A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market

by Edward O. Thorp

I found a resource that made all the difference: I learned how to think.

Some people think in words, some use numbers, and still others work with visual images. I do all of these, but I also think using models. A model is a simplified version of reality,

The notion that things I couldn’t even see followed rules I could discover just by thinking—and that I could use what I discovered to change the world—inspired me from an early age.

Ed was initially an academic, but he favored learning by doing, with his skin in the game. When you reincarnate as practitioner, you want the mountain to give birth to the simplest possible strategy, and one that has the smallest number of side effects, the minimum possible hidden complications. Ed’s genius is demonstrated in the way he came up with very simple rules in blackjack. Instead of engaging in complicated combinatorics and memory-challenging card counting (something that requires one to be a savant), he crystallizes all his sophisticated research into simple rules:

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.

Academic finance, as has been recently shown by Ole Peters and Murray Gell-Mann, did not get the point that avoiding ruin, as a general principle, makes your gambling and investment strategy extremely different from the one that is proposed by the academic literature.

As soon as I began to talk, he introduced me to numbers.

A trait that showed up at about this time was 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. —

After teaching me counting, my father’s next project for me was reading.

Phonics came naturally, and I learned to sound out words so I could say them aloud. Next was the reverse process—hear a word and say the letters—spelling. By the time I turned five I was reading at the level of a ten-year-old, gobbling up everything I could find.

Over the next couple of years I read books including Gulliver’s Travels, Treasure Island, and Stanley and Livingstone in Africa.

From Malory’s story of King Arthur and the Knights of the Round Table, I learned about heroes and villains, romance, justice, and retribution. I admired the heroes who, through extraordinary abilities and resourcefulness, achieved great things.

The books helped establish lifelong values of fair play, a level playing field for everyone, and treating others as I myself wish to be treated.

When I was reading or just thinking, my concentration was so complete that I lost all awareness of my surroundings.

She had a hard time deciding whether her son was stubborn and badly behaved or was really as unaware as he claimed.

It happened because my parents became friends with the Kesters, who lived on a farm in Crete, Illinois, about forty-five miles from our home. They invited us out for two weeks every summer, starting in 1937 when I was turning five. These special days were what I most looked forward to each year.

was carrying A Child’s History of England by Charles Dickens.

Before the advent of writing and books, human knowledge was memorized and transmitted down the generations by storytellers; but when this skill wasn’t necessary it declined. Similarly, in our time with the ubiquity of computers and hand calculators, the ability to carry out mental calculations has largely disappeared. Yet a person who knows just grammar school arithmetic can learn to do mental calculations comfortably and habitually.

This skill, especially to make rapid approximate calculations, remains valuable, particularly for assessing the quantitative statements that one continually encounters. For instance, listening to the business news on the way to my office one morning, I heard the reporter say, “The Dow Jones Industrial Average [DJIA] is down 9 points to 11,075 on fears of a further interest rate rise to quell an overheated economy.” I mentally estimated a typical (one standard deviation ) DJIA change from the previous close, by an hour after the open, at about 0.6 percent or about sixty-six

points. The probability of the reported move of “at least” nine points, or less than a seventh of this, was about 90 percent, so the market action was, contrary to the report, very quiet and hardly indicative of any fearful response to the news. There was nothing...

the next winter, when my father gave me a nickel to shovel the snow from our sidewalk, I hit a bonanza. I offered the same deal to our neighbors and, after an exhausting day of snow removal, returned home soaked in sweat and bearing the huge sum of a couple of dollars, almost half of what my father was paid per day. Soon lots of the kids were out following my lead and the bonanza ended—an early lesson in how competition can drive down profits.

I was disappointed and indignant at this treatment. In my world of books, ability, hard work, and resourcefulness were rewarded. Smitty should have been pleased that I was doing well, and if he wanted to do better, he

should practice and study, rather than penalize me.

The skills from model building and using tools were a valuable prequel to the science experiments that would occupy me during the next few years,

Fortunately, my test score attracted a gifted and dedicated English teacher, Jack Chasson, who would become a mentor and act in loco parentis. Jack was twenty-seven then, with wavy brown hair and the classic good looks of a Greek god. He had a ready, warm smile and a way of saying something that boosted the self-esteem of everyone he met. With a background in English and psychology from UCLA, he was an idealistic new teacher who wanted his students not only to succeed but also to work for the social good while respecting the achievements of the past. He

was my first great teacher, and we would remain friends for life.

The mechanical world of wheels, pulleys, pendulums, and gears was ordinary. I could see, touch, and watch it in action.

But this new world was one of invisible waves that traveled through space. You had to figure out through experiments that it was actually there and then use logic to grasp how it worked.

At that time there already was a web of do-it-yourselfers who built or bought their own radio transmitters and receivers and talked night and day by voice or by Morse code all over the globe. It was in effect the first Internet. With less electricity than it takes to power a lightbulb, I could talk to people around the world. I asked Mr. Carver how I could be part of it. He told me that all I needed to do was pass what was then a rather difficult examination. In those days the exam began with a series

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 read a high school chemistry book from cover to cover. 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.

Every night I spent an hour on theory, then fell asleep mentally reviewing the periodic table, valences, allowable chemical reactions, Gay-Lussac’s law, Charles’s law, Avogadro’s number, and so on. I also continued my experiments—and my pranks.