#92 Ed Thorp and Claude Shannon
What I learned from reading Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone.
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Claude Shannon was as close to a sure thing as existed [2:53]
The beginning of information theory [7:11]
Project X [9:09]
introduction to Ed Thorpe [15:05]
using math and physics to beat Las Vegas [18:03]
Ed Thorp and Claude Shannon meet [20:45]
testing Thorpe’s Blackjack theory [26:00]
The core of John Kelly’s philosophy of risk can be stated without math. It is that even unlikely events must come to pass eventually. Therefore, anyone who accepts small risks of losing everything will lose everything, sooner or later. The ultimate compound return rate is acutely sensitive to fat tails. [28:23]
I’d be a bum in the street with a tin cup if the markets were efficient. —Warren Buffett [44:30]
how Claude Shannon begins studying the stock market [46:45]
Claude Shannon and Henry Singleton [48:16]
why and how Ed Thorp started investing in stocks [49:49]
Thorp starts a hedge fund and starts working remotely [52:49]
Ed Thorp meets Warren Buffett [54:20]
An acid test of Princeton/Newport’s market neutrality came in the Black Monday crash of October 19, 1987. The Dow Jones index lost 23 percent of its value in a single day. Princeton/Newport’s $ 600 million portfolio shed only about $ 2 million in the crash. Princeton Newport’s return for the year was an astonishing 34 percent. [59:36]
the implosion of Long Term Capital Management [1:07:00]
The thing you should do is the opposite of what you feel you should do. –Jim Clayton [1:09:10]
A quote from 1738: A man who risks his entire fortune acts like a simpleton, however great may be the possible gain. — Daniel Bernoulli [1:13:00]
Claude Shannon: A smart investor should understand where he has an edge and invest only in those opportunities. The methods Claude Shannon used to invest [1:17:10]
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