Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
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- ISBN13: 9780809045990
- Condition: NEW
- Notes: Brand New from Publisher. No Remainder Mark.
Product Description
In 1956 two Bell Labs scientists learned the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein’s. The additional was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of building as much money as possible, as quick as possible.
Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenonally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Chance’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.
Shannon believed it was possible for a smart investor to beat the market—and Chance’s Formula will convince you that he was right.
Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenonally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Chance’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.
Shannon believed it was possible for a smart investor to beat the market—and Chance’s Formula will convince you that he was right.
William Poundstone is the bestselling leader of ten nonfiction books, including Labyrinths of Reason and The Recursive Universe, both of which were nominated for the Pulitzer Prize.
In 1956 two Bell Labs scientists learned the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein’s. The additional was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of building as much money as possible, as quick as possible.
Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Chance’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.
Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Chance’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.
“Chance’s Formula may be the world’s first history book, gambling primer, mathematics text, economics manual, personal finance guide and joke book in a single volume. Poundstone comes across as the best college professor you ever hand, a name who can turn nearly any technical topic into an entertaining and zesty address.”—The New York Times Book Review
“Seldom have right crime and smart math been blended together so engagingly”—The Wall Street Journal
“An incredible tale that gives a huge thought the needed star treatment . . . Chance’s Formula will appeal to readers of such books as Peter L. Bernstein’s Against the Gods, Nassim Nicholas Taleb’s Fooled by Randomness, and Roger Lowenstein’s When Genius Failed. All try to clarify why smart people take stupid risks. Poundstone goes them one better by showing how hedge fund Long-Term Capital Management, for one, could have avoided disaster by following the Kelly method.”—Business Week
“An incredible tale that gives a huge thought the needed star treatment . . . Chance’s Formula will appeal to readers of such books as Peter L. Bernstein’s Against the Gods, Nassim Nicholas Taleb’s Fooled by Randomness, and Roger Lowenstein’s When Genius Failed. All try to clarify why smart people take stupid risks. Poundstone goes them one better by showing how hedge fund Long-Term Capital Management, for one, could have avoided disaster by following the Kelly method.”—Business Week
“Poundstone, a two-time Pulitzer Prize nominee, takes us from chalkboard to stock market and back as he clarifies the ‘Kelly formula’ for gambling through the lives of persons who developed and exploited the system. It is a rollicking tale about money, mathematics and greed.”—Bloomberg
“A dazzling array of math geniuses, rogues, swindlers, Nobel Prize winners, gun-toting physicists—all massaging the formulas that give them an edge in making fortunes.”—George J. W. Goodman (aka “Adam Smith”), leader of The Money Game and Supermoney
“This is a wonderful tale of how mathematics got married to gambling and went off to honeymoon in Las Vegas, before finding essential happiness in the largest casino of all—the world financial markets. Poundstone has produced a rogues’ gallery of mobsters and mathematicians, kneecappers and handicappers, card sharps, professors, systems players, numbers runners, and number crunchers—the best ‘investment advisers’ you can find. Anyone interested in playing the markets should buy this book and read it immediately.”—Thomas A. Bass, leader of The Eudaemonic Pie and The Predictors
“The right tale of the intertwining lives of financial legends, algebraic geniuses and bent mobsters. Who would you expect to win an intellectual battle between professional gamblers and Nobel Prize winners? This book confirms what I’d long suspected, that the successful gambler knows more about managing money than the most PhD-laden investment banker. Poundstone’s book clarifies that knowledge, and you’ll be surprised by its elegance and simplicity. A fascinating book, both a cracking excellent yarn and a practical guide for investment success.”—Paul Wilmott, mathematician, bestselling leader, and editor of Wilmott magazine
“From bookies to billionaires, you’ll meet a motley cast of characters in this highly original, ‘outside the box’ look at gambling and investing. Read it for the tales alone, and you’ll be surprised at how much else you can learn lacking even trying.”—Edward O. Thorp, leader of Beat the Dealer and Beat the Market
“What a fantabulous book! Chance’s Formula provides a deep but crystal-clear understanding of information theory, card-counting schemes, plunging necklines, mean-variance mapping, junk bonds sold fleeting and gambler’s ruin, all part of an epic suspense tale crowded with eccentric geniuses and cold-blooded killers. You’ll never follow a horse race, push forwards a casino chip or enter a market the same way again. Read this and weep for the edge you only thought that you had, then read it again for a real one.”—James McManus, leader of Positively Fifth Street
Chance’s Formula is a fascinating study of the relations between such seemingly unrelated topics as gambling, information theory, stock investing, and applied mathematics. The tale involves the stunning brainpower of men such as MIT professor Claude Shannon, who single-handedly invented information theory, the science behind the Internet and all digital media; Ed Thorpe; and John Kelly of Bell Laboratories, who developed the “Kelly criterion,” a now-legendary investment strategy for maximizing growth while controlling risk. Initially, Shannon and Thorpe took Kelly’s theory to Las Vegas and applied it to roulette and blackjack. Later, they took it to Wall Street and cleaned up–Shannon made a personal chance while Thorpe made the highly successful hedge firm Princeton-Newport Partners. They both learned that Kelly’s system was particularly effective when applied to arbitrage (minute fee differences that result from market inefficiencies). As Poundstone ably demonstrates, the merits of Kelly’s criterion are still hotly debated today.
Poundstone has a trend to meander in his writing, but his asides are so revealing and appealing that they add, rather than detract, from the narrative. The book also includes a cast of fascinating and colorful characters as varied as Ivan Boesky, Warren Buffet, Rudolph Giuliani, and notorious mobsters such as Bugsy Siegel and Meyer Lansky. In explaining the lasting impact of the work done by Shannon, Thorpe, and Kelly, Poundstone even clarifies Kelly’s system for persons wishing to follow his formula, offering readers both theoretical and practical lessons. Whether viewed as a how-to guide or straight scientific and financial history, Chance’s Formula proves an entertaining and illuminating analysis of “the most successful gambling system of all time.” –Shawn Carkonen
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Fasinating tale of modern day genius trying to beat the odds. First in casinos and then in the stock market. There is a moral here – in their quest to find the optimum way to gain wealth they forget the most vital thing -you will die and you can’t take it with you. That is the fatal flaw to their system -which a prominent economist tried, lacking sucess, to convey.
Reader’s Rating: 4 / 5
If right, the book merits five stars. If not right, then the book merits hardly three stars for not being circumspect. If the latter, then the erudition is reasonably poor. William Poundstone, leader of brilliant books on game theory, did not engage in any lateral thinking in this book. I’m skeptical of the alleged being of a “formula” that was used to play the stock market so successfully by these guys. First of all, I submit the possibility that there was no formula and that these guys were engaged in inside trading. If so, then what a clever way of avoiding scrutiny by the Securities Exchange Commission additional than explaining your chance by pointing to some formula. Like a magician employing misdirection, could it be that there was no formula, only inside trading? And if the SEC bought that tale, then the inside traders could escape Securities Exchange charges and violations. And this would be the genius of Thorpe and others, not some formula. Like the Rothschilds who exploited their monopoly on carrier pigeons in pre-telecommunications England said Napoleon defeated the British at Waterloo so they could buy British bonds pennys on the dollar, or Joe Kennedy who under Roosevelt regulated securities while fleecing the stock market (an inside job) or Bill Gates who took the somebody else’s operating system “BASIC” and sold it to IBM with a contract provision giving him exclusive rights to sell it to the personal user (the innovator of “BASIC” not even privy that this was going on) or Rockefeller buying off railroads to push additional oil companies out of the market and avoiding taxes by putting his money in trusts, or the guys who opened King Tut’s tomb and looted it and resealed it and then “rediscovered” it so the Egyptian government was robbed of much of the gold in that tomb, perhaps the “Forumla” herein is another example of what Honore’ Balsac said, “Behind every fantastic chance is a crime.”
Reader’s Rating: 3 / 5
the leader ties together a number of disparate tales but the key takeaway from a practical perspective was: manage risk and do your homework.
Reader’s Rating: 3 / 5
Clearly the main protagonists in “Chance’s Formula” were highly intelligent and head of their time. Card-counting, blackjack, arbitrage (eg. potential acquisitions, warrants, options) were all covered, and some appealing approaches to maximizing return vs. risk were addressed.
Nonetheless the book was a examination to read – full of sideline ventures of minimal value, superficial/non-lucid explanations of complex concepts, and likely of small or no value today. (Kelley’s optimum “betting level” may have prevented Long-Term Capital Management from going broke, at the cost of FAR lower early returns – but, Poundstone did not explore that possibility).
The material could have been much better covered in the format of a broader primer on algebraic approaches to investing, and providing data on the number of such investors able to consistently beat the market, and persons who go broke.
Reader’s Rating: 1 / 5
The work of Thorp and his very impressive associates is fresh and appealing. A review by Gaetan Lion not more than clarifies very well, I reflect. Editors encourage authors to go light on right mathematics, mathematics formulas, and mathematics derivations. The leader has done that. While that will be admirable to a all-purpose audience and extremely laudable from the editor’s point of view, it isn’t satisfactory to me. For me, the real learning is done in tracing through the formulas and derivations. For that, the most useful part of the book is the bibliography. Of course, you should know that I delight in reading textbooks. This is not really one of them, although I consider it well worth reading for entertainment.
Reader’s Rating: 3 / 5