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

4.19  ·  Rating details ·  3,785 ratings  ·  236 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
Paperback, 400 pages
Published September 19th 2006 by Hill and Wang
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Trevor
Jan 27, 2009 rated it really liked it
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
Aug 01, 2011 rated it it was amazing
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
Taylor Pearson
Apr 21, 2020 rated it it was amazing
Fortune's Formula begins in the 1950s, when two Bell Lab scientists discovered a formula. It wasn't the usual kind of formula that scientists at Bell Labs found, this one was about how to get rich.

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
George Jankovic
May 07, 2016 rated it it was amazing
Hard to implement, but an awesome read.
Bon Tom
Jan 26, 2020 rated it it was amazing
Shelves: non-fiction
Is it possible to not quite understand anything in the book, but still profit from it? Turns out, it is. If you're uninitiated to gambling, stocks trade, sports betting and other fields that seem like pure chaos and any yield they might ever give is pure luck, you'll get lost in terminology and phrasing pretty damn quickly. This is book that needs to be read like Algebra 101.

However, what I did manage to get from it that there's potential order behind the "luck", and that stories about "systems"
...more
Josh Friedlander
Dec 23, 2020 rated it liked it
Shelves: economics, maths
Went into this book without knowing much about it. At first I thought it was going to be a biography of Claude Shannon, then I thought it would be about using maths to cheat at casinos, but it turned out to be mostly about finance; or broadly, I guess, about modelling uncertainty for fun and profit. Shannon - to begin at the beginning - liked fun. His early career was something of a phenomenon. He wrote perhaps the most important Master's thesis of all time, creating the field of Information The ...more
Samuel Peck
A disappointing and poorly written book.

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
Chris Peterson
Nov 21, 2014 rated it did not like it
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.
Chris
Jan 21, 2021 rated it really liked it
Shelves: finance, favorites
4/5, this book provides a strategic and measured approach to a world of risk-taking that has become overwhelmed with misinformation and disorder.

A brilliant methodology is presented that reshaped the way I look at risk taking in all forms — the concept of edge. Our ‘edge’ is our unique skill, knowledge, alpha and the bit that separates us from market competitors. By learning to understand our edge, we can learn to size risk and scale wealth responsibly while, at the same time, protecting oursel
...more
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
Rif A. Saurous
Nov 20, 2015 rated it liked it
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
Sarah
Oct 08, 2008 rated it really liked it
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
Jay French
Some interesting stories revolving around the science of information, investments sometimes using this science (and sometimes not), and the law revolving around RICO. These things fit together loosely, and the author does a good job of tying stories back to the scientists described early on in the book. But there is a lot of ground covered, in many directions. This is a book of stories related to information theory, not a how-to book. I did not pick up on enough science to be useful for my own i ...more
Bo
Dec 08, 2008 rated it it was amazing
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.
Anthoney
Jul 19, 2015 rated it it was amazing
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. ...more
David Skelton
Jul 19, 2010 rated it really liked it
Every bettor/investor should know the Kelly Criteria!
Lthmath
Jan 27, 2019 rated it really liked it
I wanted to read this book for a while and did have the patience to start it because I thought it will be complicated and hard to read. I was wrong!! It explains complicated mathematical and economic ideas simply. The language is not over the top, but easy to understand and the explanations and examples are spot on. The author takes the time to explain all the concepts in detail, also offering short biographies on the mathematicians that worked on it and how their life and society influenced the ...more
Sachetan Bhat
Mar 14, 2021 rated it really liked it
Fortune's Formula - is an interesting yet not so easy book to read. Author does an excellent job in describing the complex theories by simplifying them to the average reader. At the same time, there is a lot of unrelated yet interesting stuff in the book.

Fortune's Formula is about Kelly's Criterion - Jonh Kelly a scientist at Bell Labs derived a formula to help the telecom industry with noise over long distance calls. The formula eventually slipped out of the Telecom industry and found its way
...more
Justin Wallander
Nov 11, 2020 rated it it was amazing
Shelves: top-reads
One of my all time favorite books and a large reason I have been interested in the various topics the book discusses for decades. William Poundstone is a wonderful story teller, and the stories he wove around characters like Claude Shannon and John Kelly. Kelly’s Criterion has been a concept that has stuck with me as clearly as any has throughout the years.
Tadas Talaikis
Feb 12, 2018 rated it really liked it
Shelves: history
Heard many times elsewhere, but still cool as a history.
Alex
Dec 31, 2018 rated it it was amazing
Investing, math, scientific discovery, economic feuds, gambling, the mob... what's not to love?

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.
...more
Vishal Katariya
Feb 15, 2022 rated it liked it
Fun read! I've always been enamored by the Kelly Criterion so it was nice to explore that in more detail, especially. Overall I learnt quite a bit from the book and of course it was very dramatic. ...more
Elizabeth
Jan 02, 2009 rated it it was amazing
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 rated it really liked it
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
Chip
Jan 02, 2016 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 Twenty-One ...more
Douglas Cosby
Jun 03, 2014 rated it really liked it
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
Dennis Littrell
Jun 16, 2017 rated it it was amazing
Gangsters, gamblers, mathematicians, touts, hedge fund wizards, and 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
Andrew Saul
Aug 30, 2015 rated it really liked it
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 optima
...more
William
Apr 06, 2016 rated it really liked it
I really enjoyed reading Fortune's Formula. Poundstone as the amazing ability to simplify complexity while keeping the reader engaged.

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
Mark
Jan 13, 2009 rated it really liked it
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
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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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