During this interview with Cambridge Union, David Einhorn discusses what investors should do when they’re ‘on tilt’. Here’s an excerpt from the interview:
Einhorn: There’s some overlap in the skill-sets.
Like if you just think about an investment versus a poker hand, there’s some information that you know.
You know whatever the historical facts are, or in a poker hand you know whatever cards you know you can see. And then there are things that you don’t know but you can surmise.
When this management answers this question in this way what are they really telling me, which may be different particularly from the verbatim.
When your poker opponent bets a certain way what can you surmise about what he is doing. And then you have uncertainty.
There’s going to be future range of outcomes, and knowing what those outcomes are and how those distribute and then how those might affect the outcome of your decision to bet or fold or invest, or not invest.
You have to kind of think that through. And then over time the uncertainty resolves itself as certainty. And then you get an outcome.
And then the other thing I would say that is somewhat similar is you have to have a temperament.
Because you’re going to lose a lot of poker hands and you’re going to be wrong in a lot of investments.
And how you ride things when things are going your way, and how you handle setbacks in an emotional way is a skill.
There’s a phrase in poker being ‘on tilt’, which is where things haven’t gone your way so you start making worse decisions.
Like having not much tilt is a big plus, and it’s also true in investing because sometimes things are just not going to go your way, and what do you do? Do you double down? Do you make your investments bigger?
Do you cut your losses? How do you risk manage things when things aren’t going your way?
And so there’s a fair amount of overlap in some of the skill-sets that are needed for both of these things.
You can watch the entire discussion here:
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