We Study Billionaires - The Investor’s Podcast Network

TIP701: Against The Gods w/ Kyle Grieve

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Feb 23, 2025

Kyle Grieve dives deep into the evolution of risk from ancient gambling to modern finance. He unveils how risk management's foundations lie in gambling and explores the significant breakthroughs by thinkers like Pascal and Fermat. The conversation highlights the distortions caused by regression to the mean and the perils of irrational decision-making, as illustrated by prospect theory. Grieve emphasizes the importance of focusing on downside risk and critiques typical diversification strategies. The discussion offers insights into how biases can sabotage investor success.

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INSIGHT

Ancient Gambling

The earliest gamblers played with sheep or deer knuckle bones.
Gambling has yielded insights into risk and modern finance.

INSIGHT

Investing is an Art

Investing blends quantitative analysis with psychology and art.
Mathematical proofs alone won't guarantee investing success.

ANECDOTE

The Problem of Points

Luca Pacioli posed "the problem of points" in his book, Sama.
The problem involves dividing stakes in an unfinished game.

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Liber de ludo aleae

Girolamo Cardano

Liber de ludo aleae is a seminal work by Girolamo Cardano that introduces the concept of probability as the ratio of favorable to possible cases. It discusses various aspects of gambling, including the law of large numbers and the psychology of players. Although it was written in the mid-1500s, it was not published until 1663. The book is significant for its early mathematical treatment of probability but has been criticized for its lack of clarity and contradictory methods.

Concentrated Investing

Tobias Carlisle

Bayes' essays in Philosophical Transactions

Thomas Bayes

Against the Gods

The Remarkable Story of Risk

Peter L. Bernstein

Against the Gods: The Remarkable Story of Risk chronicles the intellectual journey that has led humanity from relying on oracles and soothsayers to using sophisticated tools of risk management. The book delves into the history of probability, starting from ancient civilizations and their limitations in understanding chance, to the modern era where risk is quantified and managed. Bernstein discusses how the development of probability theory and risk management has been a key factor in distinguishing modern times from the past[2][4][5].

Summa de arithmetica, geometria, proportioni et proportionalita

Summary of arithmetic, geometry, proportions and proportionality

Luca Pacioli

This book, written by Luca Pacioli, is a seminal work in mathematics and accounting. It includes a general treatise on theoretical and practical arithmetic, the elements of algebra, a table of moneys, weights and measures, and a detailed description of double-entry bookkeeping. The book also covers practical geometry and was the first printed work on algebra. It played a significant role in standardizing professional accounting methods and influenced later mathematicians such as Cardano and Tartaglia[2][3][4].

Liber Abaci

The Book of the Abacus or The Book of Calculation

Leonardo of Pisa (Fibonacci)

Published in 1202, Liber Abaci is a Latin work on arithmetic by Leonardo of Pisa, known as Fibonacci. The book is famous for introducing the base-10 positional notation and the symbols known as Arabic numerals in Europe. It is divided into four sections: the first introduces the Hindu-Arabic numeral system and methods for converting between different representation systems; the second presents examples from commerce such as currency conversions and calculations of profit and interest; the third discusses various mathematical problems including the Chinese remainder theorem and the Fibonacci sequence; and the fourth derives approximations of irrational numbers such as square roots. The book played a crucial role in promoting the superiority of the new numeral system among tradesmen and mathematicians[2][4][5].