Edward O. Thorp: A Man for All Markets

Edward_Thorp

Edward Thorp has played a significant part in the development of a number of fields, and he has done this with a spirit of inquisitiveness, humility and fervent determination. Thorp was born in Chicago in 1932 and as a young child the fields of mathematics and science fascinated him. He was a precocious talent and almost effortlessly breezed through the early years of his education, he received his PhD from the University of California, Los Angeles in 1958, and worked at M.I.T. from 1959 to 1961. He was a professor of mathematics from 1961-1965 at New Mexico State University, and then joined the University of California, Irvine where he was a professor of mathematics from 1965 to 1977, and a professor of mathematics and finance from 1977 to 1982.

Thorp saw some research on whether it was possible to beat the casino game Blackjack (or Twenty-one) in a meaningful way. He created new tests and theories that he would later go on to use in real casino environments to gain profits.

In 1966 Thorp would write the first version of the book ‘Beat the Dealer: A Winning Strategy for the Game of Twenty-one.’ The findings would show Thorp’s methods for gaining an advantage over the casino by card counting and using mathematical probabilities and statistics.

The book ‘Beat the Dealer’ is still available today and can be picked up here – Beat the Dealer

Thorp would also agree to be funded to test the theory in Las Vegas casinos in order to prove his claims. A man known as ‘Mr X’ who had an abundance of cash financially supported him, he used $10,000 for that trip to Vegas and Thorp would make an additional $11,000 in a single weekend using his methods. At that time in the 1960s Las Vegas was a haven for criminals and some of them would operate casinos in those days and they certainly did not like losing large amounts of money.

Thorp would become influential in gambling circles, as he was able to prove his theories and was voted in as one of the founder members of the Blackjack Hall of Fame in 2002.

Thorp would also work with the influential mathematician Claude Shannon at the Massachusetts Institute of Technology (MIT) who some call the father of information theory. Together they would work on the first wearable computers, which Thorp would use to aid his efforts at casinos for the game of roulette.

Thorpe wondered if the work that he had completed on probability in casinos would be applicable to the stock market, he met the future billionaire investor Warren Buffett while he was beginning his investment journey and thought about the idea of launching his own fund. He launched Princeton Newport Partners hedge fund in 1974. The fund performed exceptionally well over a period of over 28 years and collected an annual return of 20%.

Thorp would close the fund due to issues with one of his business partners and he made enough money to retire in comfort. Thorp’s net worth is estimated to be $800 million (May 2019).

Thorp would also release his findings that would share his methods on investing, this book is called ‘Beat the Market: A Scientific Stock Market System’ and can be picked up from here – Beat the Market book

 

Edward O. Thorp A Man for All Markets Part 01

 

Edward O. Thorp A Man for All Markets Part 02

Entrepreneur: Edward Thorp

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