In this week’s episode, Preston and Stig talk to world renown investor, author, and mathematician, Dr. Edward Thorp. As a hedge fund manager for 30 years, Dr. Thorp has achieved the unprecedented 20% return per year. His personal net worth is $800 million and he has traded nearly 100 billion dollars during his career.
The best way to describe Dr. Thorp is a mathematical genius that has created and invented groundbreaking technology and ideas. For example, in his early years, Dr. Thorp developed a theory that the game of BlackJack could be beaten if the player could keep track of the cards that had already been played during the game. Based on this card counting method he designed, he proved that a player could beat the house at Blackjack. Dr. Thorp wrote the world renown book, Beat the Dealer, and it went on to sell tens of millions of copies. Hollywood made movies about his card counting techniques, like the movie “21”.
Another interesting fact about Dr. Thorp is that he invented the very first wearable computer in the 1960’s while teaching at MIT. The device was used to prove the game of Roulette could be beaten through the use of Newtonian Physics. Thorp got the idea from watching the moon and planets and thought he could calculate the speed and potential landing location of the ball while playing this “unbeatable” game. It turned out, Thorp was right, Roulette could be beat too. The device he invented went inside the shoe of the player and they had a radio transmitting device that played tones in the ear of the player to give them cues where the ball might land.
Whether working on interesting math problems in the Casino or producing enormous returns in the stock market, Dr. Thorp provides some amazing insights into the ways he was able to achieve such astounding things during his life. During the episode, one of the things that are very captivating is his discussion of the Kelly Criterion and how it can be used to put reasonable position sizes into particular stock picks.
In this episode, you’ll learn:
- How to beat Blackjack from the person that literally wrote the book on it
- How you should size your positions in the market
- Why Ed Thorp made 20% annually on his portfolio over 30 years
- Why Ed Thorp suddenly found himself playing bridge with Buffett
- How to look young when you are 84 (seriously!)
BOOKS AND RESOURCES
Ed Thorp’s book, A Man for all Markets – Read reviews of this book
Ed Thorp’s book, Beat the Dealer – Read reviews of this book
Daniel Gardner’s book, Superforecasting – Read reviews of this book
Paul Cootner’s book, The random character of stock prices – Read reviews of this book
Preston and Stig’s episode with Jack Schwager about Ed Thorpe