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

4.1 of 5 stars 4.10  ·  rating details  ·  1,128 ratings  ·  73 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
ebook, 400 pages
Published June 1st 2010 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 Nemet
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  ·  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.
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
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
David Skelton
Every bettor/investor should know the Kelly Criteria!
Erin
Nov 06, 2008 Erin rated it 4 of 5 stars  ·  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
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
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
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
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.
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
Xulferdica
Fascinating and educational. Essential read for the professional risk taker!
Richard
Poundstone addresses intriguing subjects, but his writing style is a bear to get through--every new character or concept needs a trite format of history, mostly irrelevant, and he has a tendency (at least in this and Prisoner's Dilemma) to hold off on some of the main concepts to go through endless background to the concept, a method I find too off-putting. I just want to jump in and swim.
Mansoor
The book has one good idea. The rest is filler.
JDK1962
Fun book, though the title definitely over-promises (Kelly is a betting management system that tells you the maximum to bet...it certainly says nothing about *what* you should bet on).

The material on Shannon, Kelly, and Thorpe is terrific. Some of the other material, while entertaining, seemed like a bit of a detour. The stories of LCTM and Guiliani's RICO cases were juicy, but not really central to the book.

If you're looking for a "how to gamble and get rich quick" book, look elsewhere.
Matt
a pretty fascinating historical look at some of the betting systems developed over the past 50 years that beat wall street and vegas. while i had already heard about 20% of the information presented, the book did a good job of creating a bigger picture and tying in seemingly separate occurrences. but i would add that the book is probably only appealing to the small segment of society that is interested in the relationship between mathematics, gambling, and history.
Sean
This is a really great book that I don't think many people have read. I am not particularly good at math, and I don't really gamble, but this book on the mathematics of odds is one of my favorite kinds of books - its smart, playful and full of an eccentric mix of gangsters, MIT professors and business people who have used a variety of methods to get rich by playing the odds.

If you have any interest in how markets or gambling work this is worth checking out.
Steve
I think it takes a special author to tackle Information Theory and make it interesting. Gambling and hedge fund collapses, other topics of this book, are easy by comparison. Amazingly the thread tying these topics together is an obscure formula called the Kelly criterion.

If you know nothing about finance, this book is fun and informative. You'll be introduced to a variety of financial instruments and characters in the dramatic 80's financial turmoil.
Eric
What do Rudy Giuliani, two Nobel laureates, gangster "Bugsy" Siegel, "Beat the Dealer" author Edward Thorp, and convicted 80's junk bond tycoon Michael Milken all have in common? The answer: they all play a role in the series of actual intertwined events told crisply and colourfully by author William Poundstone in a page-turner of a book that explores the question, how much is luck a driving force in gambling, in the stock market, and even in life?
Wayne
I found this an interesting read on thinking in probability and how to keep the odds in your favour as much as possible. However, I thought that the changed direction about half way through with the chapter on RICO. It seemed to spend more time on the lives of certain individuals and less time on the math and science of probabilistic thinking.

Overall I am glad I read it, but definitely enjoyed the first half more than the second :)
KT Khoo
Poundstone is also the author of that great interview puzzle book, How Would You Move Mount Fuji. But this book is one whirlwind of an interdisciplinary masterpiece. It’s got the formulae of card counters, the birth of Claude Shannon’s information theory, a partial history of betting and bookmaking, and colorful characters to spare. Great story, useful insights, not as frequently mentioned as other money blockbusters.
Richard
The Kelly system of percentage betting, arbitrage, Boesky, Kinney Parking, the mob and Ed Thorp’s counting system of blackjack are all related. That’s about it, Poundstone draws no real conclusions in this oddly written book. It reads like a second draft, after the raw notes have been into sentences and paragraphs. Little connects stray thoughts, and Poundstone never tries to draw connections between the oddities.
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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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