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Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street Paperback – September 19, 2006
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Poundstone has a tendency to meander in his writing, but his asides are so revealing and interesting 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 explains Kelly's system for those 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, Fortune's Formula proves an entertaining and illuminating analysis of "the most successful gambling system of all time." --Shawn Carkonen --This text refers to an out of print or unavailable edition of this title.
From Publishers Weekly
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.
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Top Customer Reviews
Ed Thorp tested the Kelly formula in both gambling and investing. Also, he came up with an options formula before Fischer Black and Myron Scholes. His formula missed a risk-free rate component due to the structure of the market at the time. As a result, Ed Thorp remained in obscurity while Black and Scholes became famous.
Ed Thorp succeeded in deriving superior returns in both gambling and investing. But, it was not so much because of Kelly's formula. He developed other tools to achieve superior returns. In gambling, Ed Thorp succeeded at Black Jack by developing the card counting method. He just used intuitively Kelly's formula to increase his bets whenever the odds were in his favor. Later, he ran a hedge fund for 20 years until the late 80s and earned a rate of return of 14% handily beating the market's 8% during the period. Also, his hedge fund hardly lost any value on black Monday in October 1987, when the market crashed by 22%. The volatility of his returns was far lower than the market. He did this by exploiting market inefficiencies using warrants, options, and convertible bonds. The Kelly formula was for him a risk management discipline and not a direct source of excess return.
Ed Thorp's career as a hedge fund manager was temporarily cut short.Read more ›
The men whom "Fortune's Formula" casts as protagonists are Claude Shannon, the MIT scholar who invented information science and who amassed a small fortune as a buy-and-hold investor, typically making 28% per year on a small portfolio, and Ed Thorpe, author of 1962's gambling classic "Beat the Dealer", 1967's "Beat the Market", co-founder of Princeton-Newport Partners fund (1969-1988) and founder of Ridgeline Partners (1994-2002) quant fund.Read more ›
You can view this book as a study on the history of an idea, as a study of the financial markets, or as a social study of gambling and investing. There are many faces to it. I wouldn't say it is a book on finance, or a book on history, but a bit of everyhting really. It definitely is not a book on 'how to beat the market', don't look for that here. The book does give a good explanation of the Kelly formula, in my opinion, but the whole controversy surrounding it, as well as the story of Ed Thorpe, was much more interesting for me.
If you are interested in finance or financial history, math, or gambling, or how ideas evolve and why certain ideas are better known than others, you should read this book. I think that mathematically sophisticated readers can be a bit disappointed because there is no rigorous treatment of Kelly criterion. But the basic ideas of CAPM, efficient markets hypothesis, the essence of Kelly formula, and random walk, are explained quite succintly and clearly, in my opinion.
The only problem I had with the book was that the author went off in tangents quite a bit, which sometimes distracted from the main story.Read more ›
Most Recent Customer Reviews
Earthy, gritty, unabashed history and discussion of important elements of applying quantitative methods to investing decisions... and other games of chance!Published 1 month ago by David Turetsky
It is an interesting book. Some sections seems unrelated to the broader story. But, I liked it. Good and easy read.Published 2 months ago by an803
book was deeper than I thought, he ably described people and their ideas, mixed with anecdotes, he covered some basic theory. Read morePublished 5 months ago by N. Werle
OK, everyone knows what slimeballs casino operators are, so when a book comes out explaining how someone gave them a comeuppance, its hard to resist. But this book is a lot more. Read morePublished 7 months ago by Gary Dameron
It was fascinating to read through almost the entire history of "gambling" that evolved from Claude Shannon's information theory and Kelly Criterion. Read morePublished 7 months ago by Esperanto Han
Enjoyed reading about Claude Shannon and others but got bogged down in excessive gambling.Published 7 months ago by S. Minter