In the seminal poker book The Theory of Poker, author David Sklansky describes the Fundamental Theorem of Poker:
The Theorem is essentially describing positive Expected Value (+EV) play. If you could see your opponents cards, you would always make the correct mathematical decision to call, raise, or fold based on the EV of your play. Michael Mauboussin, one of my favorite financial writers, details how to use EV in his book More Than You Know (highly recommended). The EV mindset is crucial to have when making decisions under uncertainty, as we are in both poker and investing. I've attached a quick primer called A Guide to Casino Mathematics that explains EV and its ramifications.
Sklansky is very well-known in the poker community for his writing. He is described as "...flamboyant, a self-described anti-authoritarian with a knack for 'outside the lines' thinking." He also attended Wharton for a year before dropping out to be a professional poker player/gambler - guess the anti-authoritarian in him couldn't take it. Although everyone knows about his book The Theory of Poker, he also wrote many others, notably No Limit Hold 'em: Theory and Practice with Ed Miller, Hold 'em Poker for Advanced Players with Mason Malmuth, and Small Stakes Hold 'em: Winning Big With Expert Play with Miller. His newest book, DUCY? Exploits, Advice, and Ideas of the Renowned Strategist, has a section titled "The Fundamental Theorem of Investing," which he defines as:
He goes on:
When Sklansky describes his Theorem, he is describing the well-known yet elusive "Edge" with a capital E. When going through a trade or investment checklist, whether that's done mentally or on paper, meeting Sklansky's Fundamental Theorem of Investing should be a requirement. Similar to the idea of variant perception, we must ask ourselves:
"Who is on the other side of the trade? Why are they selling/buying? Are they hedging or making an outright bet? What kind of market player is it?
Obviously, we won't always be able to answer these questions, but asking them and trying to answer them will lead us to better trading outcomes.