Pocket Aces is the best starting hand in Texas Holdem Poker. Against any other starting-hand combination, Pocket Aces will win approximately 80% of the time.
When facing just one other player, that gives Pocket Aces an expected return of 60%. This expected rate of return includes the times when Pocket Aces loses.
In poker, a profitable bet arises in any situation where your expected return is above 0%. Stock-picking is similar to poker. As stock pickers, we make calculated bets based on the expected rate of return. If the expected rate of return meets our target or exceeds other opportunities, then investing in the stock makes good investment sense.
Expected return for stocks
Like poker, when calculating the expected rate of return for stocks, we should consider all the potential paths a stock can take. In poker there are only two possibilities – you either win or lose. But stock picking...