Expected Value
The letters between Pascal and Fermat also formed the basis for the concept of Expected Value – an extremely useful concept for Texas Hold’em and investing. Expected Value in poker means that you think about your hand in terms of what would happen if you had this hand many times over and over.
Essentially, you need to think of each hand in term of long-term outcomes with that hand rather than the current situation in isolation. The “expected” outcome may not always happen because an opponent will draw an unlikely card and beat your hand but this should not alter the way you play hands.
Good Texas Hold’em play focuses on ensuring that your process for making decisions is fundamentally rational. This basis will ensure that outcomes will invariably work in your favour in the long term regardless of what happens in the short term because of “bad beats” – that dreaded situation when your excellent hand is beaten on the last card by somebody who started out with the worst hand possible.
Good investment decisions require a similar decision making process that is followed regardless of past results and that focuses on long term investment objectives. The swings of the market mean that the short term outcomes of your investment decisions are very unpredictable but a good decision making process will significantly increase the likelihood of long term success with your investments. Peter Lynch has been quoted as saying that for an outstanding investment track record you only need to be right six times out of ten (and legend Bernard Baruch has also been quoted similarly).
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