Ed Thorp: the genius professor who beat the casinos, then the markets

Ed_Thorp

Edward Thorp is an extraordinary individual who has always been ahead of the curve in his activities. He is a pioneer in the field of gambling, especially Blackjack, also he is a pioneer in probability theory. In addition to that he collaborated with the mathematician Claude Shannon in creating a wearable computer, and he also was an early figure in the emerging hedge fund industry.

Thorp acquired and developed a prodigious intellect from an early age and had a fondness for mathematics, science and experimentation. He went on to obtain a Ph.D. in mathematics from the University of California in 1958 and began working at MIT University until 1961.

Thorp was fascinated with the idea of gambling and probability theory. He studied a theory that dealt with probability called the Kelly Criterion, which is a formula that is used to determine the optimal size of a series of bets. Thorp began to develop his own theory and would apply these finding to casino games, first roulette, then Blackjack. He would publish his findings in a number of articles, and he wrote a bestselling book in 1966 entitled ‘Beat the Dealer’ where he would show his theory which would later be known as card counting to be able to maximize the chances of winning at Blackjack in casinos.

The dissemination of his gambling material drew a great amount of attention and skepticism as many doubted his claims, so Thorp agreed to test his findings in real casinos, he was funded by a figure that was involved with criminal mobsters called Manny Kimmel. He gave Thorp $10,000 to test his theories in casino’s in Las Vegas. Thorp turned that amount into $21,000 over the course of a weekend.

Thorp also used his skill to create theories in probabilities and statistics to apply to the stock market that he would implement with an astounding level of success, in 1974 he set up a hedge fund called Princeton/Newport Partners and the fund performed at a consistent rate of 20% each year for almost 30 years. Thorpe has amassed a fortune of hundreds of millions of dollars due to his understanding markets and quantitative analysis.

Thorp has quietly gone about revolutionizing the world by living his life to the fullest without an avaricious desire for a quick profit, instead his financial game has come from his love of beating the system and if not playing by the rules, then most definitively by his rules.

 

Breaking Vegas Professor Blackjack – Ed Thorp

Entrepreneur: Ed Thorp

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