A Man For All Markets

I have had this book, A Man For All Markets, on my kindle for the past year. I can’t recall who recommended it, possibly my friend Jeremy, but I can’t be sure.

A couple weeks ago, I had lunch with my friend Harry and he again suggested it to me. I decided to put it at the top of my to read pile (a virtual pile) and have been reading it for the past week.

It’s a terrific book, nominally the life story of Edward Thorpe, the math professor, blackjack card counter, and hedge fund manager.

The book is a reminder that math, particularly the highly agile mathematical mind, is a very powerful thing. But it is also full of amazing insights on risk and return, from gambling to investing.

I particularly liked this observation that Edward makes after testing his “ten count” system with the the backing of some less than reputable characters:

For the second time, the Ten-Count System had shown moderately heavy losses mixed with “lucky” streaks of the most dazzling brilliance.

My person experience with investing includes plenty of moderately heavy losses and the occasional “dazzling brilliance.

I am pleased to know that pairing is common in all sorts of risk taking ventures.

If you like math, cards, and/or investing, I am sure you will enjoy this book as much as I am.


Comments (Archived):

  1. jason wright

    “I am pleased to know that pairing is common in all sorts of risk taking ventures.”any particular founder in mind?

    1. fredwilson

      i was speaking of our portfolio outcomes at the various VC firms i’ve spent time in

      1. jason wright

        i read it a few times, but the penny never quite dropped.what do you mean by “pairing is common”?

  2. Michael B. Aronson

    Sounds like a great beach read for the summer, Beat the Dealer taught me how to count cards during my days after college as an avid blackjack player, did pretty well till we got kicked out of ac casinos! Hadn’t thought about it’s VC applicability but I suppose many similarities including patience to observe and when to jump in

    1. bsoist

      I grew up in AC. It’s a tough place to get away with counting cards.

    2. PhilipSugar

      I’ll give you a great AC story. While I was a sophomore at Penn and was doing simulation work with you and GE Supply I went to AC and was throwing dice. I had made over 15 passes in a row but the pit boss was upset at the second time my dice had been bounced off the table because I was throwing too hard.Of course I was underage and I said I would give up the dice.A very large man next to me who was betting black chips ($100) put one in front of me, said no you will not, and proceeded to yell at the pit boss, that he throws as he wants. I made several more passes, and he threw me another black chip and told me to get me and my fraternity brothers drinks on him.

  3. Nick Grossman

    From vitalik’s wikipedia page:”While in grade three of elementary school in Canada, Buterin was placed into a class for gifted children and started to understand that he was drawn to math, programming, and economics. He also had the ability to add three digit numbers in his head at twice the speed of his peers.”

    1. jason wright

      which PR firm is tasked with that ‘persona’?the man, the metrics, the myth.it’s become that dangerous thing, the cult of personality.

      1. Nick Grossman

        ha! fair point. probably fake news.

        1. Twain Twain

          Are we brilliant at maths when we beat Sergei Brin and the entire Google crew at ‘Angry Birds’? LOL.https://uploads.disquscdn.chttps://uploads.disquscdn.c…——In Grade 3, I beat boys who were Regional Champions at chess and 3 years older than I was.Also, the Royal Institution selected me for their maths masterclasses, where they taught us about Turing and encryption. I passed their tests and also got into their summer school.Fast forward to today and I’m taking on Turing’s methods for Machine Intelligence in my mission to get the machines towards Natural Language Understanding (NLU). https://uploads.disquscdn.c…Folks talk about “Turing-complete” machines; Blockchain and Ethereum being built on those principles.Well … it could be that within this generation, we get algorithms and machines that go well beyond Turing’s visions of machine intelligence and “Turing-completeness” …LOL.

      2. Richard

        this guy is the real deal, pure genuis

  4. Vendita Auto

    Need access to D-wave via my mobile that’s my choice preferred system right here right now.

  5. Girish Mehta

    If anybody would like to learn more about the book/Thorp, attached is Taleb’s foreword to the book. Its a good introduction. Excellent point at the end about independence.https://medium.com/@nntaleb

    1. pointsnfigures

      “He cuts to the chase in identifying a clear edge (that is something that in the long run puts the odds in his favor). The edge has to be obvious and uncomplicated.” I think that says it all. If you don’t know your edge, you cannot invest.

      1. Thomas Luk

        Genius manifests itself in obvious simplicity, which still is hidden to others…I love this stuff

        1. Twain Twain

          Genius hides in plain sight. We have to know how to see deeper into the simplest clues that great minds have left for us from before …https://uploads.disquscdn.c

        2. sigmaalgebra

          You might likeWe dance ’round and ’round and suppose while the secret sits in the middle and knows.Ah, trade secrets can be fun!

    2. sigmaalgebra

      See my post: Net I have zero respect for Talib.

  6. JamesHRH

    There is a movie about the MIT Blackjack team, based on Thorp. Its considered one of the 10 best gambling movies ever, by gambling.com !http://www.historyvshollywo

  7. Jeff J

    Just downloaded to my Audible account.

  8. Tommy Campbell

    I’m currently reading this too. What I’ve enjoyed most so far is getting a first-person account of what’s going on inside the head of someone with world-class problem-solving abilities. It’s also incredible that many of his accomplishments growing up were born from Depression-era lack of resources rather than abundance and elite education. On a side note, it makes me happy that there’s someone else out there who always reads ‘misled’ as ‘mīzled’ at first glance!

  9. Pete Griffiths

    Poker system going well StopSend more money Stop

  10. sigmaalgebra

    Yes, I read Thorpe, both (1) Beat the Dealer and (2) Beat the Market.For (1), at the time I was plenty good enough at the subject game, Blackjack, and long kicked myself because I didn’t just take a few dollars and a bus ride to some out of the way casino and slowly drain them of their money via Blackjack until finally someone got stupid about the strategy, took them for big bucks quickly, had them “get wise”, start to believe that what they’d long been sure about casino games was in some cases wrong, and use larger decks, shuffle more frequently, restrict the range of bets permitted at a single table, and otherwise make the players offers they couldn’t refuse. I could have made money enough to have bought a house.I assumed that since I’d read his book, enough other people would have also and the opportunity would be gone.So, there’s a lesson here about human nature: Publish stuff in a book all you want, and, still, darned few people will read and believe or even read the stuff and won’t believe until they see the evidence in big stacks of green dollars. With nearly everyone, an idea and a dime won’t cover a 10 cent cup of coffee, and the flip side of that situation is an opportunity.Dumb. Took me a while to learn this lesson really well!(2) Sure, IIRC that book really had a good, first version of covered call writing, shorting the stock and going long on the option (or the other way around), and what later was derived a little better in the Black-Scholes formula. And it’s all a special case of stochastic optimal control (the field of my Ph.D. dissertation) and the Brownian motion solution to the Dirichlet problem, that is, with stopping times, etc. and the math for the fully general situation of exotic options. So, right, now we have beautifully polished books by Karatzas and Shreve, Bertsekas and Shreve, Bloomenthal and Getoor, Lipster and Shiryayev, etc.IIRC in a technical appendix to (2), Thorpe explained that his argument was standard in “measure theory”. So, sure, ASAP I dug into measure theory. I got, sure, Royden, Real Analysis and worked carefully. I got to the exercises on upper and lower semi-continuity and then went to grad school. There ASAP I got into a course (fantastic, from a star student of E. Cinlar at Princeton) in measure theory, functional analysis, probability based on measure theory, and stochastic processes. Fantastic stuff!Right, I never went back to Thorpe’s appendix to review just how he was using measure theory.Right, I failed to learn about James Simons until he had already made $10+ billion and retired.At various times, I sent resumes to Wall Street, had a few interviews, likely never talked to anyone who knew measure theory! I talked to people who now are likely all regarded as losers.Right: There was Long Term Capital Management. No, I don’t blame “black swans”. Instead, I blame a far too simplistic interpretation of the central limit theorem:See, in a stationary, independent increments stochastic process, we can tap lightly with the central limit theorem and conclude lots of details about tails of the Gaussian. And we can believe in stationary, independent increments because of some Chicago style hand waving about market efficiency and lack of opportunities for arbitrage.The math is rock solid, but to believe those assumptions, have to be smoking funny stuff or worse.Gee, right, that day of LTCM, I actually drove over to Stamford and saw the big statue out front and the hired security guard standing there over what nearly wrecked Wall Street and the US and world economies.Look, guys, the Brownian motion assumption, independent increments, the efficiency hypothesis thingy, lack of arbitrage, etc., are all essentially just assumptions, in some broad, first-cut, sense roughly true. So, if want to construct some broad, first-cut models of markets in the large, then make these assumptions and see what the consequences are. It’s broad, crude, doesn’t promise to apply to details, certainly doesn’t mean that the market is efficient, is likely irresponsible, If really believed might start WWIII, the last WW, doesn’t say that Simons couldn’t make $10+ billion, but may yield something as a simple case. Then, DROP IT like toxic waste.Ah, my present startup is a better way to make money!Ah, last night got an incremental backup done, to two independent destination disks, and discovered that my external USB hard disk has all my copies of my NTBACKUP copies of my main boot partition, the one I need to restore due to some corruption from some hardware problems now apparently solved! Ah, progress, just system administration, and just routine, but necessary and good to get done! Now, hoping to avoid any more such hardware problems!

  11. howardlindzon

    Thorp old school and one of the greats at risk and truths and writing

  12. Richard

    Ed’s life as a hacker, entrepreneur, financier, trader, scientist, maker is simply amazing.

  13. Vashishtha Kapoor

    Just ordered. I would love to invest and that’s why I want to read it thoroughly. Thanks

  14. Damien Tanner

    This was my favourite book this year.There is a nice recent interview with Ed on the Meb Faber podcast: http://mebfaber.com/2017/02…Ed’s childhood experiments/antics remind me a lot of Richard Feynman 🙂

  15. Girish Mehta

    Early in that movie, the Kevin Spacey character asks a question in class which one of the students correctly answers and is then recruited into the team.The backstory to that question Kevin Spacey’s character asks is that its the Marilyn Vos Savant question (sometimes called the Monty Hall problem) when the woman with the highest IQ in the world was told by many smart people that she was wrong. She was right.Its a fascinating question, had fun discussions with friends over the years over this.The article back in 1991 (the question was asked in 1990) when this debate was raging -http://www.nytimes.com/1991…https://priceonomics.com/th

  16. Nick Grossman

    I know Semyon from recent years at techstars – never worked with him too closely but he’s got a special mind. He’s left techstars as of this current batch

  17. LE

    I am still annoyed by that outcome. Especially the fact that it’s boiled down to numbers and life and decisions are rarely only about numbers in that way. [1]On a separate point priceonomics has a good gig going re-manufacturing old content and teaching others how to link bait.Lastly, who can forget Broyhill Furniture?[1] Also ironic re: 1000 Phd’s is how climate change is viewed given the same type consensus in the scientific community.

  18. Twain Twain

    Thanks for sharing this example of Marilyn dos Savant’s experiences (What ensued for dos Savant was a nightmarish journey, rife with name-calling, gender-based assumptions, and academic persecution.)Unfortunately, her story reflects how the credibility of women — even the one with the world’s highest IQ — are undermined in ways that men may not be.The Monty Hall problem was one we covered in maths degree.The gold nugget from the article is: “For contestants and problem-solvers alike, the Monty Hall Problem causes cognitive dissonance, a term psychologists use to describe the “mental stress experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time, or is confronted by new information that conflicts with existing beliefs, ideas, or values.You may think you have probability going for you when you follow the answer in her column, but there’s the psychological factor to consider.[But] the strict argument would be that the question cannot be answered without knowing the motivation of the host.”A number of tests like Monty Hall and Prisoner’s Dilemma have been built up to test for people’s knowledge of a learned process: probability — which is part of but not the panacea tool of how the human mind reasons.It’s also assumed that the psychology of people is probabilistic+statistical (pretty much all psychometric models default to the bell curve) and that may not be the case at all.

  19. Girish Mehta

    Have not had a discussion on that question which lasted less than a hour. Good fun.

  20. sigmaalgebra

    No one with any grain of sense believes the climate change nonsense.It’s all as in the Bogart movie The Maltese Falcon where he tells his not very trustworthy woman clientWe didn’t believe your story. We believed your $100.Well, the climate change alarmist scientists don’t believe the story that CO2 is warming the earth or changing the climate and instead believe the $1 B a year or so US Federal Governement research grant money to those scientists,It doesn’t take any science to understand this stuff. It’s all just street smarts just as from Bogart, and you have plenty of street smarts!Of course, in NYC, a lot of people want to fit in with the norms! Their norm leader is the NYT who wants lots of followers for their eyeballs for ad revenue.

  21. fredwilson

    yup, you nailed it

  22. jason wright

    naturally :)i didn’t get what Fred was saying tbh.

  23. finnich

    haha,,,what a reply….nailed it !!!!!!!

  24. jason wright

    thanks Charlie. i’ve just never come across it being expressed in that way.

  25. Twain Twain

    Too many complex variables to know which one will be the hit.Often times, investors have to go with pure instinct rather than logic of their models when taking chances.