In the Free Market Game of Life, Women are Commission (and Possibly the Capital Gains Tax) I was looking for a way to make this story long enough for its own post, but there just isn't enough to it. After opening the shop on Sunday morning, I was feeling tired so I went home to take a nap. After letting Scrappy in from outside, I laid down on the couch, turned on the History Channel and went to sleep. I was awakened twenty minutes later by Scrappy, who climbed up on the couch and threw up on my head. Seriously, I wish I was making this up. He is lucky he isn't my dog, or I would have totally thrown him in the dryer for a few cycles.
The more I read and learn about the stock market, the more I realize it is EXACTLY the same as Texas Hold 'Em, complete with its own sweet lexicon. For example, "I hit my inside draw on fourth street for the nuts" easily translates to- "After an early breakout, I doubled down and caught a late rally eventually closing at a new high" regardless of whether or not Alan Greenspan uses the phrase, "Irrational Exuberance".
Also, both are zero sum games. In poker, for every winner you have a loser. It's the same in the market, although it doesn't make as much sense intuitively. It's obvious in poker, because every time you take down a pot you stare down the douche you took it from. It's a little different in the market. The reason the market is a zero sum game is because for every buyer, there IS a seller. It seems like you can just throw money in for thirty years and come out ahead guaranteed. However, this can only happen if you can find someone to sell it to you intially and to buy it at the end. In essence, some of the gains and losses aren't realized in the same timeframe, leading to the misconception that the market isn't a zero sum game. For example, I buy 100 shares of Bloaty's Pizza from seller X. If Bloaty's Pizza accumulates value, I win and the seller loses unless he uses the money from the sale to invest in something that makes as much or more money as Bloaty's Pizza. If that is the case, then the loser is just removed from me by any number of trades. I'm pretty sure this is correct, but if you can think of a valid counterexample let me know. I didn't think this was true at first, but I can't think of an example that contradicts it.
The great thing about zero sum games (my mom refuses to acknowledge this point, which led us to having the same talk about the market as we did when I told her I made over $1000 playing internet poker my junior year) is that provided you act on better information than half of the field consistently, you WILL come out ahead. Basically, if you can understand how the market reacts to company financial statements and technical analysis more consistently than Billy Douche-Donkey, you can exploit him for your own financial gain. For example, Warren Buffett vs. your average tech bubble day trader.
"I use the efficient market hypothesis and $100 bills to make Berkshire Hathaway brand adult diapers."
The more I read and learn about the stock market, the more I realize it is EXACTLY the same as Texas Hold 'Em, complete with its own sweet lexicon. For example, "I hit my inside draw on fourth street for the nuts" easily translates to- "After an early breakout, I doubled down and caught a late rally eventually closing at a new high" regardless of whether or not Alan Greenspan uses the phrase, "Irrational Exuberance".
Also, both are zero sum games. In poker, for every winner you have a loser. It's the same in the market, although it doesn't make as much sense intuitively. It's obvious in poker, because every time you take down a pot you stare down the douche you took it from. It's a little different in the market. The reason the market is a zero sum game is because for every buyer, there IS a seller. It seems like you can just throw money in for thirty years and come out ahead guaranteed. However, this can only happen if you can find someone to sell it to you intially and to buy it at the end. In essence, some of the gains and losses aren't realized in the same timeframe, leading to the misconception that the market isn't a zero sum game. For example, I buy 100 shares of Bloaty's Pizza from seller X. If Bloaty's Pizza accumulates value, I win and the seller loses unless he uses the money from the sale to invest in something that makes as much or more money as Bloaty's Pizza. If that is the case, then the loser is just removed from me by any number of trades. I'm pretty sure this is correct, but if you can think of a valid counterexample let me know. I didn't think this was true at first, but I can't think of an example that contradicts it.
The great thing about zero sum games (my mom refuses to acknowledge this point, which led us to having the same talk about the market as we did when I told her I made over $1000 playing internet poker my junior year) is that provided you act on better information than half of the field consistently, you WILL come out ahead. Basically, if you can understand how the market reacts to company financial statements and technical analysis more consistently than Billy Douche-Donkey, you can exploit him for your own financial gain. For example, Warren Buffett vs. your average tech bubble day trader.
"I use the efficient market hypothesis and $100 bills to make Berkshire Hathaway brand adult diapers."Another important similarity is the rake. Poker games have THE rake, the market has commission. The poker rake is different in that it only taxes winners at a percentage of the win (apparently that bastard Hoyle was a bleeding heart liberal), and commission hits everyone, sometimes negating a small gain. Also, if beating commission isn't hard enough for small volume investors like myself, I then have to pay capital gains tax, which I'm sure the government uses to pay government lawyers who make it illegal for individuals to trade without a broker, thereby making it inevitable that I'm hit with that damn commission.
Lastly, the most important similarity is that to win in both, you have to know how to lose. The most important lesson in Hold 'Em is to not get involved with less than premium hands, and to fold when the board comes out 9h,10h,Jh and two people raise into your Ad,As. The same holds for the market, it doesn't make sense to gamble on a stock that is trading at forty times earnings, or buy a company that employs the parasitic UAW. (Hey-O! Take that formerly impenetrable liberal fortress!) Fold marginal hands into big raises and keep a tight trailing stop-loss, because three small losses and one big win keeps you coming out ahead.
The Bikini Escort Company is on (read the review, it's hilarious), so I'm out. Besides, it's officially October 11th- so I'm off to the gas station to buy some beer for the first time with a real ID!
Lastly, the most important similarity is that to win in both, you have to know how to lose. The most important lesson in Hold 'Em is to not get involved with less than premium hands, and to fold when the board comes out 9h,10h,Jh and two people raise into your Ad,As. The same holds for the market, it doesn't make sense to gamble on a stock that is trading at forty times earnings, or buy a company that employs the parasitic UAW. (Hey-O! Take that formerly impenetrable liberal fortress!) Fold marginal hands into big raises and keep a tight trailing stop-loss, because three small losses and one big win keeps you coming out ahead.
The Bikini Escort Company is on (read the review, it's hilarious), so I'm out. Besides, it's officially October 11th- so I'm off to the gas station to buy some beer for the first time with a real ID!
posted by Justin at 11:22 PM 
2 Comments:
Happy birthday! And that was an excellent post.
Hey man sometimes the odds are with you and you still lose, like in Rounders
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