For successful play, it is necessary to have knowledge of the mathematical facts and tactical plays described in the previous sections.  That knowledge alone will not make you successful.  Your play must have an underlying strategy, a broad plan that provides a context for each action.  This section discusses strategic  considerations.  Inter-woven through this discussion are what I call “life analogies” which are a series of behavioral examples from life that illustrate poker concepts.  Dan Kimberg in his book Serious Poker, makes the astute observation that while most sports professionals believe their sport is a metaphor for life, “poker players believe the converse-that life is a metaphor for poker.”

It helps to first consider why there is no magic formula for winning at poker.  Imagine a formula exists that does win at poker.  A formula means a pre-determined set of actions for all situations encountered.  In situation 1, do A, in situation 2, do B, and so on.  Once the formula is known, it would immediately become useless because poker is a zero-sum game.  One person’s loss is another one’s gain.  If everybody plays the exact same way, over time the cards are evenly distributed so all the situations encountered become equally distributed.  The result is that no one has an advantage, money flows back and forth without accumulating for any one person.

To win at poker, your actions must be different from the other players, different in a way that gives you the edge.

*Dan Kimberg, Serious Poker, 2nd Edition (ConJelCo, Pittsburgh, PA, 2002)

Clearly, a winning poker strategy must be a dynamic one-that is, a strategy that continually adjusts to conditions.  The  strategy outlined is based on the five decision factors described in Chapter 4: your cards, position, cost, number of players, and opponents playing style, combined with a classification of game conditions that are described next.  The premise of the strategy is that the weight given to each decision factor depends on the game of card conditions.  For example, your position under some game conditions is not an important factor.  In a different set of game conditions position becomes the most important factor.

To classify game conditions, four extreme cases are identified and the strategic considerations appropriate for each discussed.  A given poker game usually does not precisely match one of the extremes, but often a game will have enough elements of one of the extreme cases that knowing what to do in the extreme, provides a good strategic starting point.

Life Analogy – Investing

  Over the long run, investing in the market is not a zero-sum game.  Historically, wealth and the living standards that go with wealth tend to increase over time.  By investing in funds that track the general market, it is possible to have a share in the expanding economy and accumulate money over time.

            However, the dream of most investors is to “beat the market”- that is, to make more money than the market as a whole by buying and selling securities from other investors in such a way that money flows from them to us.  Can there be a magic formula for beating the market?  Obviously not or we would all apply the formula and be multimillionaires overnight.  That cannot happen because in the short term, investing is a zero-sum game:  over a short period of time there is only a finite amount of money available.

            To beat the market, it is necessary to become educated the about poker securities being traded.  Over the last decade, the Internet has made it possible for all investors to know more about the securities they trade. With a computer and Internet access, a click of a mouse makes it possible to know company financial's, breaking news, real-time prices, and make immediate purchases.  However, all this information has not made it easier to beat the market.  When everyone has access to the same information, any change that occurs is reflected immediately in the price.  Prices moved in an orderly fashion a few decades ago as information on a company slowly filtered to investors.  Today prices move abruptly overnight or in minutes, when thousands of investors respond to breaking news posted on the Internet.

            Has the explosion of information, fast trade executions, and technical stock charts made it easier to beat the market?  No, it has not.  Many people may claim otherwise, but look around.  How many people do you know who are quitting their jobs to become securities traders?  Today investors are more knowledgeable, but beating the market is still as difficult as ever because for the most part, everyone has equal access to the same information.  No matter how much information is available, when it is equally shared, no one has an edge.

            There are people who do beat the market because they make better decisions.  But the adjective “better” means their decisions are also different from the majority.  Their decisions cannot be part of a formula, but must adjust to changes in the market before the change happens.  Usually, people who are successful at beating the market have a talent for making adjustments ahead of time.  They anticipate the next big trend the before the crowd starts the stampede.