Investing or poker: Which takes more skill?

John Kay has an excellent piece in the Feb. 6 Financial Times where he discusses the similarities between investing and gambling. He points out that the great majority of fund managers have inconsistent results from year to year. He concludes in the last paragraph of the article, "If the measure of skill is how often good performance repeats itself, poker is a more skillful activity than investment management."

Most of the article concerns the history of London's Gutshot Club, but Kay suggests the London Stock Exchange should take note of some lessons from the gambling world. "In life as in poker, the occasional coup does not necessarily demonstrate skill and superlative performance is not the ability to eliminate chance," Kay observes. "That is how we know Warren Buffett is a skilled investor and Johnny Chan a skilled poker player."

To learn more about the similarities between poker and investing, and the psychology of money, I have a couple book recommendations:

Poker Face of Wall Street: This is written by Aaron Brown, a professional trader and professional poker player. He uses gambling to teach investors how to analyze and embrace financial risk. It's an entertaining read.

Why Smart People Make Big Money Mistakes: This is the classic book on the field of behavioral finance. Authors Gary Belsky and Thomas Gilovich hope to help readers make more money by showing them the psychological reasons why so many people make the same financial blunders. Every investor needs to read this book.