Stocks and Bridge

A few months ago I was talking to a friend of mine after Church and he was telling me that he enjoyed playing Bridge. We talked about it for a while and I remembered that Jesse Livermore, in his book "How to Trade in Stocks", wrote about how he used to play Bridge on a weekly basis with a few of his business associates. I mentioned this and was subsequently invited to learn the game.

It takes a while to memorize all the rules and conventions, but once you get them down it begins to make sense. The game works like this: There are four players. Each player has a partner. 13 cards are dealt to each person. The idea is to get as many "tricks" as possible. When you look at your hand, you have to decide if you are able to "bid". If you don't have 13 points (Ace = 4, King = 3, Queen = 2, Jack = 1) you can't start bidding. You work with your partner to figure out which suit is the strongest in your combined hands. There are a lot of aspects to the game, but essentially it comes down to this: if you don't have the odds in your favor, then you don't bid, otherwise you will get "set" and lose points.

I like the game because it is very similar to market speculation: if you don't have the odds in your favor, then don't bid, or else you will lose money.

In Bridge, as in most card games, the aces are the strongest. And in the market the most powerful stocks are the strongest. However, in Bridge there is also the concept of "trump". Let's say a person bids 3 spades. That means that between the two partners there are a lot of spades. If spades are "trump", then even a lowly 2 of spades will beat an ace of hearts.

In stock speculation, the market itself is the "trump". So even if a person has the very best, most powerful stocks, the market environment can "trump" them...and they will lose.

In order to make a play in the stock market it is important to have all the odds in your favor. You need a market that is amenable and you also need the strong, powerful stocks. It's a game of numbers and statistics.

If you have a good market and powerful stocks, you can play the game. If you have a bad market, you don't play the game no matter how good your stocks look. You will most likely lose.

Right now, the market is choppy and trending down. This is not a good market for our type of speculation. So, we're not playing. We are sitting on the sidelines waiting for the next hand to be dealt.

Successful card players are patient and they don't get rattled when they aren't being dealt good hands. They don't try to force the issue. They know from experience that, in time, good hands will come their way. Until then they have to just sit at the table and watch. Successful stock speculators follow the same course of action: they do nothing until they are dealt a good hand...and every day a new hand is dealt.

"There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move." ~ Jesse Livermore