The incredible true story of the card-counting mathematics professor who taught the world how to beat the dealer and, as the first of the great quantitative investors, ushered in a revolution on Wall Street.
A child of the Great Depression, legendary mathematician Edward O. Thorp invented card counting, proving the seemingly impossible: that you could beat the dealer at the blackjack table. As a result he launched a gambling renaissance. His remarkable success--and mathematically unassailable method--caused such an uproar that casinos altered the rules of the game to thwart him and the legions he inspired. They barred him from their premises, even put his life in jeopardy. Nonetheless, gambling was forever changed.
Thereafter, Thorp shifted his sights to "the biggest casino in the world" Wall Street. Devising and then deploying mathematical formulas to beat the market, Thorp ushered in the era of quantitative finance we live in today. Along the way, the so-called godfather of the quants played bridge with Warren Buffett, crossed swords with a young Rudy Giuliani, detected the Bernie Madoff scheme, and, to beat the game of roulette, invented, with Claude Shannon, the world's first wearable computer.
Here, for the first time, Thorp tells the story of what he did, how he did it, his passions and motivations, and the curiosity that has always driven him to disregard conventional wisdom and devise game-changing solutions to seemingly insoluble problems. An intellectual thrill ride, replete with practical wisdom that can guide us all in uncertain financial waters, A Man for All Markets is an instant classic--a book that challenges its readers to think logically about a seemingly irrational world.
Praise for A Man for All Markets
"In A Man for All Markets, [Thorp] delightfully recounts his progress (if that is the word) from college teacher to gambler to hedge-fund manager. Along the way we learn important lessons about the functioning of markets and the logic of investment."--The Wall Street Journal
"[Thorp] gives a biological summation (think Richard Feynman's Surely You're Joking, Mr. Feynman!) of his quest to prove the aphorism 'the house always wins' is flawed. . . . Illuminating for the mathematically inclined, and cautionary for would-be gamblers and day traders"-- Library Journal
Edward Oakley "Ed" Thorp (born 14 August 1932) is an American mathematics professor, author, hedge fund manager, and blackjack player best known as the "father of the wearable computer" after inventing the world's first wearable computer in 1961. He was a pioneer in modern applications of probability theory, including the harnessing of very small correlations for reliable financial gain.
He is the author of Beat the Dealer, the first book to mathematically prove, in 1962, that the house advantage in blackjack could be overcome by card counting. He also developed and applied effective hedge fund techniques in the financial markets, and collaborated with Claude Shannon in creating the first wearable computer.
Thorp received his Ph.D. in mathematics from the University of California, Los Angeles in 1958, and worked at the Massachusetts Institute of Technology (MIT) from 1959 to 1961. He was a professor of mathematics from 1961 to 1965 at New Mexico State University, and then joined the University of California, Irvine where he was a professor of mathematics from 1965 to 1977 and a professor of mathematics and finance from 1977 to 1982.
Ed Thorp, author of Beat the Dealer and Beat the Market, about winning at blackjack and winning in the stock market, takes a very straightforward approach to writing about his life and it works well. As a physicist and mathematician, he tackled the questions of roulette wheels and blackjack games in a scientific way and found that it was possible to beat the house. Once he had exhausted that topic to his satisfaction and the dismay of the casinos, he moved on to the bigger casino of the stock market. Who IS this guy who, using pure brain power, managed to become fabulously wealthy while staying remarkably grounded?
Thorp describes his research and discoveries about roulette, blackjack, option trading, and more, in easy-to-understand language, for a general audience. You need no prior experience dealing with probability or securities or anything else. (He even explains at one point that a molecule is a collection of atoms bound by electrical forces.) He also tells stories about the wealthy and famous people he encountered because of his books about beating the dealer and the market.
I also enjoyed the final chapters in which he moves away from memoir to talk about good investment strategies and how the 2008 market crash came about and why it is likely to happen again. I was looking forward to this book even before I knew it would be written -- someone would have to write about this man's life eventually, and I'm glad that Thorp himself did it.
It's half of a good book. The first half of the book was an utterly fascinating autobiography recalling the early years of the author's childhood life and how he got interested in mathematics. His curiosity led him to key discoveries in how to beat the dealer in blackjack and other games of chance, and eventually led him down the path to make key discoveries to arbitrage the markets in finance. However, that material only provided enough for half of a book so the latter half is stuffed with his observations and views on markets, hedge funds, wealth, personal finance, etc. While somewhat interesting, none of this material is original and can be discovered in greater detail in any number of finance/business books. The 3-star rating is the end result of a 5-star start that sputtered to the finish.
I've come to believe very strongly that any knowledge that cannot be used in the real world is useless. Application of knowledge to solve real world problems - for individualistic gain or otherwise - satiates our desire to exist. As Munger says, we have a high moral responsibility to understand human systems and act rationally. In this regard, Thorp's autobiography is an illustrative guide to finding meaning in life - not through spirituality, but through curiosity and application of the inquisitive mind to understand the world around it.
Straddling between an academic career and high stakes gambling, Thorp hit the sweet spot with his techniques for card counting in Blackjack. While other academics scorned his methods for being simplistic, Thorp went on to understand risk and probability in everyday games (blackjack, roulette or investing) and developed winning systems that benefitted his clients. His multidisciplinary approach to learning is a lesson for anybody who wants to make it big in life. Personally, Edward Thorp is one of my new heroes.
Ed Thorpe is one of the great minds in the history of the trading business and one of the Top 5 trading legends I have been hoping to see a biography come out on. (Steven Cohen plz!!) In this case Thorpe wrote his own autobiography and that makes it all the better. Thorpe tells his story of how he would grow from humble roots in Depression era California to become the man who wrote both "Beat the Dealer", in which he laid out the mathematical means to win at Blackjack for a generation of real and wannabe card counters, and "Beat the Market", in which spelled out his quant trading strategies years (decades really) before people used the term. It is now widely recognized that he derived the same options pricing formula that won a Nobel Prize as the "Black-Scholes Model", except Thorpe had years before and kept it secret to generate millions in trading profits. One of those unique minds who combined amazing innate math abilities with a flair for practical implications, Thorpe would enjoy decades of results that even earned the respect of Warren Buffet. Thorpe dives into any number of related topics including his own tale of spotting the Madoff fraud 20 years before it came to light....noone listened to him either. One flaw is that the meat of the book is 85% of the pages covering his autobiography which is 5 Stars good, but the last 15% was a pretty basic run down of rather pedestrian financial topics that feel like an afterthought to his biography. One suspects the draft for his autobiography was done a decade ago and the other stuff was tacked on later when publication loomed. Oh well...still a must read for traders
cuốn tự truyện này cho thấy 1 điều: tuổi thanh xuân chưa hẳn là lứa tuổi đáng nhớ nhất cuộc đời. Khi bạn có đủ nguồn lực, đủ trí tuệ để thỏa chí tang bồng, đó mới là thời điểm đáng nhớ nhất cuộc đời. Tuổi 20 chỉ là trang 50 của cuốn hồi ký cuộc đời bạn mà thôi, hãy sống sao cho ohast huy hết giới hạn của bản thân!!
I haven't finished the book yet but Thorp seems to take great pleasure in describing what a special snowflake he is. His self-aggrandizing way of reflecting the past makes him come across as a braggart, which makes for a rather painful read.
Ed Thorp is a genius and will one day be recognized, officially, as one of the greatest minds of the 20th (and early 21st) century.
I've spent a lot of time reading books about investing and quantitative finance. Some of this was very familiar to me. This book is a train ride that stops at all of the interesting stops. Yet, Ed has so much primary information to share that he manages to make so much of this his own. The coverage is incredible, the perspective is priceless. He invented card counting, then by chance bacme an early investor in Berkshire Hathaway, was adamant about Bernie Madoff being a fraud in 1991, then became the first LP of Citadel, then turned down an opportunity to seed D. E. Shaw. I mean no disrespect when I say this, but at times the book gives the impression that Thorp has been the Forrest Gump of Quantitative Finance.
This book intersects with many, many others. I'm only going to list books that I've read, but the point is that if you liked the book, or if you liked any of these books, there's quite a lot of crossover appeal. Among them: - Beat the Dealer & Beat the Market (written by Thorp, referenced frequently) - Market Wizards / New Market Wizards - Million Dollar Blackjack (Ken Uston, a guy who went all-in on card counting) - More Money Than God (The history and modern picture of hedge funds) - Liar's Poker (Culture pieces from Salomon Brothers) - Flash Boys (Criticisms of high frequency trading) - The Quants (Quant finance revolution, commentary on 07/08 financial crisis) - Fooled by Randomness (Taleb classic intellectualism) - Fortune's Formula (Claude Shannon, Kelly Criterion, Thorpe's gambling days, amalgamation of a lot of this) - When Genius Failed / Inventing Money (LTCM) - The Four Pillars of Investment (Portfolio structure and normalized views on asset classes) - A Random Walk Down Wall Street / Boglehead's Guide to Investing [et al] (Everything about index funds) - The Economics of Casino Gambling [et al] (Not everyone is a winner in Las Vegas) - Den of Thieves / Barbarians at the Gate (Boesky/Milken and some implication of PNP)
I was one of the first buyers of Thorp's first book, _Beat the Dealer_. I grew up with cards and dice, and even had a slot machine at home, manufactured by my grandfather's company. My husband had put himself through college playing poker. So we were naturals. We spent a month dealing blackjack to each other until we had both mastered Thorp's system. I was just 21 and looked younger. We went off to Nevada on many weekends before the casinos had started taking defensive measures. On our meager stakes, we usually came home with a few hundred dollars, a great boon to our small budget in those days. One memorable weekend I sat down at Aladdin's about noon on a Saturday next to an off-duty casino employee. He offered to advise me how to play my hands. I thanked him, but said "I know what I'm doing." About that time, I hit a soft 18 with a 3 against a dealer's face card. My neighbor did a double take and started betting on my hand. It was sweet, and our profit was larger than usual that week. So I've always had a warm spot in my heart for Edward Thorp!
Before this book, I wasn't aware of what a super genius he is. He took a standard IQ test (he didn't know the reason) to determine whether he should skip 6th grade (he was younger and smaller than his classmates, but academically far beyond them). He enjoyed the first part of the test, then decided he had better things to do and drew a line down "true" for the last set of true/false questions. Nevertheless, he got the highest score the principal had ever seen in many years of educating bright students.
I know many men who, as boys, conducted chemical and rocket experiments in their back yards, but none as clever and successful as Thorp. His account of these activities is often hilarious; I am reminded strongly of Richard Feynman, who was, incidentally, a friend of his.
Thorp's favorite entertainment was solving mathematical puzzles. He decided early on not to accept anyone's opinion that something was impossible (such as beating the house at blackjack). After blackjack, he calculated a way to beat roulette, in collaboration with Claude Shannon, the father of information theory. He was, of course, barred from the Nevada casinos, and became a master of disguise as a result. The last casino game to fall to his calculations was baccarat. He doesn't mention craps, so I conclude it isn't possible to beat the house at the craps tables.
After the casinos, the next big challenge was the stock market, which is, of course, the world's largest casino. He describes his first three lessons, each of which cost him what was then a substantial sum of money. After that, he studied the market intensively for several months and found a way to minimize risk while maximizing returns. He originated one of the first hedge funds, and chalked up impressive results year after year. His descriptions of his methods sometimes get a bit technical, but serious investors will be able to follow them easily.
Having made enough money to last him and his wife comfortably for the rest of their lives, he retired to spend time with his family, traveling, and enjoying life. And writing this autobiography, which is full of gems of wisdom about managing your money and life in general.
I started this book thinking it would be focused on money making strategies, however although there is a good deal of discussion here, I think those looking for takeaways in this area would be better suited to his other more detailed books on blackjack and beating the market (though I haven't read those so cannot say for sure).
"A Man for All Markets " is firstly an Autobiography Memoir. He starts with detailed life account from the early beginnings of life in poverty through to present day. I was surprised the author dedicated the last 1/3 or 1/4th of the book to personal finance, budgeting, and life view/work life balance.
In one section, he really throws down the gauntlet against Efficient Market Theory, but I do believe he and Buffet are outliers and that overall EMT can be important for recognizing that most people will not be able to exploit any perceived inefficiencies and over time the market tends to (mostly) correct, just how long it may take is unknown to most.
Overall I found the first half more interesting because of his story of pulling himself up by the bootstraps and overcoming many of life's essential unfairness. I like that he deliberately calls out how some people you come across in life will not hesitate to put their well being ahead of yours even when they already have what may be considered a comfortable position in life. What makes people successful is being able to roll with these punches to overcome what life dishes out.
It was also refreshing to see the life balance mentioned explicitly as I think so many book glamorize the intense work dedication and ignore the often detrimental effects on home life.
The least interesting parts were the sections on personal finance (last ~1/4 of the book), how to take stock of your net worth etc. because I have already read extensively about those topics, but I can see their importance to many readers who might not have had so much prior exposure (e.g., 4% rule, Rule of 72 etc).
I was introduced to Thorp as a kid when dad taught me the strategy around blackjack. I still have that paperback dad gave me. I didn't understand all the math, but I understood the strategy enough to memorize basic play and I remembered enough to play decently when I turned 18 a decade later. I had always figured that Thorp continued in the gambling world like math experts David Sklansky and Chris Ferguson. It turns out that Thorp took a different path to Wall Street where his ability to find mathematical inefficiencies led to the creation of successful hedge funds.
Let me recommend the audio book read by Thorp himself. His measured and direct voice gives one a much better feel for the precise words and the gentle soul behind them. Even though he must have been nearly 90 when he recorded it, his voice is strong and it's an endorsement to the physical activity that Thorp says has been good for his body and mind.
The book is a great educational experience and a great narrative. I came away with a much better understanding of how hedge funds work which probably would have been boring or annoying in a lesser told tale. There are learnings and scattered through their are anecdotes. For instance, he tells a story about how he convinced his maid to put her money into Berkshire Hathaway in the 1960s and keep it there. She didn't keep it there.
When you make your money as a hedge fund manager and see so much inefficiency you tend to see markets as irrational as Thorp does. If there is a through-line to his worldview it's that we put too much trust into markets and stronger regulators with his brain could fix this. Thorp thinks along the lines of how the SEC could have stopped Bernie Madoff in the early 1990s when the irregularities came to the attention of people like Thorp. To Thorp the inability of the SEC to do so was a missed opportunity rather than an example of how politics is not a good problem solving tool.
Thorp can see how different regulation could have prevented the housing bubble and bust in 2008, but he doesn't consider why making it easier to become a homeowner was good politics for both parties albeit for different reasons. He worries about the political divide and gridlock, but doesn't consider that the big problems, the really big ones come out of bipartisan legislation rather than gridlock. Our current inflationary cycle started with bipartisan Covid stimulus checks.
Republicans thought that home ownership would lead to a more responsible citizenry and Democrats thought that it would be an opportunity to help under served communities buy homes and build wealth. How do you persuade the banks to approve loans they wouldn't normally make? You allow them to sell bad loans to the government-created Fannie Mae backed by the taxpayer. Thorp is right that it could have all been prevented with different rules, but in actuality the easy money is what the politicians wanted. This is where gridlock was needed. The housing crisis was only possible because of government, rather than a crisis that could have been prevented by government.
Thorp lives in a rational world where foolishness is tested and dies. And as a decent man he would have fought irrational governance had that been his career. He would have been outnumbered and lost. Better for Thorp he chose hedge funds. A Man for All Markets is a great book and a reminder that the Achilles Heel of the rational man is the irrationality of everyone else. You can rich get off that knowledge but you can't fix it. The irrationality of people is exactly what gives politicians power.
It is difficult to praise one’s own self and talk about the achievements in witty, interesting and factual ways without appearing arrogant, exaggerating or biased. Ed Thorp may do thousands of other things better than almost anyone else, but certainly not that.
The author is an extraordinarily talented and successful person. He is a brilliant theoretician who can justifiably lay claim to a handful of good mathematical theories. He is also a good investor. He has led an interesting life, particularly when he was taking on the casinos. The author has a life story that needs to be recorded for the rest of us. Yet, the way he describes it makes it unbearably one-sided and as if coming from a person too much in love with himself.
These traits are visible right from the start. The lengthy descriptions on his own mathematical skills reveal an author who is completely unaware that as good as his analytical abilities are, they are not one in a billion or possibly even one in a million varieties. This trait of glorifying the marginally superior traits/events/investments/ideas hurts the book throughout. This also creates the impression of a person ignorant of his basic flaws and incapable of providing a balanced view of the failures. To a degree, the author’s habit to share credit with only the known greats like Shannon or Buffet creates the image of a person that might have failed to mention numerous others who might have had a bigger influence in his achievements.
The best sections are when the author discusses the casino ventures. He was a true pioneer in providing the new logic/methods in playing some games. The same is not true about almost anything he has done in markets. He is a highly successful investor. He has great methods, but none of his methods - including those in the pricing of warrants/derivative instruments - are indisputably original. Just like the Madoff claims (that he realized Madoff was a fraudster as early as 1991), many other claims around the originality of Black-Scholes like pricing etc are throwaway, theoretically inadequate, practically unhelpful to almost all around and unprovable. The author’s habit to damn the damned only adds to the impression of a person unlikely to stand up for anyone in need of help or support.
So even assuming that here is a tale of a man who has lived some amazing ventures, it needed a different author.
If you want to feel how pathetic a loser you are, read this book. Seriously the guy taught himself Fortran in the 1960s (or 50s?) to beat Blackjack, built the first wearable device to beat roulette, created what we now call as quant-trading, and actually made money consistanly out of if. He also took one of the first IQ tests, yoloed big chunk of it, only to be found to be in the class of "once in a century" prodigies. Hell, this review could very well be just a list of his achievements. But this is a good book. See, I read "A mind at play", a biography about Claude Shannon (btw they are genius bros), and I dragged myself to finish it. It is hard to write about a genius, if you are not a genius yourself (the author of "A mind at play" admitted it himself). This one, I cannot stop reading. I knock 1 star off the rating because of the Chapters 24 25 26 27. If I want to read about basic personal finance, I would read something else. Mr.Thorp, I read your book to magnify my existential crisis, not to be finacially responsible, thank you. Luckily the last 3 chapters are exactly what I need: oh yeah more of that hatred toward bankers and crooked politicians please. The more the better. You dont have to take my words for it. Mr.Taleb himself endorsed this book. So it must be something. Now if you excuse me, I will take a shower and cry how much of a loser I am.
Although I listened to it as an audiobook, I "couldn't put it down", so to speak. Engaging autobiographical story about Ed Thorp. I liked that he spent the first part of his book laying down how his core values and how he perceives the world. It helped in building the world that he lived in, and explained the things that happened to him later in his life.
Pretty nice analysis of modern investment and economic landscape towards the end of the book, leaving the reader with practical takeaways.
The book starts with some excellent anecdotes of Thorp working with Claude Shannon. But it falls apart when Thorp starts talking about how special he is. I'm still not sure that he has done much other than make a lot of money, but to Thorp his money apparently is proof of his worth. We're supposed to be impressed by his Ferraris?! Never mind that a lot of his money was made in collaborations with literal criminals. Thorp of course declaims any knowledge of their crimes, as if this makes absolves him of any responsibility. (Thorp also discovered Madoff's Ponzi scheme 18 years before it collapsed—of course he did nothing about it.) The book collapses in the second half, when Thorp shares his utterly pedestrian "insights" on financial markets. If you haven't yet heard of inflation or compound interest, I won't spoil it for you.
> I made a practice of holding back part of [my chemical sample] so that, if this were done to me, I could prove that I had correctly analyzed whatever I had. On the very last sample given us to evaluate that semester, I was told I got it wrong. I knew better, and to prove it I asked that the part I had saved be tested. The decision on my appeal was left to the teaching assistant for my lab sections, who refused to act. The points I lost caused me to end the term in fourth place rather than first. Outraged, I did not enroll in chemistry the second semester and changed my major to physics
> So this was the setting when Claude Shannon and I, in September 1960, set to work to build a computer to beat roulette. So far as we knew, everyone else thought physical prediction was impossible.
> Claude taught me to juggle three balls, which he did while riding a unicycle. He also had a steel cable tied between two tree stumps and walked along it, encouraging me to learn with the aid of a balance bar. He could do any two of the three tricks together: juggle three balls, ride the unicycle, and balance on the tightrope, and his goal was to be able to do all three at once
> One day I noticed two huge pieces of Styrofoam that looked as if they could be worn like snowshoes. Claude said they were water shoes that enabled him to “walketh upon the water,” in this case the Mystic Lake in front of his house
> The Princeton office hired him. The five top people there were indicted and tried on sixty-four charges of stock manipulation, stock parking, tax fraud, mail fraud, and wire fraud. The defendants, in addition to Jay Regan, were our head trader, head convertible trader, the CFO and his assistant, and a Drexel Burnham convertible trader. Neither I nor any of the forty or so other partners and employees in the Newport Beach office had any knowledge of the alleged acts in the Princeton office. We were never implicated in, or charged with, any wrongdoing in this or any other matter. Our two offices, more than two thousand miles apart, had very different activities, functions, and corporate cultures.
> He argued that if I were wrong, he would needlessly sacrifice his best investment. I answered that I could not be wrong: I had proven from public records that the trades never happened. He was being sent make-believe trade slips. I made the point that to ignore this could put his job at risk. That clinched it. He closed his accounts with Madoff and got his money back. Over the next eighteen years, he watched other Madoff investors seem to get rich. I wonder how often he regretted hiring me.
> At the last minute I came up with the title “What Every Young Girl Should Know” and refused to tell anyone what I was going to say about it. The room was packed, with attendance beyond anything previously seen. Most agreeably, in addition to the usual mostly male audience, there were lots of pretty coeds. From their questions and their expressions afterward, my listeners weren’t disappointed. I had talked about the solution to the so-called marriage problem and had made the math behind it understandable.
The first ~260 pages are fantastic. Thorp was a child prodigy who was fascinated by all kinds of science and driven to learn. He proved mathematically, then in the casinos themselves, that blackjack players hold an edge over the dealer and literally wrote the book Beat the Dealer in the 1960s. He moved on from academia and gambling to make boatloads of money in the stock market, hob-nob with Warren Buffet, and generally live a fascinating life. The writing is clear and engaging, page-turning, and not overly technical nor filled with too many numbers.
I first raised my eyebrow on page 230 where, in a chapter titled "Swindles and Hazards" about Bernie Madoff and other stock market scams, Thorp talks about high-frequency traders (HFTs - Michael Lewis has an entire book on the topic called Flash Boys: A Wall Street Revolt) and how they insert themselves between buyers and sellers, "harvesting wealth" by profiting at (literally) light speed on small gaps in the price at which people want to buy vs. sell. Thorp avoids a clear condemnation of the practice but it's in the "scams" chapter...
Not 3 pages later on p233, Thorp introduces a chapter about his "statistical arbitrage" operation, which to my (perhaps overly simple) understanding is the exact same operation as HFTs - profiting off differences in what people are willing to sell at vs. buy at - but perhaps just slower? It made me sit back and wonder, how can he imply that HFT is not really adding anything to society, then talk about making tens or hundreds of millions of dollars in other types of trading (and more specifically arbitrage)? I feel like there is a cognitive dissonance there.
Around p260 the book totally falls off a cliff, pivoting from an interesting autobiography about a fascinating person to a bland series of finance articles. Chapters such as: should you invest in a hedge fund? How do we define "rich"? What's compound interest? What's index investing? What's asset allocation? All good questions, and maybe good for people trying to replicate Thorp's insane success to be talked off a cliff towards more rational strategies, but the ~50 pages of unoriginal advice destroyed the narrative before a few equally weak closing chapters left me underwhelmed.
The smoking gun is in the acknowledgements section, Thorp thanks a magazine editor for past opportunities to write, and saying "some chapters draw upon articles..." Yes, these out-of-place chapters are quite easy to recognize.
What a page-turner. Lots of great insights illustrated with the best anecdotes. My take-aways:
- Assess not just market risk but also fraud risk. Thorp was cheated at casinos early in his career, in all sorts of ways (they even poisoned his coffee). Then in 1991 he was among the first to call out Bernie Madoff's Ponzi scheme - for which Madoff wouldn't be convicted until 2009, even though the SEC had been alerted to his fraud multiple times over the years. (That's the same SEC that is now cracking down on crypto exchanges "to protect consumers.") So, don't trust the authorities, do your own due diligence instead.
- Have a clear exit strategy for each investment. Otherwise you end up anchoring. The price you paid for the stock doesn't matter, all that matters is where the price going thereafter.
- Sales matter. To create his first fund Thorp visited court houses to collect data on limited partnerships. He got the contact info of the limited partners and cold-called them. Most academic economists would rather starve than "debase" themselves by doing sales work.
- Sometimes you have to choose between making money and being published. Thorp came up with Black-Scholes before Black-Scholes, but he was more interested in using it than in claiming bragging rights.
- If you are a professor, never ever agree to become the head of the department. Thorp's stories are horrifying (though they jibe with what I've seen): nasty infighting, absenteeism, zero accountability.
- Read Nassim Taleb (Thorp quotes him multiple times throughout the book). Thorp talks about some hedge fund that had simulated the effect of previous crashes (1987, 1999, etc) on their portfolio. They found they could withstand all of them with small losses. But 2008 came and they lost over 50% of their AUM. 2008 was qualitatively different from the previous crises - it was a black swan.
And lots more.
Towards the end Thorp gets a bit more specific about investment strategies (he talks about finding a subset of the S&P500 that closely tracks the S&P500 but can be more tax-efficient and lead to interesting strategies, for instance). But that's not the point of the book, which is more about the big picture.
“A Man for All Markets” is at its core a captivating memoir on how Professor Thorp managed to acquire a fortune estimated at around $800-million. It’s dense, it’s detailed, it’s engagingly written, it’s a lot of fun to read and it’s full of valuable information. I would love to have read the chapters on markets some years ago when I was an active trader. I’d have made a lot more money!
How did he do it? “Education,” he explains in a later chapter.
He either taught himself or he learned from others. Indeed Chapter 1 is entitled “Loving to Learn.” He began as a poor boy in Lomita, California delivering newspapers in the morning and in the afternoon. He got into UCLA and graduated with a degree in physics and then went on to grad school to study mathematics. He became fascinated with challenges, most famously with the gambling card game, blackjack or twenty-one. He devised a point count system that, coupled with his ability to remember cards, allowed him to beat the casinos at their own game.
And then he wrote a bestselling book, “Beat the Dealer” showing others how it could be done. I read that book when it came out in the early Sixties and was fascinated. Because my memory is only average I ended up playing poker instead of blackjack--but that’s another story.
Following up on his success at twenty-one, Thorp, along with Claude Shannon, designed and built a mechanical and electrical device that allowed them to gain an advantage in roulette by predicting with some proficiency approximately where the bouncing ball would end up. That was quite a coup especially considering that it happened fifty-some years ago.
This takes us through the first ten chapters. Then in Chapter 11: “Wall Street: The Greatest Casino on Earth” Thorp turns his attention to the financial markets. The titles of the next 14 chapters not only outline the story but could serve as something like a syllabus for a graduate course in investing. Viz., “Front-Running, The Quantitative Revolution, Swindles and Hazards, Buying Low, Selling High, Hedging Your Bets, Compound Growth, Beat Most Investors by Indexing, Asset Allocation and Wealth Management, etc.”
There’s an illuminating chapter on financial crises and lessons not learned. Thorp concludes with Chapter 30 “Thoughts,” which I found fascinating. There are also five appendices, three on inflation and the dollar, historical returns, and the performance of his fantastically successful hedge fund, Princeton Newport Partners.
I think it is important in accounting for Thorp’s extraordinary success to realize that he was very good with people and formed valuable friendships with knowledgeable and gifted persons including the afore-mentioned Claude Shannon, Warren Buffet and others. Additionally, his curiosity and love of challenges took him places others couldn’t go. Finally, there was the loving support of his very talented wife, Vivian. If I were giving out advice on how to be successful in this world I would say first pick your spouse wisely.
Also, Thorp was thrifty. On page 86 we learn that when he was playing blackjack in Las Vegas he would call his wife collect and to save money would ask for “’Edward __ Thorp,’ the middle initial being a code we had devised to tell how many thousands of dollars we were ahead or, if the initial came before ‘Edward,’ how many behind…” “After hearing the name of the person being called, Vivian would politely tell the operator that Mr. Thorp ‘wasn’t here at the moment.’”
I think it is a good lesson to understand that not only is a penny saved a penny earned but it’s worth more than that because what’s saved is untaxed and the money can be invested. Thorp elaborates on the value of thrift in building wealth elsewhere in the book especially on page 269.
I want to say that I have a personal affinity for both this book and its author because of some similarities in the lives we have led. For those interested see my recently published memoir “If I Had Been a Better Man.”
Okay now for some tidbits from the amazing professor of gambling and markets.
“Joseph Heller and Kurt Vonnegut were at a party given by a billionaire…Vonnegut asked Heller how it felt to know that their host might have made more money in one day than Heller’s “Catch-22” since it was written.” Heller replied that “he had something the rich man could never have.” Vonnegut wondered what that might be, and Heller answered, “The knowledge that I’ve got enough.” (p. 213)
Thorp actually discovered in 1991 that Bernie Madoff’s trades were fakes and that he was running a Ponzi scheme. See pages 213-219.
A joke: “…pronounced MADE-off, as in “with your money.” (p. 217)
If you haven’t heard of the so-called “secretary/marriage problem” in math turn to page 224. The problem is when to say yes to get the best candidate. Once you say no you usually don’t get another chance and you may find the remaining candidates not as good. On the other hand, if you say yes too soon you might miss the best choice.
Thorp’s answer to high frequency trading: “a small federal tax…a few cents a share…” (p. 231)
On the crisis in funding for the California university system: “To starve education is to eat our seed corn. No tax today, no technology tomorrow.” (p. 341)
--Dennis Littrell, author of “The World Is Not as We Think It Is”
Любопытная книга. Мне было весьма интересно, т.к. преферанс меня сильно увлекает. По итогам прочтения задумался об изучении вопроса стратегии в бизнесе поглубже.
Уоррен Баффетт: «Чтобы добиться успеха, сначала нужно выжить». Ничего этого не случилось бы, если бы я своевременно задал себе два вопроса: «Чего ты хочешь добиться этим поступком?» и «К чему, по-твоему, он приведет?» Жаль, что тогда они не пришли в голову. Ответы мне бы не понравились. В будущем эти два вопроса стали для меня важными ориентирами. Кроме того, я считал – и считаю до сих пор, после пятидесяти лет работы финансистом, – что самый надежный способ разбогатеть состоит в том, чтобы играть только в те игры и участвовать только в тех инвестициях, в которых у меня есть преимущество. В пути у меня было достаточно времени подумать о том, как мои исследования в области математической теории игр могут изменить мою жизнь. Коротко говоря, жизнь – это смесь случайностей и решений. Случайности можно считать картами, которые сдают нам в жизни. Решения определяют, как мы их разыгрываем. Я решил заняться блэкджеком. В результате этого случайность открыла передо мной новые, неожиданные возможности. Для меня блэкджек был игрой математики, а не везения. Везение, как и невезение, бывает случайным, непредсказуемым и недолгим. В долгосрочном масштабе оно вообще не имеет значения. В некоторых ситуациях, – например, если нужно угадать, сколько фасолин лежит в бочке или сколько весит тыква, – тот метод опроса, который использовал Нед, работает на удивление хорошо. Среднее по большому числу догадок обычно оказывается гораздо ближе к истине, чем большинство догадок отдельных людей. Это явление называют коллективным разумом. Но, как и у большинства других упрощений, у него есть оборотная сторона, проявившаяся, например, в истории с Мейдоффом. Существовало всего два возможных ответа: либо он жулик, либо гениальный инвестор. Коллективный разум решил, что Мейдофф – гениальный финансист, и ошибся. Я называю эту оборотную сторону коллективного разума безумием леммингов. Как правило, небольшая дополнительная выгода не окупает значительного риска разрыва сделки. Мерой богатства является не уровень доходов, а размер состояния. Журнал Tax Notes сообщал, что между 1973 и 2007 годами доходы (с учетом инфляции) верхних 0,01 % американских семей увеличились в 8,58 раза, в то время как прирост доходов нижних 90 % составил около 8 долларов в год! В следующем десятилетии это неравенство стало еще большим. Одна из основных причин того, что вершина пирамиды получает такое огромное богатство, – это сложные проценты. Один психолог поставил эксперимент с участием четырехлетних детей: им давали кусочек зефира и обещали дать еще один, если первая порция не будет съедена к моменту возвр��щения экспериментатора, выходившего из комнаты на двадцать минут. Будучи предоставлены самим себе, две трети детей тут же съедали зефир, а одна треть дожидалась получения второй порции. Оценивая состояние тех же детей восемь лет спустя, в двенадцатилетнем возрасте, исследователи обнаружили, что дети, дождавшиеся второй порции зефира, добивались заметно более высоких результатов, чем те, которые удовольствовались одной порцией. Бум и крах жилой и коммерческой недвижимости первого десятилетия этого века заставил миллионы домовладельцев осознать опасность использования заемного капитала. Вдохновленные пропагандистским мифом о том, что цены будут только расти, домовладельцы покупали свои дома, занимая 80, 90 и даже 100 % их стоимости. Пока цены действительно продолжали расти, многие сохраняли такую высокую долю заемных средств, проводя рефинансирование или беря вторичную ипотеку или кредиты под залог недвижимости. В 2006 году, когда цены достигли пика и рухнули, продажа недвижимости домовладельцами, долг которых оказался больше текущей рыночной цены, а также теми, кто купил чрезмерно крупную недвижимость и не мог обеспечить выплаты, еще более опустили цены, что, в свою очередь, вызвало новые продажи. Вот как следует подходить к заемному капиталу: представьте себе самый худший из возможных вариантов развития событий и подумайте, сможете ли вы его выдержать. Если ответ на этот вопрос получается отрицательным, значит, нужно сокращать размеры задолженности.
True success is exiting some rat race to modulate one’s activities for peace of mind. What matters in life is how you spend your time. Success for us was having the best life. A joyful life. “Time is the stuff life is made of & how you spend it makes all the difference.” -Benjamin Franklin
This was a very frustrating AudioBook. I have discovered that autobiographies about titans in the finance industry tend to be far too self-aggrandizing for my liking (Currently having the same problem with Ray Dalio's "Principles".) It is made doubly painful when the Autobiography is read by the author. Edward is not a good reader. He has an odd cadence and seems inhibited by something in his mouth (dentures?) that makes his reading style off-putting. On top of that finance titans tend to be rather braggadocios. The book felt even more egotistical having been read by the author.
Most of the book was autobiographical rambling filled with uninteresting anecdotes about how this math guru put his skill to work finding minuscule edges through money making schemes, whether it was casino gambling or quant-style hedge fund trading. Not surprisingly (coming from a math professor) it was an extremely analytical look at his own career. Having grown up (and still living) in the South Bay very near to him, I would have liked a little more color and a little less instruction on how to succeed in gambling and stock trading styles that probably no longer apply.
For all of his chest puffery, I honestly don't see how Mr. Thorpe benefits society. He exploited loopholes. Not super admirable. He seems to have had a nice life and cared very much about family and friends. While I certainly appreciate that aspect of his life and career, it's not special enough to warrant such a long and rambling autobiography.
I would actively recommend many other books before this one.
The book starts with Mr. Thorp bragging about how great of a child he was and ends with him explaining basic financial topics and stating his views on the current behavior on Wall Street. In the middle, there are a few moderately interesting chapters about his life as an adult. He was right about absolutely everything that he did in his life if you don't believe me, he will tell you in his book. I listened to the audiobook and it was about 12 hours of him patting himself on the back and 4 hours of him condescendingly describing things like how to save money and what compounding interest is. I regret almost finishing this book. This needed to be a biography instead of an autobiography, and he needed to not have final say what went in it because his ego is massive. To summarize this book: Thorp is a genius, he never made a wrong step, the fraud his company committed wasn't his fault and he didn't know about and it was a witch hunt (but they did have witches, that he somehow remained ignorant of even though he knew Bernie Madoff was committing fraud in the 80s), and if you want to be a millionaire you can do it if you just cut out that avocado toast.
I read Thorp's book about playing blackjack, Beat the Dealer, in the early sixties, and tried card counting in Las Vegas. It was fun even though I didn't make much money at it. However, I admired his approach to problem solving and I'm glad he wrote this book, which reviews his career, not only beating gambling games but also the financial markets. There is lots of good information for investors in the book and everyone who is investing for retirement or anything else should read this book or others like it. Thorp was on to Bernie Madoff's Ponzi scheme long before his house of cards collapsed. Unfortunately, very few people believed that Madoff was scamming them until it all went bust. Thorp also gives an understandable explanation of why the financial markets collapsed in the first decade of the twenty-first century, and tells why something like this can keep happening. Few people have as good a grasp of financial issues as he does, and for that reason alone this is a valuable book.
I really liked this book. It’s about Edward Thorp, an MIT/UC Irvine math professor who: (1) figured out how to beat the casinos at blackjack; (2) founded the Wall Street quant movement; (3) discovered the Black-Scholes valuation methodology before Black and Scholes; (4) co-developed the first wearable computer (and successfully used it to beat the casinos at roulette); (5) started the derivatives movement; (6) founded the first market-neutral hedge fund; and (7) wrote numerous books and transformational papers on probability, game theory, and other applied math topics.
The book is a wonderful tour de force of Thorp’s fascinating life. And, by all accounts, he’s been a decent and good guy for the whole ride, even as he amassed a considerable fortune. Thorp is the ultimate cool guy math nerd. It’s fascinating to see how he develops theories and then translates them into a way to make money in fast-moving markets. A wonderful read.
A autobiography by Ed Thorp, the man who has beaten not only the casino but also Wall Street. A briliant mind. Great read. This book is recommended by Charlie Munger in the Daily Journal AGM in Feb 2017. Jack Sschwager also said the most impressive of all the people he met/featured for his Market Wizards series was Ed Thorp. Read the book to appreciate Ed Thorp. I didn't learn much from it though.
I was really frustrated at the end of the book because it was such a slog and then finally some really great wisdom on investing, regulating financial markets, and warnings and it wasn’t nearly enough. It’s a really interesting perspective on markets. Isn’t it interesting how many expert gamblers become stock traders?
Статистика дает много важной информации! Сложные проценты дают очень сильный эффект от инвестирования! Большинство не считает и потом много проблем, не обеспеченные кредиты и мошейники это часть постоянных проблем на рынке. Дружба с Баффетом помогает всем и особенно талантливым и умным, как Торп. Отличная книга от интересного практика!
The book would be more aptly titled "Ed Thorp's reminiscences". Ed certainly had a very admirable career and seems like a nice, fair and straightforward guy. However, there isn't much to takeaway from this book. It would have been much better if written by a ghostwriter.