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

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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## Community Reviews

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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

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

Oct 08, 2008
Sarah
rated it
really liked it
·
review of another edition

Shelves:
non-fiction,
filthylucre

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

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

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.

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

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

Jan 02, 2016
Chip
rated it
it was amazing
·
review of another edition

Shelves:
mathematics,
statistics

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

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.

*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

Nov 08, 2010
Pang
rated it
really liked it
·
review of another edition

Shelves:
ecomics-finance,
investment

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

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

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

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

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.

With that said, I would recommend this book to people who are nerdy in certain ways.

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

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

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 '

More about William Poundstone...
*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## Share This Book

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