Principles to live by
It’s important in life to find something you can live by. Some principles, desire, a path to follow. Often you look to others to find that. I’ve found several whose paths I have walked, but hte first was Edward O Thorp.
A long time ago, while still at school, I visited at a friends house. There I stumbled across a Commodore pet. Learning to do some basic stuff on that, which led me to scrimp, save & beg to get a ZX81 and then a ZX Spectrum.
I spent a lot of time writing games before turning my attention to messing around with football stats. I hadn’t discovered gambling at that point, I was just interested in collecting some data and messing around using my Spectrum to improve my Dad’s entry on the football pools. I wanted to know what created a draw and how to predict which matches were more likely to end in draws. I had no idea where that would lead me.
I figured out that there happened to be a number of scenario’s that lead to higher or lower outcomes. I could put this into a few lines of code, but I felt I was ‘cheating’ by using code to produce the outcome.
So I went back to the library and it was there I discovered Ed Thorp. I was reading up on statistics and probability and stumbled across the book ‘Beat the dealer’. I was enthralled by the book and its history.
I became a bit obsessed with learning everything about the author and I even learnt to card count long before setting foot in a Casino. I realised by then that he had moved onto Wall Street, but I thought it was just stunning to overturn convention like that and wanted to fully understand it. That fired a thirst for knowledge of statistics and probability with the vain hope that one day maybe I could actually discover something like that and making a living from it.
I had no idea just how far that would lead me and some of the amazing things that would happen. For that, I have to thank Ed Thorp and his work on blackjack!
Over time I’ve visited the same Casinos that he did Reno and Las Vegas, just so I could feel that same feeling. I probably sat at the same roulette table where the worlds first wearable computer was used! A sort of pilgrimage I suppose? I also called into a lecture in Newport beach area.
From that start, I learnt that Thorp had ended up in the stock market and had also published work on effective hedge fund techniques. I managed to get the result I wanted on the football pools, but my exploits with bookmakers hadn’t been so fruitful. So I started to switch my attention to financials and thought that would be what I would eventually do for a living.
I started to think of financials like the draw on football. If I knew what price it should be, then it would simply be a case of buying it if it was mispriced and hedging my risk a bit by spreading out those bets. That eventually led me to longer-term investing, as that’s essentially what you are doing with that style.
Thorp, a professor of mathematics, was using his hedge fund to go for small correlations for reliable financial gain. So I took a lesson from this when I return to the gambling markets and betting exchanges. My first act on the Betfair betting exchange was doing a variation of a synthetic arbitrage on sports markets.
Other things you learn
By enveloping myself in the mind of Thorp it helped me understand a number of things. I’ve no hope at all competing intellectually with somebody like Thorp. But getting an understanding of his work and forcing myself to understand it, even some of the arcane stuff, has no doubt helped me a lot.
But you also pick up on interests, how he lives his life and that leads into other areas and people. You also end up meeting people with similar interests. Often the collective value of these relationships is immense. Everybody has skills in one area or another and if you join up together you can often far exceed what you imagine.
Therefore, I value insight into Thorp’s philosophy as well as his skills as a mathematician. If you want to get an understand of this influential man, have a read of his book ‘The man for all markets’ which will give you a deeper insight into what has been a remarkable life. Buy the book, listen to this insightful interview and watch the video.
That should give you some background to what inspired me.
Hopefully, all these things, will inspire you to realise that impossible is just a word.