The game of Texas Hold’em is much like the “game” of the markets. It’s about long-term strategy and restraining from being impulsive or emotionally tied to the current state of the game. 

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The Game

Each player is dealt two cards face down known as hole cards. Then, a series of community cards are dealt face up, which the players use to complete their hand. The community cards are revealed in stages: the flop-first three cards; the turn-4th card; and the river-5th card. Bets are made based on the confidence of the players and their combination of any five community cards and hole cards. At times, a player may choose to only play the five community cards if they believe it will beat their opponent’s hand. 

In investing, certain positions may be acquired or strategies implemented, to achieve a positive rate of return on investments. Depending on your holdings, current negative or positive news could be considered the flop and produce reactions that will deter the initial plan. The turn may be viewed as a pivotal point in one’s goals. In poker, one card could change the course of the hand and the game, like the last community card, the river, when revealed. Similarly, in investing, one piece of information or change in emotion could turn the course of the plan.

Betting on the Game

This is where strategy can play a key part. In poker, using your chips to sway an opponents’ decision by increasing the bet or holding, may prove to be lucrative, especially in tournament play when large stakes are at risk. If you lose your process or get swept up with emotion, you could be out of the game—not to mention realizing massive losses. Much like when analyzing your investments, current market conditions may pull at your emotions and sway you to change course or get out of the markets completely, potentially realizing huge losses. By evaluating your plan and reviewing your long-term goals, emotional impulses will be mitigated. 

The Strategy

While having the best five-card hand is the goal of the game, strategic betting, reading others accurately and knowing the odds also play a big factor. Poker has a name for reading other players, a “tell,” which could be verbal or physical – say, a minor sigh or shift in a player’s eyes. Expert players may use this to their advantage by not only reading the other players, but deliberately fidgeting or reacting to throw off their opponents. The strategy for investing is simulating the odds of potential outcomes and knowing the success rate of the portfolio based on the scenarios, then adjusting the allocation to provide a success rate comfortable to achieve the goals of the plan for the specified timeline. Reactions or changes in market conditions should be analyzed and categorized accordingly. Will it have a short-term effect? Does the portfolio need to be modified? How will it affect the success of the plan goals in the long run? What are the ramifications if emotions dictate to not wait it out?

In the end, if you play it smart, the winner will go home with the pot of money, and an investor will have a successful financial plan.

Michele Sarna is a certified financial planner with Beacon Pointe Advisors and can be reached at (760) 932.0930 or msarna@beaconpointe.com.

Provided as information only and should not be considered investment, tax, or legal advice or a recommendation to buy or sell any type of investments. Asset Allocation, portfolio diversification, and risk strategies cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Form ADV contains important information about Beacon Pointe Advisors, LLC, and may be viewed at: adviserinfo.sec.gov

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