Ed Thorp

[Broken Arrow]

I caught a very interesting TV show on the History channel when I was visiting my mother yesterday. It's called "Breaking Vegas".

In short, there was a young MIT math professor named Ed Thorp that invented the concept of card counting, shifting the odds of Blackjack from 5% for the house to 1% for the player.

He only did it once as an academic curiosity, but eventually wrote a book called "Beat the Dealer", which became a runaway seller. Ironically, many people thought that, with this book, they too could beat the house... but didn't. I guess it helps to have a Ph.D. in quantitative mathematics. However, it did end up making a lot of money for the casinos while popularizing Blackjack at the same time.

But that's not what really interests me or Prof. Thorp for that matter. He decided to go after bigger game, which was speculating on hedge funds at the NYSE. I read somewhere that he averaged a return of roughly 20% over the course of 20 years! I don't need to tell you guys that managed funds (especially self-managed in Ed Thorp's case) just don't work out that way! The TV show mentioned that his net worth is in the hundreds of millions.

He's also written a book called "Beat the Market", and although I haven't read anything about it, I suspect that it would be similar to "Beat the Dealer" in the sense that one just can't pick up a book and magically have the inside track on how to beat the market. That and it'd cost money.

In the meantime, I found a free PDF book on the mathematics of probabilities. It's not what I would consider as a light Sunday read, but hey, it's free!

I know most of us here, including myself, recommend index funds and not bother trying to beat the market. Still, I think it's interesting to know that there are some who can and do, and people like Ed. Thorp makes for very interesting case studies.

[disneysteve]

Re: Ed Thorp

Haven't read his book, but I did read the one about the MIT blackjack team. That is a very interesting story. They put a team of students together who worked the casinos and made millions. I think it was written by Ben Mizrach (who hosts the World Series of Blackjack on GSN).

[Broken Arrow]

Re: Ed Thorp

Oh hey, I remember that one as well! Yeah, that was also from the hallowed halls of MIT, where students organized themselves into several blackjack cells that would control the entire table. Based on the work by Prof. Thorp, it certainly took card counting to a whole new level.

[disneysteve]

Re: Ed Thorp

I know most of us here, including myself, recommend index funds and not bother trying to beat the market.

Same here, though I do own managed funds, as well. And I will admit to the occasional visit to the blackjack table. I have a pretty good winning record, but have yet to get up the nerve to play high stakes amounts. I typically double my money, but only start with a few hundred dollars. What I'd like to do is follow the same strategy, but start with a few thousand dollars and double that. One of these days.

[MonkeyMama]

Re: Ed Thorp

THat is very interesting - will have to check out the book.

Busting Vegas was a fascinating book - the blackjack players.

So in Busting Vegas the students were beaten and bullied because it was assumed they had to be CHEATING, and they did blur the lines a little I think, between cheating and not. So if we read this book and start making millions are we going to be investigated for insider trading and such??? That is what I wonder - LOL. Seriously, beating the market like that has got to raise some red flags. & without a degree in quantum physics, I agree, can we really figure this out on our own?

I think it would be interesting to read regardless...

Thanks for sharing!

[disneysteve]

Re: Ed Thorp

So if we read this book and start making millions are we going to be investigated for insider trading and such??? That is what I wonder - LOL. Seriously, beating the market like that has got to raise some red flags.

I wouldn't think so. Unless you were making gobs of money on one single stock, I can't imagine it would raise any flags. You couldn't possibly have insider information on multiple companies.

Blackjack is a whole different story since all the money is being won in the same place under a very watchful eye. And the casinos make their own rules. You are not "allowed" to win too much, but it is up to the casinos to decide how much is too much. They'll happily let you lose millions, but if you start to win a lot, they are free to ask you to leave. A rather twisted system, actually. There is no good reason for card counting to be illegal. It doesn't constitute cheating since you are using information that is clearly available to every player at the table.

[tinapbeana]

Re: Ed Thorp

yeah, i find it annoying that 'card counting' is illegal. isn't that the only thing a player has to their advantage? and really, how're they gonna prove you were counting? they can't, so they just black-ball you on suspicion of counting. blackballed nontheless...

[disneysteve]

Re: Ed Thorp

yeah, i find it annoying that 'card counting' is illegal

The casino would win either way. All they need to do is increase the number of decks further or shuffle the cards more often. Either method would combat counting. They make all the rules. The best a player can do is learn basic strategy and stick to it. Doing that brings the house advantage down to 1% or less, just about even money. So if you play and win and quit while you're ahead, you can make out fine.