What former poker champion turned investing coach Annie Duke says most of us get wrong about risk

By Michael Sincere

The author of ‘Quit’ talks about market bubbles, costly investing mistakes and why investors freeze at the worst time

Make good decisions under uncertainty – and change your mind quickly when new information arrives, says Annie Duke.

Annie Duke was at one time among the world’s most successful poker players, winning the World Series of Poker Tournament of Champions and the NBC National Heads-Up Poker Championship. She is now a sought-after decision strategist, working with investors, executives and venture firms on how to make better decisions when faced with uncertainty. She is the author of several books, including “Thinking in Bets” and “Quit: The Power of Knowing When to Walk Away.”

In this recent interview, which has been edited for length and clarity, Duke shares the three-step framework she uses to evaluate markets that look like bubbles, talks about why the most common investment advice is both right and wrong at the same time, and identifies the trap that quietly destroys investors who confuse lucky outcomes with good decisions.

Is something genuinely different this time?

MarketWatch: Investors once again are faced with a decision to either chase the stock-market rally or hold back. What’s the best way to judge a frothy market?

Annie Duke: The starting point is what I call the base rate. What has historically happened in situations like this one? If you’re looking at how high the market is, how long it has been rising and how it’s priced relative to history, that tells you whether things look normal or whether you’re in territory that has preceded corrections before. It doesn’t mean a correction is coming. It just helps you understand where you are.

From there, you ask: Is something genuinely different this time that would make the current valuation sticky? A classic example is Amazon (AMZN) in 1999. It was getting a far higher multiple than traditional retailers. But a reasonable person could argue it was different enough – no physical locations, a tech component and a much broader potential upside. The comparison wasn’t quite right.

The third step is to cast yourself into the future and imagine you were wrong. If it turns out this was just like every other cycle, what were the early signals you probably ignored? Writing those down in advance gives you an exit ramp. You’re not locked in to a bet you can’t get out of.

MarketWatch: What did poker teach you about investing that a finance textbook can’t?

Duke: Poker forces you to really accept how little you know and how much luck is in the system, and then to still make your best bet anyway. The key skill isn’t certainty. It’s making good decisions under uncertainty and then changing your mind quickly when new information arrives. People who cling to their initial belief in poker get into serious trouble.

Finance textbooks teach you about confirmation bias and expected value. But when you’re iterating so quickly in poker – hand after hand, decision after decision – it gets into your bones in a way that reading about it doesn’t. You develop a feel for probability that you can’t get from doing equations.

Annie Duke: “Get into low-cost ETFs or index funds and stay in the market across all cycles.”

MarketWatch: Most financial advice says to never sell in a bear market. Is that good advice?

Duke: Mostly, yes. But understanding why helps you apply it correctly. On its own, a stop loss is technically irrational. Any decision to buy or sell should be based purely on the underlying value of the asset. But we know that once people own something, they become terrible at evaluating it objectively. Loss aversion, sunk-cost fallacy and herd behavior – all of it kicks in during a drawdown. A stop loss is an irrational tool deployed to prevent something even more irrational.

It’s like throwing unhealthy food out of your house. Logically, you should just choose not to eat it. But you throw it away anyway because you know that a future version of you, tired and stressed at the end of a long day, is going to make a worse decision. So you protect that future self in advance. “Never sell in a bear market” is the same idea. It’s stopping you from panic-selling into a herd. For the average retail investor, it’s good advice.

People chase other people’s returns without asking whether those returns came from skill or luck.

MarketWatch: What investment advice do people give that leads others astray?

Duke: Two things happen constantly. First, people chase other people’s returns without asking whether those returns came from skill or luck. A large return in isolation should actually make you suspicious. It usually means high volatility, which means a lot of the result was luck. Second, people compare their performance to the wrong benchmark. If your adviser made you 11% in an 18% market, that’s not good. If they made you 11% in a 5% market, that’s worth paying attention to. But people skip the comparison entirely.

The deeper issue is regression to the mean. We look at last year’s top performers and assume they’ll repeat. Fund managers do this with allocators all the time. They’re pruning good investors who had a down year and keeping mediocre ones who got lucky. We’re just not wired to think about mean reversion.

Just because you do well in the short run doesn’t mean you made good decisions. And just because you do poorly doesn’t mean you made poor ones.

MarketWatch: You use a term called “resulting.” What is it, and why does it matter?

Duke: Resulting is when you equate the quality of an outcome with the quality of the decision that produced it. Winning a poker hand doesn’t mean you played it well. Losing doesn’t mean you played it poorly. There’s luck in the short run, and a good decision can produce a bad outcome, while a bad decision produces a good one.

The investing version of this is everywhere. Someone invested in Zoom (ZM) in 2019 and made a fortune when the pandemic hit. They may have had a legitimate thesis about video conferencing’s future. But they did not forecast a global pandemic. Taking full credit for that outcome is resulting. It wasn’t in their decision – it was an act of luck.

The fix is to write your reasoning down before you invest. What do you think the distribution of outcomes looks like? What are you actually betting on? Then, when you get results, you can compare them against your forecast, not just the number in your account.

People get so uncertain that they stop making decisions entirely, not realizing that doing nothing is itself a decision.

MarketWatch: What’s your best advice for investors right now?

Duke: For retail investors, historically speaking, the answer is what it’s always been: Get into low-cost exchange-traded funds or index funds and stay in the market across all cycles. The reason individual stock-picking is so dangerous is that if you believe markets are even somewhat efficient over the long run, you have to ask yourself what you know that the experts don’t. Because you like a brand at the grocery store isn’t an answer.

The bigger mistake I see is paralysis. People get so uncertain that they stop making decisions entirely, not realizing that doing nothing is itself a decision. You’re implicitly saying that whatever you currently hold is the best allocation in this environment. Great investors lean into uncertainty. They recognize that you’re always forecasting, always investing into an unknown future. The question is whether you’re doing it with a clear framework or just hoping.

Michael Sincere is the author of several books including “Understanding Stocks,” “Understanding Options” and “Help Your Child Build Wealth.”

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-Michael Sincere

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05-12-26 2053ET

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