Researchers have found that success at poker can help hedge fund managers.
© 2016 Bloomberg Finance LP
Many have suspected a link between talent at poker and investing. Now, researchers have proved it.
Hedge fund managers who have won cash prizes at poker tournaments apparently outperform those that have not by approximately 1% to 5% a year in investment returns. This is according to research by Yan Lu, Sandra Mortal and Sugata Ray. Furthermore, those hedge fund managers who place higher or win larger tournaments with larger prizes tend to exhibit further improvements in investment return. This is not just anecdotal data, 220 hedge fund managers have seen success in poker tournaments, creating a potentially meaningful data set.
Links Between Poker And Investing
The researchers suggest a few reasons for the link between investing and poker. Specific skills in poker may carry over to investing. One skill is patience. This can be measured in portfolio turnover, and hedge fund managers who succeed in poker tend to hold onto portfolio positions longer. poker online indonesia
Another is avoiding the disposition effect. The disposition effect can cause you to hold onto losing investments for too long, while quickly selling winners. Skilled poker investors are less likely to do this. Furthermore, the ability to read people can be useful both in poker and investing. The researchers also find that those investors who focus on fundamental stock selection have greater links to skill in poker, than those who invest with a purely quantitative approach.
The Winner’s Curse
Ironically though, having a big win at a major poker tournament, may not actually help fund performance after the fact. This has less to do with poker and more to do with fund flows, according to the researchers. They find that a big win as a high-profile tournament such as the World Series of Poker or other televised poker event can lead to inflows into a hedge fund manager’s fund. However, when a fund grows in size it can be more challenging to sustain investment performance. Therefore, even though the manager may be just as skilled after their big win, performance suffers because their fund is now larger. The fund may have to alter investment strategies that worked in the past at a smaller scale. Also, analysis suggests that after high-profile wins the hedge fund manager may take some risk off the table and run the portfolio in a way that tracks closer to the benchmark, playing it safe. Finally a big poker tournament win may also be a distraction to a hedge fund manager, meaning less time spent running their fund.
So if you’re looking to improve your investing skill, then playing more poker may be an unexpected way to do it. Or perhaps being good at poker is just a signal that you may be a skilled investor. Either way, even if you don’t play poker you can still learn from the game. Remember to have patience, and try not holding on to losing positions too long. These traits can prove be useful in many areas of life, including investing.