This concept of process versus outcome was first introduced to me when I read the book, “More Than You Know”, by Michael Mauboussin. It was also discussed in the books written by the brilliant authors Michael Covel and Mark Douglas.
The best way to explain the concept is using the following examples, which involves the game black jack (the only card game I know).
1) Good Process/Good Outcome
The cards you are dealt add up to 12. You have the choice to stay or hit. You chose to hit and receive a 9-blackjack.
The equivalent scenario, in my view, in the stock market is that you see a stock in a downtrend, so, following your rules, you short it. The stock ends up falling another 40% before turning around.
2) Good Process/Bad Outcome
The cards you are dealt add up to 12. You have the choice to stay or hit. You chose to hit and you get a 10 -bust.
In the stock market this is comparable to buying a stock that is in an uptrend, (more…)
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rss20 Poker Quotes -Traders Must Read
Poker is one of the very few casino games that’s like trading. Unlike other games where the casino keeps the odds in their favor, in poker there are many ways to get an edge over other players at the poker table. The way you play the odds can give you an edge, folding on bad hands quickly and playing the best hands only give you an advantage. Managing risk per hand can keep you in the game while others blow out. Sticking with the odds instead of letting emotions take over is another big advantage over other players. I have a buddy that plays well in poker tournaments and it is odd how we can talk about the same elements of strategy that matches both endeavors. Both poker and most financial markets are zero sum games where money flows from those who do not know how the game works to those who do.
- “Living in the past is a Jethro Tull album, not a smart poker strategy.” -Richard Roeper
- “The beautiful thing about poker is that everybody thinks they can play.” -Chris MoneyMaker
- “If there weren’t luck involved, I would win every time.” — Phil Hellmuth
- “If you can’t spot the sucker in the first half hour at the table, then you are the sucker.” — Matt Damon in Rounders
- “The cardinal sin in poker, worse than playing did cards, worse even than figuring your odds correctly, is becoming emotionally involved.” -Katy Lederer
- “You cannot survive without that intangible quality we call heart. The mark of a top player is not how much he wins when he is winning but how he handles his losses. If you win for thirty days in a row, that makes no difference if on the thirty-first you have a bad night, go crazy, and throw it all away.” -Bobby Baldwin
- “When we play, we must realize, before anything else, that we are out to make money.” -David Sklansky
- “Poker may be a branch of psychological warfare, an art form or indeed a way of life – but it is also merely a game, in which money is simply the means of keeping score.” -Anthony Holden
- “The real things to know is that folks will stand to lose more than they will to win. That’s the most important percentage there is. I mean, if they lose, they’re willing to lose everything. If they win, they’re usually satisfied to win enough to pay for dinner and a show. The best gamblers know that.” -Pug Pearson
- “Poker reveals to the frank observer something else of import—it will teach him about his own nature. Many bad players do not improve because the cannot bear self-knowledge.” -David Mamet
Fear of Loss — How the unconscious mind detects danger before the conscious mind does
A card game — The subjects in the study played a gambling game with decks of cards. Each person received $2,000 of pretend money. They were told that the goal was to lose as little of the $2,000 as possible, and to try to make as much over the $2000 as possible. There were four decks of cards on the table. The participant turned over a card from any of the four decks, one card at a time. They continued turning over a card from the deck of their choice until the experimenter told them to stop. They didn’t know when the game would end. The participant was told that every time they turned over a card, they earned money. They were also told that sometimes when they turned over a card, they earned money but also lost money (by paying it to the experimenter). (more…)