Anyone who has ever seriously played blackjack knows about Ed Thorp, the MIT math whiz who, during the 1950s and with the aid of several years of work with one of the world's first supercomputers, minutely dissected the game and came up with a statistically valid solution that became a global sensation.


He published his solution in his classic 1962 gambling text "Beat the Dealer" which became a publishing phenomenon and he won so much money playing blackjack in Vegas that he was eventually banned.  He then took the same statistical concepts for beating The House and transposed them to beating The Street, consequently revolutionizing the hedge fund industry.  His book on this latter subject, "Beat the Market," goes for as much as $800 on Amazon.

So your bonus this Saturday evening is today's posting by Barry Ritholtz in his weekend The Big Picture blog of his podcast interview with Dr. Thorpe.  The link is below.  It's an hour and forty minutes but it may very well be the most well spent hour and forty we spend all year.  (Too bad they don't have printed transcripts of these podcasts.  Most of us can certainly read many times faster than we can listen.)  Hope everyone is having a great weekend.

MiB: Ed Thorp on Beating Vegas & Wall Street - The Big Picture

MiB: Ed Thorp on Beating Vegas & Wall Street

July 15, 2017 10:00am by Barry Ritholtz

This week (for our 3rd anniversary broadcast) we sit down with Ed Thorp, the math professor who Beat the Dealer, and Beat the Market, and became the first true quant hedge fund manager. His new autobiography is A Man for All Markets.

At the time he was a mathematics professor at MIT, Thorp realized that the house edge in BlackJack could be shifted in a player’s direction with a simple formula for tracking the cards that had been already seen. He eventually made enough money in Vegas that he was kicked out of most of the casinos. In response, he wrote Beat the Dealer. The casinos didn’t believe Baccarat could be beaten, so they did let him play that — until he Thorp started taking them for more money. Eventually, he and Claude Shannon, a fellow professor of information theory at MIT, created a wearable computer to beat roulette (!). That also worked, leading him to get banned from casinos everywhere.

Turning his expertise in probability analysis and mathematics naturally led Thorp to finance. He effectively created statistical arbitrage, expressing this in a hedge fund that returned 20-25% per year.

Thorp also was an early investor in Berkshire Hathaway, buying BRK for $982 (he still owns the shares). He was also an early investor in Kenneth Griffin’s Citadel.

All of the books Thorp references can be found here.

You can stream/download the full conversation, including the podcast extras, on iTunes, Soundcloud, Overcast, and Bloomberg. Our earlier podcasts can all be found on iTunes, Soundcloud, Overcast and Bloomberg.