LAS VEGAS – Financial advisors rarely like to hear their profession compared to gambling. But that doesn’t mean wealth managers and their clients can’t learn smart strategies about decision making and handling risk from professional gamblers.
With more than 1,800 advisors descending on America's gambling capital for IMCA's 30th annual national conference, organizers invited a renowned poker player to share her insights on how to know when to hold 'em, know when to fold 'em, and how to advise clients who may want to walk away or run.
Indeed, said gambling champion Annie Duke, "Poker players make better investors because they embrace a long-term mindset and understand odds more than most investors."
OVERCOMING SELF-DELUSION
Duke noted that "self-delusion is built into our DNA," which means that "if you credit all wins to your skill but all losses to bad luck, you never learn and never improve."
Akin to the factors advisors and clients must consider when constructing a portfolio based on expectations of the future and without overvaluing past performance, Duke said "poker is a game of decision making under conditions of uncertainty over time." As a result, the best poker players work to eliminate all emotional thinking so the only factor potentially working against them is random luck. "If it weren’t for luck," she quoted famed poker player Phil Hellmuth Jr., "I'd win every one!"
The broader financial services industry would benefit and investment conditions would be less volatile, she argued, if a working environment was adopted that deemphasized emotionally driven risk taking.
FOCUS ON PROCESS VS. OUTCOMES
When she consults with companies, Duke said she recommends "tying compensation much more to process than to outcomes," which would likely result in fewer instances of spectacular gains or devastating losses.
Advisors must work to help clients learn from disappointing decisions. Too often, she said, "Instead of taking that fruitful learning experience, they discard it."
So why do poker players often ignore feedback?
A phenomenon known as temporal discounting, which she said amounted to an irrational trade-off between the future and the present. "Players don’t want to update their self-image in a negative way which interacts disastrously with temporal discounting. … We actually don't know our future selves very well, which is why it's hard to take care of ourselves," Duke said.
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