Importance of Simulations

By Kaschkawalturist (Own work) [GPL (http://www.gnu.org/licenses/gpl.html)], via Wikimedia Commons

Sleep per Day: (Target) 7h30m / day (Actual) 7h26m / day (71 day average)

I’ve mentioned before in “Abursdism” that I’m a very emotional person in nature, which is a bad thing to have when dealing the volatility of stock prices (get overloaded with fear / stress) or when making stock choices or portfolio decisions (get too impulsive).

After all, one of the key factors behind investment success is being rational.

Which is why I’ve been playing two games akin to investment simulation constantly.

One is DICEWARS, a game that’s similar to risk.

DICEWARS

I’ve been recording my stats since 2014 Dec 1st, and of the 456 games I’ve played since, I’ve won 324 times and lost 132 times. This is under the setting of a 8 player game and that I always play whatever game board is presented to me instead of choosing to switch to another randomized game board.

What this game has helped me is to internalize the lessons of margin of safety, importance of discipline and importance of conviction in one’s investment philosophy.

How so?

My 71.05% win rate basically boils down to the fact that every time I attack, I make sure that my attacking square has at least 2 more die than the defending square, ensuring a margin of safety that reduces the probability of losing the attack and thus all my die.

The preservation of die by only making decisions where the risk:reward ratio is skewed in my favor has made it extremely useful in making me much more unappealing for others to attack due to the presence of die, but has also allowed me to be extremely aggressive in attacking when an extremely favorable situation occurs due to the accumulation of die that wasn’t spent when the odds weren’t as favorable.

And the amount of games played has also meant that sometimes I have long stretches of losing games, but it has also helped me internalize the lesson that just because luck is not going your way it doesn’t make a working investment philosophy (value investing) no longer useful.

The other is Governor of Poker

Governor of Poker

 

 

 

 

 

 

Poker is a much more faster paced game than DICEWARS, and also much more punishing. Once you make a mistake of being too committed in one hand that doesn’t play out well may put you in a further unfavorable position of being exploited by big stack bullies.

And I really like that, because in life not every decision will go your way, so being able to keep your emotions in check and move onto the next decision as rational as possible is extremely important in eventually winning the game.

This has also helped me deal with sunk cost bias better, which has always been a huge problem for me as I tended to hang onto losers in hope of them turning around when the the initial fundamental analysis was already revealed to be flawed, or the fundamentals itself has deteriorated.

Hopefully, coupled with my ongoing reading, thinking and writing, these simulations can also train my decision making, so that I’m ready by the time the next bear market hits.

It is after all “of paramount importance to do everything humanly possible in a bull market to prepare for the next bear market“, and I don’t want to be caught swimming naked when the tides go out.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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