Fortune's Formula

The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Book • 2005

Author

William Poundstone

In 'Fortune's Formula', William Poundstone examines the Kelly Criterion, a mathematical formula developed by John L. Kelly Jr. and Claude Shannon at Bell Labs.

This formula aims to maximize the long-term growth rate of wealth by determining the optimal fraction of capital to bet on each wager.

The book recounts how this formula was used by Shannon, Kelly, and MIT mathematician Edward O. Thorp to succeed in Las Vegas casinos and later in the stock market through arbitrage and hedge funds.

It also discusses the broader implications of the Kelly Criterion on risk management, financial strategies, and the psychology of human behavior in high-stakes decision-making.

Mentioned by

David Senra

Mentioned in 2 episodes

Mentioned by

David Senra

as a book that collects modern evidence on Lollapalooza investment record of Claude Shannon, highlighting Shannon's methods similar to Charlie Munger's.

1,051 snips

#90 Charlie Munger (Poor Charlie's Almanack)

Recommended by

David Senra

for its entertaining presentation of evidence on above-average results through skill and its account of Claude Shannon's investment record.

145 snips

#92 Ed Thorp and Claude Shannon

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