Poker As Teacher

a very good way to think about managing risk -- via the use of a poker analogy:

'As one of Bill's constant readers, I was struck by his willingness to be patient, even if it means he misses the ultimate bottom. He wants to wait for the odds of success to become easier to assess, which, unlike doing nothing, IS an investment strategy. Perhaps a Texas Hold 'Em poker analogy will better explain Bill's current approach:

'Pre-flop, you only know your hand and have little information about where your hand stands relative to those of other players. After the flop, you now know more about the potential for your hand (say, one card away from a flush), but you might not stick around if the price of calling someone else's bet is too high.

'If everyone checks, however, you get to see a free card or two that will give you a better assessment of your odds of winning the hand. Waiting for more information allows a patient gambler to better know when to commit his or her chips. Sure you might have to fold the potential winning hand if the price of calling early on is too rich to take a chance on hitting the right card(s), but so what? There's always another hand to be played, just as there will always be a new set of investment opportunities to consider.

'Protests from either the SEC or the Nevada Gaming Commission aside, investing requires a similarly sober approach. The stakes are high and the price of making a mistake is accordingly high in a wild market environment such as the one we are now facing.'"

http://fleckensteincapital.com