Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
An engaging multi-biography/history of the repeatedly-reinvented Kelly criterion, mixed in with overviews of Claude Shannon, John Larry Kelly, Jr., Ed Thorp, and their famous gambling adventures in beating blackjack and roulette and, as some of the first ‘quants’, the stock market. (Like Thompson sampling, the Kelly criterion has been reinvented many times; Poundstone lists at least 4 inventors: Kelly, Leo Breiman, Bernoulli, and Henry Latané.)
Poundstone starts with the early mob and the ‘number...more
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
Getting rich maybe isn't the purpose of life, but all else being equal it's probably not a bad idea. In the worse of comedian Bill Hicks, "Money can't buy happiness, but it can buy a jet ski. And you never see an unhappy person riding a jet ski."
Anyhow, one of those scientists was Claude Shannon, the i ...more
However, what I did manage to get from it that there's potential order behind the "luck", and that stories about "systems" ...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
Very interesting subject, but author bogged it down with an endless barrage of trivial irrelevant minutiae. All those disparate useless factoids about the Mob, Claude Shannon's marriage life, LTCM, Paul Samuelson's biography - all these seemingly unrelated strands were forcibly meshed together in a disjointed manner. Many chapters flash by without any link to the Kelly Criterion itself.
For a better book on Edward Thorp, read his biography A Man For All M ...more
A well-researched, entertaining narrative spanning from the early days of Bell Labs and the information age, to wall street scandals and racketeering charges. Full of history and biographical nuggets, it's a tale ultimately about risk, uncertainty, and putting your money where your mouth is.
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
“Fortune’s Formula” is the Kelly Criterion from J.L. Kelly Jr. who was a mathematician at Bell Labs in the 1950s. Essentially the formula gives the optimal size of bets in order to win as much as possible over time while reducing the risk of ruin. The thing for the reader to realize is that the Kelly Criterion has no utility unless the bettor or investor has an advantage. That needs to be repeated: on an even bet, such as ...more
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 optima ...more
With that said, I wish Poundstone had gone into more detail explaining how the Kelly Criterion works in games (or investments) with more than 2 possible outcomes. Instead, he just informs us that there are people out there using this formula for such scenarios such as horse racing, investing, etc.
Most importantly, I like that Fortune's Formula caused me to go and ...more
I highly recommend this book. Not just for investors, but also for any curious mind.