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

4.14  ·  Rating Details  ·  1,664 Ratings  ·  97 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 prob ...more
ebook, 400 pages
Published June 1st 2010 by Hill and Wang (first published September 19th 2006)
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(showing 1-30 of 3,000)
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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 Nemet
Mar 01, 2015 Todd Nemet rated it it was amazing  ·  review of another edition
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
Oct 08, 2008 Sarah rated it really liked it  ·  review of another edition
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 it was amazing  ·  review of another edition
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.
Rif Saurous
Interesting history tying together Claude Shannon, information theory, organized crime, probability, investment theory, and the early history of hedge funds. In general I found it interesting but too glib for its own good. The title is misleading, there isn't a single scientific betting system that beat the casinos and Wall Street. The title does refer to the Kelly Criterion, a particular method for choosing how much of your portfolio to bet in a way that simultaneously avoids any possibility of ...more
David Skelton
Jul 19, 2010 David Skelton rated it really liked it  ·  review of another edition
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
May 16, 2009 Elizabeth rated it it was amazing  ·  review of another edition
Shelves: 52-in-2009
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
Sep 03, 2008 Andy rated it really liked it  ·  review of another edition
Shelves: nonfiction
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
Jul 19, 2015 Anthoney rated it it was amazing  ·  review of another edition
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
Jan 13, 2009 Mark rated it really liked it  ·  review of another edition
Shelves:
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
Chip
Jan 02, 2016 Chip rated it it was amazing  ·  review of another edition
In 2015 I read Gertner's The Idea Factory: Bell Labs and the Great Age of American Innovation a fascinating look at AT&T's R&D department. Fortune's Formula expands upon Shannon's contribution to gambling and Wall Street. Shannon took his coworker John Kelly's formula Gmax=R (The Kelly Criteria) to Vegas with Edward Thorp to stack the odds against casinos and win blackjack games hand over fist. Thorp eventually published his own book Beat the Dealer: A Winning Strategy for the Game of Tw ...more
Douglas Cosby
Jun 03, 2014 Douglas Cosby rated it really liked it  ·  review of another edition
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
Aug 19, 2015 Chris Peterson rated it did not like it  ·  review of another edition
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 really liked it  ·  review of another edition
Recommends it for: anyone interested in math or science
One of the most interesting books I've ever read.
Tom Lee
May 20, 2013 Tom Lee rated it it was amazing  ·  review of another edition
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
Nov 08, 2010 Pang rated it really liked it  ·  review of another edition
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
May 07, 2013 David Rollins rated it it was amazing  ·  review of another edition
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
Jul 02, 2011 Bryce rated it really liked it  ·  review of another edition
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
Jan 18, 2014 Jeffrey rated it it was amazing  ·  review of another edition
Shelves: finance
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
Oct 13, 2011 David Ball rated it really liked it  ·  review of another edition
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
Oct 19, 2014 Billy rated it really liked it  ·  review of another edition
Shelves: finance
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
Jul 26, 2015 Mark Schulz rated it really liked it  ·  review of another edition
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.
Tiago Fragoso
Jan 05, 2016 Tiago Fragoso rated it really liked it  ·  review of another edition
O livro começa meio superficial com umas historinhas de teoria da informação e tal, mas no meio, quando começa a falar do mercado financeiro é impossível de largar. A história é super bem contada e, mesmo para um super noob de finanças como eu, ultra interessante. Imagino que o leitor com algum conhecimento vai pirar mais ainda.
Andrew Saul
Nov 06, 2015 Andrew Saul rated it really liked it  ·  review of another edition
Mostly this book is good and in parts it's great. The great parts are around the biographical sections relating to Shannon and the use of the Kelly formula in famous financial investment firm collapses & successes.

Where the real value of this book lies is its extended discussion on what risk is and how you can go about handling it in your own investments and life. It's for this I'd recommend it to anyone. The Kelly formula is less about mathematics and mostly about dealing with risk in an op
...more
Hank Mishkoff
Oct 04, 2011 Hank Mishkoff rated it really liked it  ·  review of another edition
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
Alan Singletary
Not particularly well written, or all that interesting, even if you like the mathematical and financial part. Still, I did manage to finish it, so it couldn't have been all that bad.
Joe
Nov 08, 2014 Joe rated it it was amazing  ·  review of another edition
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.
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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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