We Study Billionaires - The Investor’s Podcast Network TIP128: Edward Thorp - Investing Legend, Math Genius (Business Podcast)
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Mar 4, 2017 Edward Thorp, investing legend and math genius, shares insights on beating Blackjack, achieving a 20% annual return, sizing positions, and playing bridge with Buffett. He also discusses transitioning from gambling to investing, longevity tips, and the importance of risk management in investing.
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Schwager on Thorp
- Jack Schwager, author of Market Wizards, said Ed Thorp is the smartest person he ever interviewed.
- Thorp's accomplishments include inventing card counting, achieving remarkable market returns, and creating the first wearable computer.
Card Counting Math
- Thorp's card counting strategy involved using an IBM 704 computer to analyze how missing cards impact blackjack odds.
- Removing or adding aces significantly shifted the casino's edge, revealing an exploitable pattern.
Kelly Criterion in Investing
- Use the Kelly Criterion to balance risk and return, but consider halving the recommended bet to manage volatility.
- The Kelly Criterion helps determine optimal bet size based on your edge, similar to a biased coin toss.