In his new book, mathematician, author, and financial guru Edward O. Thorp reflects on his remarkable career — and teaches us how we, too, can beat the dealer and the market
Edward O. Thorp’s life story reads like fiction (or fantasy) — from his time in Las Vegas, where he perfected how to beat the casino, to his tenure leading a financial institution, where he helped develop many of the most advanced investment products on Wall Street. Thorp’s gift is discovering rigged systems and turning them on their head, acting like a modern-day David versus Goliath. He has rubbed shoulders with Warren Buffett and foresaw the implosion of Bernie Madoff’s Ponzi scheme. In his new book, A Man for All Markets, Thorp walks readers through his incredible journey, and teaches how to apply his techniques to daily life. Professor Thorp sat down with MAXIM to discuss his book, his legacy, and where a man who has done it all goes next.
On developing his skills as an independent thinker: It goes all the way back to childhood. I was left on my own to teach myself, and explore, and do whatever it was I was interested in. The freedom to explore was an important thing, so I learned to think things through for myself. I also got an early mind-set from my father, which was to question things and not just take what people say for granted. A good example is Madoff. He had more than 13,000 investors; they all thought the other ones were checking to make sure that everything was okay, or they thought, “Gee, such an important guy, well known, highly thought of, couldn’t be anything wrong there.” They went along with it, year after year after year; they didn’t think for themselves. When I came across the Madoff problem, I happened to be in the habit of thinking for myself, and it became obvious almost immediately that it was a fraud.
Anyhow, it was this early mind-set of thinking for oneself. The other thing that was important was kind of a scientific, logical way of thinking about life and everything that I encountered.
Some people think logically about some areas of their life but not others. For me, it was a habit that was ingrained so early that I just applied it to everything. If I looked at one part of my life, and another part of it, I tried to look at it consistently, so things made sense across different areas. I didn’t have a whole set of instructions and beliefs instilled in me by other people that could be wrong. I had to sort of build the framework that I thought in from scratch, for myself in large part.
On the risk of beating a Vegas casino: I was naïve about casinos, and I knew nothing about them, basically. This was just from something I came across. The reason I actually came across card counting and blackjack was because I had gotten interested in beating roulette earlier, and I wanted to go to Nevada to look at roulette wheels. My objective was to look at them and see if they were beatable, as I thought they would be from my experiments on half-size roulette wheels.
That’s how I came across card counting at blackjack. Somebody told me about a good way to play that would let me play almost even. I wouldn’t have an edge, but I would maybe lose slowly. My first naïve experiment at losing slowly kind of woke me up to the game and its possibilities. That was just kind of a chance thing. I was already open to the possibility, because I thought you could beat gambling, specifically roulette. It wasn’t a great leap for me to say, “Oh, well maybe you can beat blackjack, too.” But I was naïve. I didn’t know what the world of casino gambling was like. I just assumed everybody was a good person until somebody showed me otherwise. So only slowly did it dawn on me, as I began to play out there, that there were going to be some serious problems.
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