Edward Thorpe

Beat the dealer: Winning strategy blackjack games

A Winning Strategy for the Game of Twenty One

© Edward O. Thorp, 1966

© Prokofiev D. A., translation into Russian, 2016

© Edition in Russian, design. LLC Publishing Group Azbuka-Atticus, 2017

Hummingbird®

The first edition of this book was an instant hit selling over 700,000 copies. It went through many editions and is still considered to be a kind of "bible of card counting".

Ed Thorpe was the first modern mathematician to successfully apply numerical methods to risk assessment—and certainly the first mathematician to achieve financial success in doing so. It is the simplicity and clarity of Thorpe's achievements and ideas that makes them so useful in practice.

A vivid, informative and interesting illustration of the computational power of a computer used in conjunction with the power of the human mind in problem setting.

Founded Princeton Newport Partners (1969-1988, averaging 19.1% per annum) and Ridgeline (1994-2002, averaging 21% with 7% volatility);

Created the first portable computer;

Developed a system for trading warrants and convertible securities such as options, bonds and preferred shares;

He was the first to model pricing in the options market, a few years ahead of Black and Sholes with their famous formula;

Was the first trader to use convertible and statistical arbitrage strategies;

He was the first to recognize signs of fraud in Bernard Madoff's scheme.

Dedicated to my wife Vivian and my children, Ron, Karen and Geoffrey

There is an ebb and flow in human affairs,
With the tide we achieve success ...

Introduction to Vintage Books (2016)

For more than half a century, I've been asked most often whether it's still possible to beat the casino using the strategies described in Beat the Dealer. And despite the fact that time is running out, the answer to this question remains in the affirmative, albeit with some reservations.

Once a year, some of the world's best players gather for a "blackjack ball" held at a private property where only invitees are allowed. To win hundreds of thousands of dollars a year, as many of them do, even more than before, requires determination, organization and hard labour. There are fewer and fewer blackjack tables that retain the original rules of the game. At other tables, the game has changed for the worse. However, by using this book, you will quickly learn, even without counting the cards, to play in favorable cases with odds close to equal. By mastering the basic skills of card counting, you can gain a modest advantage. Those gifted readers who will not be intimidated by the difficulties of training and practical application learned, will be able to reach a professional level.

Beat the Dealer has sold over a million copies, and thousands of readers have told me how it affected them. Some have used it as an enrichment aid. Others were more interested in the stories told in it and the opportunity to look into the secrets of the world of gambling. Readers in mathematics, science, and engineering were interested in learning about innovative ways to use computer programming and probability theory.

What I love the most are the stories of readers who applied what they learned from this book to the world outside the casino. Blackjack bankrolls spawned equestrian syndicates, stock trading firms, and investment fund managers. The method of determining the size of bets in each specific situation, which I used and popularized in connection with blackjack, is now used by investors, brokers and asset managers in the stock and debt markets.

In total, the blackjack ball attendees and other people I know have won hundreds of millions of dollars at the blackjack tables. Some of them took their winnings and subsequently made billions in sports sweepstakes and markets. valuable papers. Although it's harder now than it was when I was playing, the pros still manage to earn their living in the casino.

Current page: 1 (total book has 9 pages)

Edward Thorpe
A Man for All Markets: From Las Vegas to Wall Street
How I beat the dealer and the market

A MAN FOR ALL MARKETS

From Las Vegas to Wall Street, How I Beat the Dealer and the Market

Foreword by Nassim Nicholas Taleb

© 2017 by Edward O. Thorp

© Prokofiev D. A., translation into Russian, 2017

© Edition in Russian, design. LLC Publishing Group Azbuka-Atticus, 2017

Hummingbird ®

* * *

My life has always been an adventure through science, mathematics, gambling and Wall Street.

Edward Thorpe

Here is a biography! Figure out how to win at blackjack with card counting? Made. Find a formula for scoring financial options, but use it to earn money, and not to receive the Nobel Prize? There is. This book is a compelling story of how the genius and tenacity of a single man made it possible to solve many problems in a wide variety of fields.

Paul Wilmott,

founder of Wilmott magazine

Thorpe's story teaches us important lessons about how markets work and the logic of investing.

Wall Street Journal

An amazing book by a truly legendary author... Edward O. Thorpe revolutionized Vegas and Wall Street by turning math into magic. The lessons of his life made up a fascinating story, delightful as a deck full of aces. I am delighted!

Ben Mezrich,

writer, screenwriter

An incredibly gripping story of the life of the legendary Edward Thorpe, full of unpredictable and sometimes dangerous obstacles that await anyone who dares to encroach on the unshakable position of wealthy corporate opponents.

Nicholas Colon,

Managing Director Alea Consulting Group

From the achievements of Edward Thorpe:

Founded Princeton Newport Partners (1969-1988, averaging 19.1% per annum) and Ridgeline (1994-2002, averaging 21% with 7% volatility);

Created the first portable computer;

Developed a system for trading warrants and convertible securities such as options, bonds and preferred shares;

He was the first to model pricing in the options market, a few years ahead of Black and Sholes with their famous formula;

Was the first trader to use convertible and statistical arbitrage strategies;

He was the first to recognize signs of fraud in Bernard Madoff's scheme.

Dedicated to Vivian, our children and their families:

Ron, Brian and Eva; Karen, Rich, Claire, Christopher and

Edward; Jeff, Lisa, Kylie and Thomas

Introduction

I invite you to take part in my odyssey through the worlds of science, gambling and the securities markets. You will learn how I managed to overcome all sorts of dangers and succeed in Las Vegas, on Wall Street and in my own life. On this journey you will meet interesting people, from card counting blackjack players to investment professionals, from movie stars to Nobel laureates. You will get acquainted with options and other derivatives financial instruments, as well as with hedge funds, and learn how a simple investment strategy can beat all, even the most experienced investors in the long run.

My life began during the Great Depression of the 1930s. My family, like millions of others, spent their days in a constant struggle for survival. Although we had no useful connections and I studied in regular public schools, I managed to find a way to reverse this situation: I learned to think.

Some put their thoughts into words, others use numbers, and some operate with visual images. I also use all these methods, but in addition to this, I think in models. The model is a simplified version of reality, something like a map that shows how to get from one part of the city to another, or a representation of gas in the form of a swarm of tiny elastic balls constantly colliding with each other.

I learned that simple devices like gears, levers, and pulleys follow some basic rules that you can learn from experience, and if you succeed, you can predict, based on these rules, what should happen in new situations. The most amazing thing for me was the magic of the detector receiver - an ancient, primitive radio that can be assembled from wire, a mineral crystal and headphones. I suddenly heard voices speaking hundreds and thousands of miles away, carried through the ether in some mysterious way. The idea that something I can't even see follows rules that can be discovered with the power of thought—and that the results of such discoveries can be used to change the world—has inspired me from a very early age.

Circumstances developed in such a way that I received most of my education on my own, and this led to the fact that I began to think outside the box. Firstly, I did not agree with generally accepted opinions - for example, that “it is impossible to beat the casino”, but preferred to check their validity on my own. Secondly, ever since I came up with new experiments to test theories, I have become accustomed to taking the results of purely speculative reasoning—for example, the formula for evaluating warrants—and applying them to my advantage. Third, when I set myself a worthy goal, I made a realistic plan and stuck to it until I succeeded. Fourthly, I tried to be consistently rational, not only in such a narrow field as science, but also in interaction with all aspects of the surrounding world. I also learned how important it is to refrain from judgment until it is possible to make a decision based on the facts.

It is my hope that my story and this book will give you a new perspective on gambling, investing, taking risks, managing your finances, getting rich, and life.

Foreword

With their simplicity. With their absolute simplicity.

It is the simplicity and clarity of his achievements and ideas that makes them so invisible in the world of pure science and so useful in practice. I am not here trying to give an exegesis or a summary of this book; Thorpe writes, as one would expect, direct, clear and engaging. I want to show from my point of view, the point of view of a trader and a practicing financial mathematician, the significance of this work and its place in the context of the community of research traders and risk specialists in general, to which I myself belong.

Here is the context. Ed Thorp became the first modern mathematician to be able to successfully apply numerical methods to risk assessment - and, no doubt, the first mathematician to achieve financial success in doing so. Subsequently, a whole cohort of such financial mathematicians arose - "quants" (specialists in stock analysis), which include, for example, young geniuses from the Department of Applied Mathematics at the State University of New York at Stony Brook - but Thorp remains their elder.

The main and most colorful of his predecessors, Girolamo (according to other sources, Geronimo) Cardano, an erudite and mathematician of the 16th century, who wrote a kind of first draft of the book Beat the Dealer, was a gambler, a ludoman. His game was, to put it mildly, not particularly successful - not least because addicted players do not assess risks well. To be convinced of this, it is enough to look at the luxury of Monte Carlo, Las Vegas and Biarritz, created precisely due to their manic passion. Cardano's "Book of the Games of Chance" (Liber de ludo aleae) played an important role in the subsequent development of probability theory, but, unlike Thorp's book, served as a source of inspiration not so much for players as for mathematicians. Another mathematician who fled to London was the French Protestant Abraham de Moivre, a frequenter of gambling dens and the author of The Doctrine of Chances: or, A Method for Calculating the Probabilities of Events in Play, 1718), also struggled to make ends meet. It is easy to count half a dozen other mathematicians who gambled, including such greats as Fermat and Huygens, who either were not interested in their practical side or could not master it. Until Ed Thorp, mathematicians' love of randomness had gone largely unrequited.

Thorp's method boils down to the following: he immediately takes the bull by the horns, defining an explicit advantage(that is, the factors that make the game profitable for him in the long run). This advantage should be clear and uncomplicated. For example, based on the results of calculations of the momentum of the roulette wheel, which he made using the first wearable computer (and his "accomplice" was none other than the great Claude Shannon, the father of information theory), he estimated the average edge per bet to be approximately equal to 40%. But that's just the easiest. Much more difficult keep this is an advantage, turn it into dollars in a bank account, dinners in restaurants, interesting trips, Christmas gifts for relatives and friends. Ultimately, it turns out that the most important thing is to dose the bet sizes correctly - not to make them too small, but not too large either. Ed did a great job in this regard. independent work even before the advent of theoretical clarifications made by the third member of the Information Trio - John Kelly, the creator of the famous Kelly criterion, a formula for determining bet sizes. We are now reminded of this criterion precisely because Ed Thorp made it possible to apply it in practice.

Before we get into the discussion of bet dosing, let's say a few more words about simplicity. From the point of view of an academic scientist whose work is being evaluated by his peers, an outcome in which a mountain, after long labors, gives birth to a mouse, is far from the best option. Neither the bank manager nor the tax consultant will agree with this, but scientists like it better when a mouse gives birth to a mountain; their work must seem difficult. The more intricate the better; simplicity does not increase citation, h-index or other currently fashionable metrics that provide deference to the university authorities. The administration understands these indicators, but not the essence scientific work. Only the greatest of mathematicians and physicists manage to abandon such "complication for the sake of complexity" (although, as far as I know, even they are finding it increasingly difficult to do this in modern conditions funding and classification of scientific research).

Ed also started his career in pure science, but he preferred to learn everything on his own. practical experience, in the game with their own stakes. For practical use it is important that the mountain gives birth to the simplest possible strategy, and with negligible side effects, with a minimal risk of non-obvious complications. Ed's genius was manifested in the extremely simple rules he came up with for playing blackjack. The results of his complex research came down not to intricate combinatorial techniques and memory-demanding card counting (for which you need to have phenomenal mental abilities), but to a very simple rules. Sit down at the blackjack table. Keep score. Start from scratch. Subtract one for each use of a strong card, add one for each weak card, do not change the scores when other cards appear. Consistently increasing and decreasing the bet - betting more on a positive score and less on a negative one - is not difficult, and any person who has the ability to tie his shoelaces or find a casino on the map can easily learn to use such a strategy. Even determining the advantage at roulette with a wearable computer was extremely simple - so simple that it could be done while balancing on the ball in the gym. It was difficult to make the structure itself and stretch the wires.

Along the way, Ed also discovered the formula now known as the Black-Scholes option pricing system, before Black and Scholes. The fact that this formula is not named after him (I personally call it the Bachelier-Thorpe formula) shows the influence of economic propaganda. Thorpe's conclusion was too simple: no one realized at the time that it could be so powerful.

Money management is paramount for those who learn from their own profits and losses. Getting an "advantage" and surviving are two different things. The first is impossible without the second. As Warren Buffett said, “In order to succeed, you must first survive.”

However, there is a dialectical relationship between you and your profit and loss: you start with small stakes (some fraction of the initial capital), and limiting risks - dosing rates - also limits the opportunities for achieving an advantage. It is a process of trial and error, at each stage of which you have to re-evaluate both your risk tolerance and your perceived chances of success.

As Ole Peters and Murray Gell-Mann have recently shown, financial theorists have not realized that using the desire to avoid ruin as a guiding principle makes gambling or investing strategies radically different from what is described in the scientific literature. As we have already seen, the administration and colleagues value theorists who do not simplify life, but complicate it. They invented a completely useless thing called "utility theory" (tens of thousands of articles still waiting for their reader). In addition, they put forward the idea that the collective behavior of prices in the future can be predicted with infinite accuracy - talking about correlations that can be identified now and will never change in the future. More precisely, in order to apply the investment portfolio methods offered by modern financial theory, it is necessary to know the joint probability distribution of all assets for all future times, plus the utility function of capital for all future moments. And no mistakes! – I showed that errors in estimation lead to the explosive disintegration of this system. We can consider ourselves lucky if we know what we will have for lunch tomorrow - how can we predict the dynamics of such a system until the end of time?

The Kelly–Thorpe method requires neither a joint distribution nor a utility function. In practice, to avoid ruin, you only need to know the dynamically corrected ( from one bet to another) ratio of expected income to profit in the worst case. That's all.

Economists have rejected Thorpe and Kelly's ideas despite their practical appeal because economists love general theories asset value, world dynamics, etc. It is said that the famous patriarch modern economy Paul Samuelson considered Thorpe his personal enemy. None of the results of these economists' work will survive: Survival strategies are somewhat different from the ability to impress colleagues.

Therefore, today's world is divided into two groups using radically different methods. The first of these is the method of economists who continually go broke or get rich on money management fees, rather than on direct stock market speculation. Take the example of the Long-Term Capital Management fund, which was the cream of the crop of financiers and economists: its massive collapse in 1998 resulted in losses many times greater than their most pessimistic forecasts.

The second, the method of information theorists, of which Ed was one of the heralds, is used by the traders themselves and the scientists who play the stock market. Every stock trader who manages to survive uses this second method directly or indirectly, and Ray Dalio, Paul Tudor-Jones, Renaissance Technologies, and even Goldman Sachs provide evidence of this! I say "everyone" because, as Peters and Gell-Mann have shown, those who don't do it will eventually collapse.

It is through this second method that if, for example, you inherit $82,000 from Uncle Morrie, you can be sure that there is a strategy in the world that allows you to double this inheritance without ever going bankrupt.

Personally, Thorp taught me another important thing. Many successful traders, having achieved their first major success in their lives, find themselves involved in large-scale organizations with many offices, morning meetings, coffee breaks, corporate intrigues. They continue to accumulate capital, at the same time losing the ability to manage their own lives. Ed is not like that. After he had to leave his partners and close his firm (for reasons that had nothing to do with him), he did not start a new megafund. He limited his involvement in managing the funds of others (many, in such a situation, would find a cozy place for themselves in another firm and use their reputation to attract monstrous volumes external funds to secure high commissions). But such restraint requires a developed intuition, a high level of self-knowledge. Being independent is much calmer, but being independent by participating in activities large organization with powerful clients, impossible. Understanding the intricacies of probabilities is not easy enough; one should not add to this complexity the changeability of human moods. True success consists in getting out of the hectic race and adjusting your activity so that it brings peace of mind. Thorp has undoubtedly learned his lesson. His most hectic job was as head of the mathematics department at the University of California, Irvine. It shows that he really controls his life. That is why when I saw him for the second time, in 2016, he looked younger than when we first met in 2005.

Chao,

Nassim Nicholas Taleb

1
Love for learning

My earliest memory is of my parents and I standing on an open porch with worn, dirty wooden steps. It takes place in Chicago, on a gloomy December day in 1934; I am two years and four months old. I'm cold even though I'm wearing my only winter pants and a hooded jacket. On the background of the snow-covered ground, flying black trees protrude. The woman in the house says to my parents: “No, we don’t rent to families with children.” Parents are upset, we leave. Did I do something wrong? What am I to blame? This picture of the darkest period of the Great Depression is forever etched in my memory.

My next memory is from the age of two and a half: I was taken to our favorite family doctor, Dr. Daley. The alarmed parents explained to him that I had not said a single word yet. 1
It is interesting to note that the same thing happened to my son. He didn't say anything until about the same age. His sister, who is a year and a half older than him, willingly acted as an interpreter. They went everywhere together, and when he showed with gestures and facial expressions what he wanted, she explained the meaning of the message to those around her. (author's note)

What is wrong with me? The doctor smiled and asked me to point to the ball that was lying on his table. I showed; then he asked me to take a pencil. When I did that and completed a few more tasks, he said, "Don't worry, he'll talk when he's ready." Parents returned home in some bewilderment.

After that, the struggle for my speech flared up with new force. When I was three years old, my mother and two friends, Charlotte and Estelle, took me to the then-famous Chicago department store Montgomery Ward. We were sitting on a bench near the elevator when two women and a man came out. Charlotte, constantly trying to get me to talk, asked, "Where are they going?" I answered clearly and precisely: "The man goes shopping, and the women go to the toilet to pee." Charlotte and Estelle blushed deeply. I was still too young and did not know what is not customary to mention aloud: I noticed their embarrassment, but did not understand what caused it. I was also surprised by the sensation my sudden transition from silence to conversation created.

From that moment on, I spoke, mostly in full sentences. 2
Henrietta Anna Clauser tells a similar story in her book about a first grader who didn't write anything, no matter how hard he was forced to, until finally, after seven months, he moved straight to coherent writing. See: Henriette Anne Klauser. Writing on Both Sides of the Brain. Harper, San Francisco, 1997, pp. 36–38. (author's note)

To the delight of his parents and their friends. They kept bombarding me with questions, to which I often gave unexpected answers. My father decided to find out what else I could learn.

Oakley Glenn Thorpe, my father, was born in Iowa in 1898, the second of three children. He had a brother, two years older than him, and a sister, two years younger. My father was six when his parents separated. His dad took him and his brother and moved to Washington state. Mother and sister stayed in Iowa. In 1915, my grandfather died of the flu, three years before the great Spanish flu pandemic. 3
Great Influenza Pandemic of 1918–1919 claimed more victims than any other epidemic in history, and even more than the First World War. (author's note)

From which in 1918-1919, twenty to forty million people died worldwide. Until 1917, the brothers lived with their uncle. Then my eighteen-year-old father went to France with the American Expeditionary Force in World War I. He got into the infantry, participated in trench warfare, rose from private to sergeant and was awarded for heroism in the battles of Château-Thierry and in the Belleau forest, as well as in the battles of the Marne: a Bronze Star, a Silver Star and two Purple Heart medals . I remember as a child sitting on his lap in rainy weather, looking at the shrapnel scars on his chest and the wound marks on his fingers.

After leaving the army at the end of the war, my father went to Oklahoma State A&M College. After a year and a half, he was forced to drop out due to lack of funds, but retained the passion and respect for education that he inspired in me, along with the unspoken hope that I could do better. Feeling this and hoping that this desire will bring us closer, I was glad of all his attempts to teach me something.

As soon as I started talking, my father introduced me to numbers. I easily learned to count, first to a hundred, and then to a thousand. Then I learned that any number can be increased to the next by adding one to it, which means that if you only know how the numbers are called, you could count to infinity. I soon learned to count to a million. It seemed to adults that this was a very large number, and one morning I decided to count up to it. I knew that sooner or later I would get to it, but I had no idea how long it would take. To begin with, I took the catalog of the trading company Sears: it was the size of a phone book in a large city, and it seemed to me that it contained the most items that could be counted. Catalog pages were filled with product images labeled with letters A, B, C and so on: as far as I remember, these were black letters in white circles. I started counting the letters in the circles, page by page, from the very beginning of the catalog. A few hours later I fell asleep, having reached something like 32,576. Mom said that when I woke up, I immediately continued to count: "32,577 ..."

Around this time, there was a tendency in my character not to take anything for granted without checking it for myself. The consequences were not long in coming. When I was three years old, my mother forbade me to touch the hot stove so as not to burn myself. First, I put my finger to the stove and felt the heat emanating from it, and then I pressed my hand to it. I got burned. And never repeated this experience again.

On another occasion, I was told that if you lightly squeeze a raw egg, it might crack. I was wondering what "slightly" means. I started slowly squeezing the egg until a crack appeared on it, then I took another and tried to squeeze it so as to stop just before the crack appeared and establish where this limit was. From the very beginning, I liked to learn from experience, independently exploring the structure of the world around me.

Having taught me to count, my father took up the development of the next skill - reading. We started with the simplest Dick and Jane children's books. For a couple of days I was completely confused and disoriented, but then I realized that the groups of letters represent the words that we pronounce. I read all of our simplified beginner books in a few weeks and started accumulating vocabulary. I became interested. Printed words were everywhere, and I realized that if I figured out how to pronounce them, I could recognize them and understand what they meant. Phonetics was easy for me, and I quickly learned to read words aloud. The next step was the reverse process - spelling, which allows you to name the letters of the word you heard. By the age of five, I was already reading at the level of a ten-year-old and swallowing all the texts that came to my hand.

The life of our family at that time also changed - my brother was born. My father was lucky: he had a job at the height of the Great Depression, but now he had to work even harder to support his family. Mom was completely occupied with caring for the newborn; she had to deal with him even more when, at the age of six months, he contracted pneumonia and nearly died. As a result, I was left practically unsupervised and could devote myself entirely to exploring the endless worlds, real and imaginary, that I found in the books I received from my father.

Over the next few years, I read, among others, Gulliver's Travels, Treasure Island, and a book about the adventures of Stanley and Livingston in Africa. I am fascinated by the incredibly restrained question Stanley asks when, after eight months of exhausting and perilous searching, he finally achieves his goal of finding, as far as he knows, the only European in the whole world. Central Africa: "You, I presume, are Dr. Livingston?" I discussed the splendor of Victoria Falls on the Zambezi River with my father, who assured me (quite rightly) that it was immeasurably superior to our own Niagara Falls.

My favorite book was Gulliver's Travels - little midgets, giants from Brobdingnag, talking horses and, finally, the mysterious Laputa, a floating island held in the air by magnetic forces. I was delighted with the vivid images that this book created in my imagination and the fantastic ideas that prompted me to invent other miracles not yet described. But Swift's historical allusions and political attacks mostly passed me by at the time, despite my father's explanations.

From Thomas Malory's stories of King Arthur and the knights round table I learned about heroes and villains, about romantic love, justice and retribution. I admired the heroes, whose extraordinary abilities and resourcefulness allowed them to accomplish great feats. Introverted and thoughtful, I must have projected these exploits into my own future, dreaming of how I would overcome intellectual difficulties with the power of my mind, and not defeat opponents. physical strength. The books helped me learn and maintain throughout my life the principles of fair play, equal opportunities for all participants, and the same treatment of other people that I would like for myself.

All these words and adventures remained for the most part in my head; I had practically no one to talk to about them, except for a tired father, sometimes after work or on weekends. In some cases, this gave rise to an unusual pronunciation of individual words. For example, I thought that the word misled4
The past tense form of the passive voice of the English verb to mislead is “to mislead”. (note. trans.)

(pronounced "mis-ice") reads "mizeld", and even many years later, when I saw this word in the text, I needed to stop for a moment to mentally correct my pronunciation.

When I read or just thought, I completely focused on this activity - so much so that I completely detached myself from the world around me. When my mother called me, I did not answer. Thinking that I was deliberately ignoring her, she broke into a scream, and then came close to me, angry and flushed. Only when she appeared in my field of vision, I returned to reality and could answer her. It was not easy for her to understand whether her son was driven by stubbornness and bad manners, or whether he really did not notice what was happening around him.

Although we lived in poverty, my parents appreciated the books, and from time to time we were able to buy them. Father chose difficult texts. As a result, at the age of five or seven, I carried adult books with me, so that people I met did not always believe that I really knew what was written in them. One such person subjected me to an unexpected test, which could well have ended in embarrassment.

The fact is that my parents became friends with the Kester family, who lived on a farm in the vicinity of the city of Crete, Illinois, about seventy kilometers from our house. Every summer since 1937, when I was five, they have invited us over for a couple of weeks. It was a special time that I looked forward to all year. It was pure delight for a city boy who grew up on the outskirts of Chicago to watch water striders gliding along the surface of a slow, meandering stream, to play hide-and-seek in corn, to catch butterflies and then show them, pinned in rows to cartons, and to walk through fields, groves of poplars. and orchards. The Kesters' eldest son Marvin, who was in his twenties, carried me on his shoulders. My mother, along with the female half of the host family, Marvin's beautiful sister Edna-Mae, their mother, and their aunt Maya, canned fruits and vegetables in huge quantities. In the basement of our city house, my father arranged special racks for rolled up glass jars of corn, peaches and apricots that we brought from the farm.

There were also rows of jars of fruit jelly, jams and canned fruit, topped with a layer of paraffin. This abundance was enough for us for most of the year.

My father helped Marvin and his father, old Kester, with the work on the farm, sometimes I tagged along with them. One sunny day, on the second summer in which we spent our two weeks in Crete, my father took me with him to the local shop. I was about to turn six; I was tall and thin, with a mop of curly brown hair, slightly tanned, and short pants that showed my bare ankles; on my feet were sneakers with frayed laces. In my hands was Charles Dickens' A History of England for the Young.

Holder of two doctoral degrees - in mathematics and physics. Thorpe got into trading through a scientific approach to gambling. In fact, Edward Thorpe was the first scientist to apply statistics and probability theory to making money on the stock market consistently.

Achievements of Edward Thorpe

• founded Princeton Newport Partners, 19 years (1969-1988), averaging 19.1% per annum. 227 profitable months and 3 unprofitable (all months the loss is less than 1%).
• founded the Ridgeline Foundation (199?-2002). Over 10 years, the average return was 21% with a volatility of 7%.
• developed the first portable roulette computer
• developed the first blackjack strategy that gave the player an advantage over the casino. Wrote the book Beat the Dealer. The book changed the rules of the casino.
• developed the first systematic approach to trading warrants and other convertible securities. This approach was revealed in Beat the Market (1967).
• He was the first to formulate the option pricing model, which was equivalent to the Black Sholes formula. Thorpe used this model to trade even before the formula was officially published.
• Founder of the first market-neutral fund.
• First successful quantum foundation (1969).
• The first to use convertible arbitrage
• The first to apply statistical arbitrage
• The first identified signs of fraud in Bernard Madoff's scheme.

Biography of Edward Thorpe

Video of an interview Jack Schwager had with Edward Thorpe

Personal page Edward Thorpe in the Internet:
http://edwardothorp.com/

Sources:
Jack Schwager, Hedge Fund Market Wizards
James Weatherall "Physics of the stock market"

An article about algorithmic trading legend Ed Thorp and his new book.
www.wilmott.com/ed-thorp-how-did-you-do-it/

Having started translating the article, I honestly expected more useful information. It's just a laudatory text that mentions two of Thorpe's books, the old one and the new one.
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Several times in every generation comes a person who has a significant impact on the world. Such people can be called rare or lucky. Some of them may have an impact on the world in several areas. Ed Thorp is one such mind. He did it with ease, grace and calmness for most of the last 60 years (he is now 85). For those who don't know, Ed Thorpe is a Wall Street quant. He started his career playing in the casino. In his new book A man for all markets", published on January 24, 2017, he talks about his life like a whirlwind, and fully answers the question "How did you do it"?

In 1962, Thorpe published his first book, beat the dealer". This was the first widely circulated publication that gave a mathematical derivation of how to beat the casino by playing "twenty-one". This book started the Advantage Play revolution (Games with an advantage), when people turn odds into profit. Many consider this book one of the most influential games in history, as Professor Thorp said, "I dropped a rock into the ocean and it went into a tidal wave."

Thorpe's book on how to beat blackjack has paved the way for many inquisitive minds. They started coming up with clever new ways to attack casinos for profit. Every year, professional gamblers gather in Las Vegas to attend Max Rubin's Blackjack Ball. The organizer of the holiday is the gambling legend Max Rubin. Each visitor learned how to beat the casino and earned millions of dollars on it.

Every advantage that a blackjack player has has to do with Professor Thorpe in one way or another. Longtime gambler and author Henry Tambourine puts it this way: “To say that I owe my successful career player Dr. Thorp, that would be an understatement. I am not the only one who is forever grateful to him for his intelligence, research and dedication in discovering mathematically accurate ways to beat the casinos at their own game." Henry is the author of the book Complete guide blackjack strategies.

Players around the world are using the insights from Beat the Dealer to improve their strategies. They can be applied in one way or another to any version of blackjack.

This crown achievement alone would be enough for the career of any person. But Ed Thorpe has many other equally impressive accomplishments. Thorp and Claude Shannon (the father of information theory) developed the first portable computer that could beat the game of roulette. They created this device while working on the same faculty at the prestigious Massachusetts Institute of Technology.

Thorpe's early achievements in probability theory and predictive analysis provided the basis for his successful work in the stock market.

In the late 1960s, Thorpe applied his understanding of probability and statistics to the world's largest casino: Wall Street. His main focus was on identifying anomalies in the securities market. Using his research in finance, he helped launch the first quantitative market-neutral hedge fund in 1969. His concepts were also central to the creation of the derivatives market.

In his new book, Thorpe does a comparative analysis between casinos and Wall Street. He concludes that gambling is a simplified version of investing. He explains how the same logic can be applied to both. The most big difference between the casino and the exchange is that the exchange cannot ban you if you win, but the casino can.
Thorpe points out the risks in both directions (casino and exchange). He predicted the dangers of the LTCM (Long Term Capital Management) fund that went bankrupt in 1998, he even predicted the Madoff fiasco two decades before it happened. Where others saw opportunity for luck, Thorpe saw excessive risk and potential for fraud.
Thorp's clients have been very pleased with his analytical approach to investing for many years. In 1998, Thorpe published a public statement that his annual income for 28.5 years averaged 20%. Approximately the same profitability was in the management of other people's money.

Ed Thorpe was honored at the Blackjack Ball in 2017. There he gave a speech in which he talked about his wonderful life, about how it began in the 1950s with a trip to Las Vegas. He spoke in detail about how remarkable this trip was and how his wife Vivian supported him in all endeavors until her death in 2011.
His life has come full circle. It all started with a surprise visit to Las Vegas decades ago. Now his story and the lessons he has learned are available to everyone to enjoy, admire and perhaps use as a guide on their journey of life.
Book " A man for all markets"is a personal look at the predictability of chance and how to walk the tightrope between risk and reward. The book should be read by anyone who wants to look into the mind of a thinker who has had a significant impact on the world in many areas.
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For those who are interested, here is his old book (the same legendary one)"

When the legendary mathematician Edward O. Thorpe invented the technique of card counting, he proved what seemed impossible: it is quite possible to beat the dealer in blackjack. His amazing success - and mathematically impeccable method - created such a sensation that the casinos revised the rules and the world of gambling changed irreversibly. Then Thorp turned his attention to the "greatest casino in the world" - Wall Street. The mathematical formulas developed and implemented by Thorpe to beat the market heralded the beginning of the era of financial mathematics, in which we live to this day.

“Ed Thorpe's memoirs read like a thriller. They involve secret wearable computers that James and Bond wouldn't mind, sinister characters, great scientists, and attempts at poisoning (not to mention the sabotage after which Ed was supposed to "accident" in the middle of the desert). This book paints a portrait of a neat, serious, organized man who is dedicated to the pursuit of life, knowledge, financial security, and, last but not least, pleasure.”

(Nassim Taleb)

“I invite you to take part in my odyssey through the worlds of science, gambling and the securities markets. You will learn how I managed to overcome all sorts of dangers and succeed in Las Vegas, on Wall Street and in my own life. On this journey, you will meet interesting people, from blackjack card counters to investment professionals, from movie stars to Nobel laureates. You will be introduced to options and other derivatives, as well as hedge funds, and learn how a simple investment strategy can beat all, even the most experienced investors, in the long run.”

(Edward Thorpe)

The work was published in 2017 by the Azbuka-Atticus publishing house. On our site you can download the book "A Man to All Markets: From Las Vegas to Wall Street. How I Beat the Dealer and the Market" in fb2, rtf, epub, pdf, txt format or read online. The rating of the book is 5 out of 5. Here, before reading, you can also refer to the reviews of readers who are already familiar with the book and find out their opinion. In the online store of our partner you can buy and read the book in paper form.