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Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

4.14 of 5 stars 4.14  ·  rating details  ·  1,471 ratings  ·  89 reviews
In 1956 two Bell Labs scientists discovered the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein's. The other was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory--the basis of computers and the Internet--to the pr ...more
Paperback, 400 pages
Published September 19th 2006 by Hill and Wang
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Trevor
This is a very interesting book and one that explains complicated mathematical and economic ideas beautifully and simply. It is a story that involves gangsters, mathematicians, the founder of information theory, more gangsters and politicians and police (both corrupt and, well, even more corrupt).

The formula to make a fortune is essentially this – if you are going to bet you need to be sure you have some sort of edge (not necessarily a ‘sure thing’, but an edge), in this book the gamblers gener
...more
Todd N
This is one of the best books I have read in a long time and the perfect book to read after The Information by James Gleick.

The title and subtitle are pretty overblown and don't really indicate what the book is about. The "fortune's forumula" referred to in the title is pretty dang interesting though -- the Kelly criteria, which is the optimal percentage that should be wagered given the odds.

I didn't realize that there even was a optimal bet, but it turns out that overbetting is actually worse t
...more
Sarah
After enjoying Poundstone's Gaming the Vote, I picked this up from the local library. Quite a timely read, given the current financial disarray, this traces the history of the Kelly criterion from Bell Labs (where John Kelly, Jr. worked in the 50's and 60's), to Ed Thorp's application of it in his classic Beat the Dealer, to Wall Street in recent decades.

I feel I came away with a better understanding of the hedge fund/junk bond scandals of the 80's and 90's, as well as an appreciation of the e
...more
Bo
Dec 08, 2008 Bo rated it 5 of 5 stars
Recommends it for: anyone who enjoyes gambling, investing, or the Sopranos!
Recommended to Bo by: amazon
I really enjoyed this book. Who knew that MIT, Vegas Casinos, mobsters, and Wall Street all had so much in common? The stories in this book are fascinating! However, the most useful part of the book is the explanation of the relationship between information theory and betting/investing. I wish I had read this book 10 years ago.
David Skelton
Every bettor/investor should know the Kelly Criteria!
Jacob
This book is a bit of an odd combination of history-biography like The Idea Factory: Bell Labs and the Great Age of American Innovation or One Summer: America, 1927 and finance / gambling. Fortunately, the long rambles about various people involved in the ideas covered by this book are diverting. It's just not as cohesive as I would prefer. Claude Shannon gets significant coverage, although his direct contribution to finance is somewhat unclear; coverage of Ed Thorp is totally appropriate (and h ...more
Elizabeth
Fortune’s Formula by William Poundstone (pp. 400)

Utterly fascinating. Gambling, mobsters, mathematicians, economists, hedge funds, greed, and how it’s linked together by some early genius and freak timing. Part history lesson, part text book, part novel, all true, it flows beautifully. For anyone who is interested in math, the financial markets, or Las Vegas, this book is a fun read.

Poundstone tells the story of how one formula changed the way casinos look at card counters, how a mathematical co
...more
Andy
I love books like this.

It's non fictional account of a few people who were behind "fortune's formula". This formula tells you how much of your total net worth to invest in any particular investment. All you have to do is figure out the expected payout of the investment based on information you have.

Does it work? Yes, if you have accurate data.

The investments have to have an expected payoff of greater than 0: meaning you will make some money on average--even though there is some chance of losing
...more
Anthoney
Excellent. ' The Idea Factory: Bell Labs ...." led me to this book. Blends Mafia stories, Bell Lab star's anecdotes, gambling, a compelling betting and investment strategy via Kelly criterion and Wall Street greed stories.
Mark
William Poundstone is rapidly becoming one of my favorite authors. It amazes me how deep he gets into a variety of topics. This book focuses on information theory (as laid out by Claude Shannon) and John Kelly's application of that theory to investments, be they gambling in Vegas or on Wall Street. This is more of an enjoyment read for me, but it correlates tightly with the Random Walk Guide. In my view, that reinforces the views expressed in the Random Walk Guide - a good thing as far as I'm co ...more
Douglas Cosby
I started and quit this book a while back. I picked it up again after reading "Trading Bases" because I remembered that it offered an explanation of the Kelly betting strategy. I think the reason that I didn't like it the first time was twofold: 1) The Kelly criterion seemed over-simplified and maybe even wrong; and 2) I had nothing to apply it to at the time. Now that I understand it, and have more active interests in investing (and possibly building a betting model for baseball), it is more al ...more
Chris Peterson
The nerd in me expected more discussion of how/why the Kelly criterion formula works. More of a history book than a math/gambling book.
Erin
Nov 06, 2008 Erin rated it 4 of 5 stars
Recommends it for: anyone interested in math or science
One of the most interesting books I've ever read.
Tom Lee
As I began this book, I was disappointed. I had picked it up after reading The Idea Factory, the fascinating history of Bell Labs: Fortune's Formula was mentioned glowingly in the acknowledgements. Bell Labs employees -- including my favorite, Claude Shannon -- taking a road trip to Vegas to use their reality-bending powers of analysis to defeat the casinos? Sign me up.

Digging in, the danger signs began accumulating. Poundstone's prose is workmanlike at best. There are endless asides about the b
...more
Pang
I enjoyed this book so much that I bought the book! (I was reading a copy I checked out from my library.) It never failed to amaze me how many smart people ended up using their brains for cheating the system. The book talked about how telecom was advanced thanks partly to horse betting, that many bettors were trying to cheat their bookies. Gambling then led to invention of "fortune formula" which calculated the odd of winning and how much bet should be placed given the odd. Soon after the formul ...more
David Rollins
A client gave me this book, along with an ersatz review of how investing is like gambling, and all we need is a slight edge to exploit with the power of leverage, and we'll be rich. I recall thinking, "Hoo boy, I have got some financial education to do."

Investing can be as risky as going to Las Vegas, or as safe as Fort Knox. It is not to be confused with trading. However, the mathematical theories behind arbitrage and derivatives can be confusing, and I was looking forward to a layperson's expl
...more
Bryce
Very interesting account of Kelly Criterion, which has as its backdrop the dawn of the computer age and development of information theory. Computers made possible a deeper and more accessible understanding of probability than was available before, an example of which was solving of the odds of blackjack.

For investors, the most interesting thing in the book is the treatment of geometric versus arithmetic returns. Basically, the Kelly Criterion suggests a way to think about sizing investments acco
...more
Jeffrey
Excellent book and probably one of my most favourite.

The book recounts the story of Ed Thorp, widely regarded as one first to apply quantitative methods to trading. The book also looks at various other quantitative investors and risk management (especially via the Kelly criterion) features prominently throughout the book.

The book of course does not broach the GFC as it was written in 2004, however my only regret is that I had read it before reading The Quants (by Scott Patterson) as it logically
...more
Luke Schiefelbein
As an MIT math major who worked in finance, this is the only non-technical book I have ever read that tells the true story of how to think about finance. If you are curious about making the first steps into understanding the "real" world of finance, the one that high-powered hedge funds continue to use (albeit in far more advanced forms) this is a great place to start. However, Fortune's Formula isn't a textbook; it's a story with a technical backdrop. You'll learn some conceptual math, but most ...more
David Ball
I quite liked this book; the link between gangsters and mathematicians is a bit tenuous, but Poundstone has developed a couple of interesting plotlines involving unlikely protaganists, mainly Claude Shannon, the godfather of information technology, and Edward Thorp, blackjack gambler turned hedge fund manager. I thought the theory was pitched at the right level, enough to interest the interested (I've Googled a couple of papers since), but not enough to slow things down. It's a strange book thou ...more
Billy
A fascinating read that ropes in blackjack, horse racing, the Mafia, information theory and mathematics, all in the quest to find a way to beat the house, be it the casino or stock market.

Poundstone is an excellent writer, but I found myself wanting a little more in the way of technical detail. But that is less a criticism of him and more revealing of my tastes.
Mark Schulz
An interesting side to the genius of Claude Shannon. An enjoyable read, but I would have liked to have seen more of the maths. Now I have to read Kelly's paper. If you have an interest in the stock market or other forms of gambling then you will find this an interesting read. The message here is well known to traders: money management is king.
Maria Holland
I liked aspects of this book - I was barely aware of Shannon, so I really like the introduction to his theories. The story is incredible overall, but I found the stock market stuff (the second half, roughly) less interesting and less understandable to me.

With that said, I would recommend this book to people who are nerdy in certain ways.
Hank Mishkoff
Fascinating, and fun to read.

It's really two books in one -- the first is about gambling, and the second is about the stock market. Wait, you say, there's a difference? That's the point of the book.

I enjoyed the first half much more than the second, as Poundstone's explanations of the statistical underpinnings of gambling systems were incisive and easy to follow. I got a little lost in the stock section -- I followed the general drift, but some of the details went right over my head. I suspect t
...more
Joe
Very fun and entertaining book covering a range of topics.

The underlying theme is the Kelly Criterion, but it ranges from everything from Mobsters, stock market hedge funds, Hong Kong horse races, Rudy Guliani, and everything in between.

The authors many tangents are fascinating. Very enjoyable read.
Jon Stefenson
Interesting angle - as a blackjack player, am familiar with the Kelly Criterion. Makes sense. Wondered how LTC debacle fit the message, but worked in made sense. Comes together well.
Marty Tomlinson
Probably the best book I've ever read that I didn't really understand and definitely could not explain to anyone what it was about.
Paul
IMHO the best popular mathematical writing ever.

Poundstone deftly sketches Claude Shannon, John Kelly, Ed Thorp, Longy Zwillman, Bugsy Siegel, J. Edgar Hoover, and other unlikely characters in support of a crazy idea: you can actually calculate how much you should bet when you know what your informational edge over the other guy is.

Don't know that information has a measurable definition? Curious as to what the relationship between beating the dealer at blackjack and receiving your cable signal i
...more
Steven Liu
A really fascinating book. Love the anecdotes. A must read if you want to understand how to(not to) invest in stock market.
Peterboh
It was a great read, easy to follow tale of finance, blackjack and some mafia stories. Very enjoyable!
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William Poundstone is the author of more than ten non-fiction books, including 'Fortune's Formula', which was the Amazon Editors' Pick for #1 non-fiction book of 2005. Poundstone has written for The New York Times, Psychology Today, Esquire, Harpers, The Economist, and Harvard Business Review. He has appeared on the Today Show, The David Letterman Show and hundreds of radio talk-shows throughout t ...more
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