The Theory of Poker and Fundamental Theorem of Investing

In the seminal poker book The Theory of Poker, author David Sklansky describes the Fundamental Theorem of Poker: 

Every time you play a hand differently from the way you would have played it if you could see all your opponents’ cards, they gain; and every time you play your hand the same way you would have played it if you could see all their cards, they lose. Conversely, every time opponents play their hands differently from the way they would have if they could see all your cards, you gain; and every time they play their hands the same way they would have played if they could see all your cards, you lose.
— The Theory 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:

Before making any investment, you must be able to explain why the other party is willing to take the other side of the deal...if you cannot come up with a good explanation, your buy, sell, or bet is almost certainly not as good as you think.
— DUCY? Exploits, Advice, and Ideas of the Renowned Strategist

He goes on:

The principle is very clear. You should always determine as accurately as you can why the other party is willing to sell, buy, or do other business with you. Unless you have more and better information than he (or the market) has, or you are confident that his reasons are wrong, you should seriously consider changing your mind.

People want to believe that they are smarter, more knowledgeable, and so on than they really are. Since virtually everyone wants to preserve that belief, you must constantly guard against it. Before making any important decision, look carefully at the information you have and the way you have analyzed it. If you don’t understand the other party’s perceptions and motives, stop and find out what they are.
— DUCY? Exploits, Advice, and Ideas of the Renowned Strategist

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.