because although you have flopped three of a kind
your opponent may have flopped a flush or a flush draw. This type of situation is
As with a missed flop in Texas Holdem there are two options and they are
the most difficult to get out of because although your own hand has improved (in
based on the movement of the asset value and underlying criteria after
some cases significantly) you are dominated by another player and so have
investment. If your screening criteria are no longer relevant and the asset
effectively lost and are “drawing dead”. It is difficult to realise such situations but
price has moved against you it is essential to exit the position as quickly as
you need to develop this skill and then act appropriately, usually by folding, if it
possible.
arises. As a rule, the following types of flop are dangerous because of the
“H I T ” I N V E S T M E N T F L O P possibility that your good flop hand is dominated.
When you are “hit” by the flop in Texas Holdem poker it is likely that your
expectation of winning money from the pot has increased. The Investment
Flop analogy is a combination of:
a) Where the criteria you used to select an investment have remained in

effect or events have occurred that improve the investment relative to
your original criteria.
Copyright © 2005-2010 33
• 2/3 cards of the same suit COMPLETE HANDS

• 2/3 connected cards Texas Holdem players do not flop complete hands very often because of the low
• A pair on the board probabilities associated with such events. As a result, the general reaction upon
flopping a complete hand is one of overwhelming joy. Unfortunately, the wave of
• All high cards on the flop
positive emotions can often have the effect of distracting the player from
In these cases you will require a particularly strong hand to play on, performing the analysis that is still necessary when flopping an apparently complete
especially if there is strong betting from any of the players on the table. hand. This loss of concentration can have a terrible effect on your overall Texas
Holdem results. A significant portion of a player’s overall winnings can often be
In investing, a similar situation could arise when company may have
attributed to a small number of complete hands that are played well. It is essential
announced excellent results, but there are some lingering doubts over
to maximise the value of these complete hands as much as possible. In addition,
accounting methods that it has used to achieve these results – the classic
sometimes your complete hand is dominated but because of your emotional state
example that many investors can relate to is Enron, or more recently the
you do not notice this. Such lapses of concentration can be catastrophic because
shares of banks such as Washington Mutual. There could be significant
you bet far too strongly on your apparently complete hand only to suffer a
doubt over the real strength of the results, in the same way that in Texas
devastating loss when you are outdrawn.
Holdem poker your “WaMu” three of kind appears to be strong but has
been compromised by the flop helping an opponent to make an even Similarly, the investor will sometimes hit a home run with an investment. There are
better hand. numerous reasons why this might happen e.g. getting in to a stock soon after an
IPO when there is still plenty of upside – the classic example here is the early
Another example would be when a company performs well with respect to
investors in Google. However, as with Texas Holdem there is often a tendency to
its own operations but is affected by an external factor such as commodity
allow the euphoria of the initial good result to reduce the investor’s ability to
prices. A classic case is the airline industry, where good results and
maximise the value from such a hand. As with Texas Holdem, a small number of
efficient operations by the carriers are constantly compromised by
“complete hand” investments can often be responsible for most of an investor’s
increases in oil prices.
overall gains. There are a number of examples of this phenomenon in recent
In Texas Holdem it is easy to determine possible opponent hands that history e.g. Julian Robertson’s copper trade, George Soros’ sterling trade, and Li Lu’s
dominate your own from rigorous analysis of the flop. In investing you will investment in BYD Company (look them up!) Therefore, it is as important to know
have to set your own rules about what possible indicators show that how to react effectively when an asset (class) moves hugely in your favour as it is to
despite an apparently profitable situation you are likely to lose on the know when a security selection goes horribly wrong.
trade.
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INVESTING – CREATING YOUR OWN FLOP STRATEGY S T E P 14. A F TE R T H E (I N V ES T M E N T ) F LO P : (I N V E S TM E N T )

TURN & RIVER
You will need to develop your own Investment Flop strategy that will take
into account the unique factors of your own investment situation by Play after the flop is generally much more straightforward since the strength of
allowing for: your hand and the potential strength of other players’ hands will be much clearer at
this point. Therefore, you must keep analysing the potential of the board for other
- Type of market being traded
players and using probability rigorously to ensure that you make the correct
- Types of securities being traded in your selected market decisions.
- Time-frame of your investments Similarly, in investing after the Investment Flop event and / or timeframe has
- Profit objectives and maximum loss levels that you have occurred and you have acted according to your pre-set investment criteria, if you
specified are still in the investment it is likely that you have benefited from a good outcome
at this point. Therefore, it should be considerably easier to make decisions on what
Developing your own Investment Flop strategy should form a major part of
to do with your position to either lock in your profit or possibly improve it.
your business plan development. You should describe the strategy in
detail, writing down what range of Investment Flop events can occur and T H E (I N V E S T M E N T ) T U R N
what your response should be to each event type.
In a poker game if you feel that you still have the best hand you should keep betting
It should be an ongoing task that will require constant revision to deal with strongly and raising if necessary. This will make it as expensive as possible for the
changes in your investment environment and your own skills. In the same other players and ensure that your opponents do not get a free card to improve
way as your flop strategy will change as you move up limits, your their hands.
Investment Flop strategy will change as the markets, securities, and
methods that you trade with change in response to improvements in your If this situation has occurred with an investment i.e. where the trade is still moving
investment decision-making and results. in your direction and the fundamental factors supporting you staying in the trade
are still in effect, then you should increase your investment to maximise your gain
from the trade.
If you are worried about not having the best hand then you should check if possible
to ensure that you don’t put too much money at risk. However, you would
normally then have to call on the river to overcome the weakness that you
displayed on the turn by checking.
Copyright © 2005-2010 35
The investment analogy to this situation is where you are at relative break If you have used the principles in this book up to this point you will have been
even on the trade but are not sure if the fundamental reasons supporting playing only premium hands. Therefore, in the majority of cases it will be
the trade are still in effect. You should not put any further investment at reasonably safe to bet on the river in the expectation of winning.
risk if you can help it until the next decision time point arrives. This will
LET YOUR PROFITS RUN
allow you to see some more development of the investment to determine
if it is worthwhile. The investing analogy is that when you have invested in a good security and it has
moved in your favour according to your investment criteria you should continue to
Raising on the turn should generally be avoided since the betting amount
invest in the security and remain invested to maximise your profit. Before you
has increased and thus raising can significantly reduce your pot odds.
begin to invest in a security the main objective is to ensure that you keep your
Unless an investment is already in major profit or has moved into major losses to a minimum through your initial investment screening criteria. When you
profit at the point of the investment “turn” you should avoid significantly have invested successfully in a security and have gone as far as the Investment
increasing your stake in the trade. River the main objective changes to ensuring that you maximise your profit from
having made a sound investment. These are the twin objectives of the famous
T H E (I N V E S T M E N T ) R I V E R investment principle “cut your losses and let your profits run”. When you have
AVOID WEAKNESS reached the Investment River with a successful investment it is vital that you “let
your profits run”.
The conventional wisdom in Texas Holdem is that the big money is lost by
hitting a great hand and then being “rivered”. For example, suffering a bad Getting out of a poor investment at an early stage can save you from a limited loss.
beat on the river when your flush is beaten by the house of 2s full of 7s Exiting a profitable investment before it has reached its full profit potential can be
which was from the player who played 72 offsuit from the pocket. much more disastrous – you are losing a potentially large upside extra profit on the
investment. For example, if you invest $1,000 in a security the maximum you can
However, as with the conventional wisdom in many fields, this piece of lose through poor loss control is your initial $1,000. However, if you invest $1,000
“knowledge” overlooks another major source of big losses. That is the in a security that moves significantly in your favour and then you exit the trade
situation that arises when you have the best hand but fold it on the river when it is at $1,500 but the security eventually goes to $5,000 you have lost $3,500
because you think you are beaten. Inexperienced players lose huge of potential profit.
amounts of potential winnings (and lose their own part of a big pot)
because of weakness at this crucial stage of the game.
Copyright © 2005-2010 36
EXIT WEAK POSITIONS Similarly, when making decisions on the Investment River you should only increase
your stake in the security if you have a strong conviction that the future security
In a poker game if you have reached the river with a marginal hand and
movement is reasonably certain according to your investment criteria and based on
there is a multi-way pot with many players remaining it is likely that your
movement of the security up to this point. Investing at this point is the most
chances of having the best hand are low. You would have reached this
expensive entry level and so should not be done without good reason since it
stage because the betting action in previous rounds was low and so
significantly increases the average cost at which you invested in the security.
reaching the river was inexpensive. Therefore, in the face of any significant
betting action you should simply fold. EFFECTIVE SCREENING MEANS STRENGTH ON THE RIVER
Similarly, if you have reached the “investment river” with a security which The most important point to emphasise at this stage of a Texas Holdem poker game
has had marginal performance and is not supported by strong is that you should bet on the river because you will have been playing with
fundamentals according to your screening methods you should probably premium hands to reach this stage in most cases. Unlike you, your opponents are
exit the investment. The lack of strong fundamentals will mean that the less likely to be playing premium hands. Undoubtedly you will suffer from some
security may be exposed to external events that could cause a fall in value. outrageous bad beats at this point from inferior players who hit unbelievable hands
on the river. However, these should be outweighed by the big wins. You must
ONLY INVEST FURTHER FROM STRENGTH
simply learn to accept these bad beats as a part of the game of Texas Holdem and
One important part of your strategy on the river is to only bet (or raise) if move on. It is important to ensure that you manage your emotions carefully in the
you want to be called by another player. Therefore, you should only bet face of these bad beats. As mentioned previously, it is easy to “go on tilt” after
(or raise) when you think that you will have the best hand if you are called. suffering a terrible bad beat – this needs to be avoided through the emotional
If you are not sure for any reason that you will have the best hand when discipline that you have built up over the course of your progression through the
called then you should simply check. If there is a bet after you have game limits.
checked you need to consider the strength of the bet when determining
When making your investment decisions at this “investment river” stage of the
whether or not you are beaten. This strategy gives you the ability to
process you will also be reasonably safe in the knowledge that you are invested in a
choose whether or not to bet on the river in view of your thoughts about
good quality trade that is moving in the direction predicted by your investment
your opponent’s hand. If you were to always bet on the river you would
strategy. Therefore, you should generally increase your investment stake to
often lose to a better hand. This strategy can save you considerable
maximise your profits from the trade.
amounts of money since betting on the river when you are beaten can be
an expensive mistake if you repeatedly make it.
Copyright © 2005-2010 37
DEALING WITH BAD BEATS However, as we can see from above, the amount of choices available to you on the
Investment Turn and Investment River are considerably less than those on the
There will be rare occasions where you suffer from a terrible “investment
Investment Flop because after the Investment Flop you have reasonable certainty as
bad beat” because of reasons that were completely outside of your ability
to your ultimate position and the situation with the asset you have selected.
to predict or your investment method to deal with. Very few people who
had successfully invested in Enron coming up to October 2001 could have Similarly, in the investment context, when you have defined your post-flop situation
predicted the fraud and stock collapse that was to ensue. The same is true whether by time or event you should have a better idea of the trade’s quality and
of many of the securities that people invested in during the recent high- remaining potential. Therefore, the range of actions that you define should be less
tech boom. than at the Investment Flop.
Unfortunately there is one major difference between bad beats on the If you consider the potential scenarios and associated options available to you and
Investment River and on the Texas Holdem river. After the river the game discover at this point that there is still a large variety of scenarios open to you it
is over and this imposes a very effective risk control on your losses from may be necessary to consider whether you are actually at the Investment Turn or if
that game. you are still at the Investment Flop where there is a wider range of possible
developments in the factors affecting the trade and the future security price.
However, when a trade moves completely against you but still has value,
the “investment game” is not over – you are still invested in the security.
In the absence of a compelling reason at this point you should end this
particular “investment game” and take the hit to your capital as a cost of
business. Too many people in this situation go “on tilt” with the trade,
staying invested in the hope of the trade moving back in their direction –
often to watch it deteriorate further. Do not permit your capital to suffer
any more than necessary in these situations.
INVESTING – CREATING YOUR OWN POST-FLOP STRATEGY
As with the Investment Flop above where we described how to develop

your own flop strategies based on the markets and trading style that you
are using, you will have to develop your own post-flop investment rules
and tactics.
Copyright © 2005-2010 38
S T E P 15. M OV I N G F O R WA R D can help to steel your psyche to deal with these emotions. If you are in this position
you will be in the small minority of investors (including professional investors) that
Investment literature has continued to be written throughout the wild
have the ability to cope with the rollercoaster ride that is investing in the financial
highs and lows of the last 10 years with a focus on how to select the
markets.
securities or asset classes that will help to generate a high return.
Texas Holdem Investing ™ will not show you how to make millions in a short space
Unfortunately, such “systems” that are promoted by these books and
of time or make asset allocation projections as many investing courses and books
courses are of little or no use in the hands of an investor who has not
promise. Instead, it will show you how to invest well by “losing well”. Ben Hogan,
mastered the required emotional, quantitative, and risk management skills.
the legendary golfer, once said about golf that “This is a game of misses. The guy
Even the best security selection system should not expect to achieve who misses the best is going to win.” Investing is identical to this. It is more
accuracy of significantly above 60%. More importantly, and most important to deal properly with your poor investments than to select the best ones.
unfortunately for typical investors, it is the losing trades which causes the This is because you cannot be guaranteed that you will always make good
greatest problems – panic in the face of large losses has destroyed many investments, but you can be guaranteed that you will always make bad investments
an investor’s portfolio in very short spaces of time. at some point. After playing hundreds of hours of Texas Holdem poker, with the
final playing at levels where SERIOUS money (from your point of view) is at stake,
Texas Holdem Investing ™ shows you two of the most important lessons you will have learned what it is like to be in the crucible of investing. If you can deal
necessary for successful investing. with your emotions in these situations when you could lose significant bankroll in
The first is a new way in which to make your investing decisions based on an hour you should be ready to make the step up to investing with confidence
emotional discipline, good quantitative assessments, and a comprehensive whatever your style.
risk management system.
I look forward to hearing about your progress.
The second is a method with which you can learn to experience and then
to deal with the emotions associated with putting your money at risk and
then seeing both gains and losses. This is achieved through playing Texas
Holdem poker and relating your experience at the poker table to the world
of investing
Investing is not an easy subject to master no matter what training and

studying has been practised. This is because by definition financial losses
affect emotions much more than financial gains. Texas Holdem Investing ™
Copyright © 2005-2010 39

Texas Holdem Investing - An Introduction

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Texas Holdem Investing - An Introduction

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By The Masked Financier

Disclaimer Texas Holdem Investing

• Steve Cohen (SAC Capital) did economics at Wharton but apparently

• Jim Simons (Renaissance Technologies) was a mathematics professor at

Step 8. Trading Costs (And Bonuses) – Understanding and minimising

Step 10. Bankroll / Money Management – Determine the amount of

• They are both ultimately solo occupations.

• If you want to invest, trade, or play Texas Holdem successfully you

Hand Cards Probability

T H E F L O P (R O U N D 2) TEXAS HOLDEM POKER BOOKS

b. Bet more money to increase potential pot size based on a favourable

b. Increase your investment based on favourable developments

c. Cut the investment and accept any losses based on a negative

Learning the basics of investing is not something that can be achieved in as

REMOVING YOUR EMOTIONS S T E P 5. P RO BA B I L I T Y

EXAMPLE: MEMORIZING IMPORTANT DRAWING ODDS

One of the most important parts of monitoring performance is the preparation

W$WSF – W O N $ W H E N S A W F L O P DISCIPLINE IN MONITORING

INVESTING PERFORMANCE ANALYSIS S T E P 7. S TA R T I N G C A P I TA L / D E P O S I T B A N K R O L L

investment contingency reasons.

MONITORING GAMES / INVESTMENTS BEFORE SELECTION

Before making decisions regarding investment in a particular security (or

Investors who are in “early position” are like business entrepreneurs –

One of the key concepts related to investing is liquidity and this is

The concept is similar in poker with respect to the number of players in a

S T E P 12. S TA R T I N G H A N D S EVALUATING POCKET CARDS & POTENTIAL INVESTMENTS

INVESTMENT SCREENING SYSTEMS

One of the most amazing examples of screening in the world of investment

a) Where the criteria you used to select an investment have remained in

• 2/3 cards of the same suit COMPLETE HANDS

INVESTING – CREATING YOUR OWN FLOP STRATEGY S T E P 14. A F TE R T H E (I N V ES T M E N T ) F LO P : (I N V E S TM E N T )

INVESTING – CREATING YOUR OWN POST-FLOP STRATEGY

As with the Investment Flop above where we described how to develop

Investing is not an easy subject to master no matter what training and

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