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August 8 - August 20, 2019
Though we didn’t have helpful connections and I went to public schools, I found a resource that made all the difference: I learned how to think.
but I also think using models.
For it is the straightforward character of his contributions and insights that made them both invisible in academia and useful for practitioners.
Before Ed Thorp, mathematicians of gambling had their love of chance largely unrequited.
Ed was initially an academic, but he favored learning by doing, with his skin in the game.
Having an “edge” and surviving are two different things: The first requires the second. As Warren Buffet said: “In order to succeed you must first survive.” You need to avoid ruin. At all costs.
discovery of the edge.
avoiding ruin, as a general principle, makes your gambling and investment strategy extremely different from the one that is proposed by the academic literature.
Strategies that allow you to survive are not the same thing as the ability to impress colleagues.
True success is exiting some rat race to modulate one’s activities for peace of mind.
the Great Flu Pandemic of 1918–19, which killed between twenty and forty million people worldwide.
my tendency not to accept anything I was told until I had checked it for myself.
From the beginning, I loved learning through experimentation and exploration how my world worked.
Introverted and thoughtful, I may have been inspired to mirror this in the future by using my mind to overcome intellectual obstacles, instead of my body to defeat human opponents.
in our time with the ubiquity of computers and hand calculators, the ability to carry out mental calculations has largely disappeared.
This skill, especially to make rapid approximate calculations, remains valuable, particularly for assessing the quantitative statements that one continually encounters.
For the rest of my life I would meet Depression-era survivors who retained a compulsive, often irrational frugality and an economically inefficient tendency to hoard.
The Great Depression’s twelve years of persistent widespread unemployment, peaking at 25 percent, were suddenly ended by the greatest government jobs program ever, World War II.
Pranks and experiments were part of learning science my way. As I came to understand the theory, I tested it by doing experiments, many of which were fun things I invented. I was learning to work things out for myself, not limited by prompting from teachers, parents, or the school curriculum. I relished the power of pure thought combined with the logic and predictability of science. I loved visualizing an idea, and then making it happen.
I fell asleep at night mentally reviewing the material, a habit that proved, both then and later, remarkably effective for understanding and permanently remembering what I had learned.
This unilateral retroactive change in the deal, which I would later encounter often on Wall Street, done by someone for their benefit just because they could get away with it, violated my sense of fair play.
This damaged his self-esteem, which, as I came to understand later, is an absolute no-no in human relationships unless you don’t mind creating an inveterate enemy.
Looking back, I realize that I had always been irritated by what I viewed as petty, rigid mediocrities. Later I would understand the stupidity of butting heads with them. I would learn to avoid them when I could and finesse them when I couldn’t.
None of this would have happened if, as I wish I had done, I had asked myself beforehand, If you do this, what do you want to happen? and If you do this, what do you think will happen?
This was the beginning of a lifelong interest in fitness and health.
Under fairly general assumptions, no method for varying the size of your bets could overcome the casino’s advantage.
Limiting the predictive power of my equations were random irregularities that can’t be forecast, what mathematicians and physicists call noise. Conventional wisdom said the noise was enough to ruin the prediction. I didn’t think so and decided to find out.
Understanding and dealing correctly with the trade-off between risk and return is a fundamental, but poorly understood, challenge faced by all gamblers and investors.
for me it was science play, just as when I was younger. It was relaxing, much as others might find a book or a movie.
I also believed then, as I do now after more than fifty years as a money manager, that the surest way to get rich is to play only those gambling games or make those investments where I have an edge.
it was time to get casino experience. I knew virtually nothing about casinos, their history, or how they operated. I was like a person who had glanced at recipes but never been in a kitchen.
The dealer’s edge is that the player must risk busting first, losing immediately, even if the dealer later also goes over 21, though in effect they have tied.
The atmosphere of ignorance and superstition surrounding the blackjack table that day had convinced me that even good players didn’t understand the mathematics underlying the game.
Players are confused about the inevitability of losing in the long term because they each play for a comparatively short time, which allows some of them to be lucky winners.
I wasn’t willing to accept these claims about blackjack. I decided to check for myself if the player could systematically win.
What intrigued me was the possibility that merely by sitting in a room and thinking, I could figure out how to win.
It is also common in science for the time to be right for a discovery,
Another reason to publish quickly is the well-known phenomenon that it is typically much easier to solve a problem if you know it can be solved.
In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them.
I felt then, as I do now, that what matters is what you do and how you do it, the quality of the time you spend, and the people you share it with.
that irritating jeer often leveled at academics, “Well, if you’re so smart, why aren’t you rich?”
This plan, of betting only at a level at which I was emotionally comfortable and not advancing until I was ready, enabled me to play my system with a calm and disciplined accuracy. This lesson from the blackjack tables would prove invaluable throughout my investment lifetime as the stakes grew ever larger.
For the second time, the Ten-Count System had shown moderately heavy losses mixed with “lucky” streaks of the most dazzling brilliance. I learned later that this was a characteristic of a random series of favorable bets.
For me blackjack was a game of math, not luck. Any luck, good or bad, would be random, unpredictable, and short-term. In the long run it would be unimportant.
Master of the Game.
Ironically, thirty years later MIT had become a world leader in the development of what would be called wearable computers, and the time line placed on the Internet by its Media Lab credited Shannon and me with building the first one.
the pit boss pointed at him, laughed, and said, “Look at Junior, all dressed up like a Chinese.”
Mathematically, interruptions didn’t matter, because my lifetime of playing was just one long series of hands, and chopping it into sessions and playing them at various times and in various casinos should not affect my edge, nor the long-run amount I could expect to win. This principle applies in both gambling and investing.
Not long after I played, as numerous card counters began to appear, they were jailed on pretexts, their money was taken, and some were beaten in back rooms. A gang of employees at one strip casino robbed drunks in their spare time.
The green felt table was a stage and I was an actor on that stage. A card counter who wanted to be allowed to continue playing had to put on an effective act and present a nonthreatening persona.
