The results are not the ordinary research musings of finance academics. Thorp began his career as an academic mathematician, but his story is one man’s search for an edge at playing games modeled through probabilities. The edge he found in games of chance led to valuable discoveries in finance, successful businesses, wealth, and fame. Customers find the book provides an enthusiastic collection of insights into finance.
Adapting to history
His subsequent book, Beat the Market, co-authored with Sheen T. Kassouf, influenced securities markets around the globe. Thorp is one of the world’s best blackjack players and investors, and his hedge funds were profitable every year for twenty-nine years. Thorp’s early focus on the nuances of blackjack card counting may not be of great interest to money managers, but he provides enough details on his research process and trade testing to keep readers engaged. From blackjack and roulette, where he helped develop the first wearable computer, Thorp moved on to the “big casino”—that is, Wall Street. Professional investors can learn much from Thorp’s application of his gambling-based methods of solving problems, measuring probabilities, and formulating choices to stock and options trading. Ed Thorp is not well known among money managers, but he is held in awe by traders as a polymath, successful card counter, mathematician, finance specialist, and hedge fund manager.
Learning and checking
Edward O. Thorp is a legend in both the gaming and the quant worlds. The author of Beat the Dealer and Beat the Market, he went from math professor and blackjack whiz to renowned hedge fund manager. In A Man for All Markets (Random House, 2017), he reflects on his life and the power of thinking differently—and deeply. The eagerness to explore new ideas leads him to the opening of his next hedge fund Ridgeline Partners in August 1994.
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- Thorp’s early focus on the nuances of blackjack card counting may not be of great interest to money managers, but he provides enough details on his research process and trade testing to keep readers engaged.
- This level of openness is refreshing and makes the book more relatable.
- With a population of just over 72,000, Dominica is the smallest nation to collect an Olympic medal in Paris.
- Return the camera in the original condition with brand box and all the accessories Product like camera bag etc. to avoid pickup cancellation.
- In such circumstances, he advocates holding Berkshire Hathaway and index funds.
Although Mr. Buffett’s style of investing extended far beyond Mr. Thorp’s activities, he apparently had a positive overall assessment since Mr. Gerard ended up investing additional funds with Mr. Thorp. Throughout his life, Thorp has been recognized for achievements in mathematics, finance, and as a professional player. He became a Blackjack Hall of Fame inductee in 2002 and the Gambling Hall of Fame in 2017.
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He recalls how ‘experts’ would tell him about the futility of beating the house at blackjack. But Thorp checked the math himself and devised a winning system in turn. While this example speaks more to his genius, the practice of checking things for ourselves is a good one. Thorp highlights the power a man for all markets of models for decision making and how we should discover the rules to models through experiment and observation. But we have to remember that models are only a “simplified version of reality”. Unlike the physical laws in science, theories that describe human behaviours are rarely unchanging.
One of my all time favorite books is A Man For All Markets and I was glad to see Todor Kostov picked the book to review. Todor is an experienced finance and investment professional who is captivated by the financial markets and is always passionate about reading, learning and exploring new things. A child of the Great Depression, legendary mathematician Edward O. Thorp invented card counting, proving that you could do the seemingly impossible—beat the dealer at the blackjack table—and in doing so launched a gambling renaissance. His remarkable success—and mathematically unassailable method—caused such an uproar that the casinos altered the rules of the game to thwart him and the legions he inspired. They barred him from their premises, instituted new rules, and put his life in jeopardy.
So, Thorp has a warning for those who believe fervently in perfectly efficient markets. History has shown how cognitive dissonance can fuel “the lunacy of lemmings”. Thorp for example recalls the narrative between “fraudster or investment genius” https://forexarena.net/ that surrounded Bernie Madoff, long before his collapse. While Thorp was suspicious of Madoff’s strategy and returns early on, other investors found it easy to believe the genius narrative while Madoff’s returns were other-worldly.
The first warning sign was the evasive behavior of Peter Madoff who was filling in for Bernie during Mr. Thorp’s planned office visit. Peter made it clear that Mr. Thorp would not even be allowed through the front door. The value of a warrant on a common stock is derived based the difference between the current stock price and the exercise price of the warrant as well as the amount of time before the warrant expires. A warrant will always have a positive value prior to expiration even if it cannot be exercised immediately at a profit because the possibility exists that it will become profitable to exercise prior to expiration. Mr. Thorp came up with the idea of developing mathematical models to determine whether warrants are mispriced relative to the price of the common stock. By purchasing the relatively underpriced security and shorting the overpriced security, one can exploit the market’s mistake without necessarily expressing an opinion on the merits of investing or shorting the underlying business.
As he admits himself, his motivation isn’t that much the hope of making large sums of money rather than the chance of doing something which people thought is not possible – to beat the house at roulette/ blackjack. Winning is the driving force and the world of gambling is the stage where he can try different strategies and techniques – counting cards, programming machines, portable computers, game theories. After getting an MA in Physics from UCLA and marrying his wife Vivian, Ed Thorp starts taking courses in mathematics and due to his natural curiosity begins a series of experiments with the game of roulette.
If you do not receive a response from the seller for your return request within two business days, you can submit an A-to-Z Guarantee claim. Small time investors for example don’t have the resources, information or time to maximise or optimise their search and evaluation function. It’s near impossible for the individual, with competing priorities in life, to compare even a moderate sample of stocks in proper detail.
There are plenty more ideas and lessons that I took from Thorp’s memoir, but I prefer to end the post here. If you haven’t yet read Thorp’s book and hold an interest in blackjack and/or investing, do check it out. As an independent learner and critical thinker, Thorp preferred to check things for himself – a recurring rule in his book. He approached life rationally and witheld judgement until the evidence arrived.
This was the first hedge fund to use quantitative analysis and computer modeling. The fund was incredibly lucrative, earning an average annual return of over 20% from 1983 to 1988. “I formed the habit of taking the result of pure thought—such as a formula for valuing warrants—and using it profitably,” he writes. It’s the kind of thing any would-be investor, to say nothing of casino cowboy, ought to read. “Beat the Dealer” is regarded as a classic book on blackjack strategy and card counting.