I recently finished reading the book A Man For All Markets by Ed Thorp. I have to say that I think this could be one of the best trading books ever written!
Why? Simply because Ed Thorp is a true trading legend and in this book he details how he went about beating not just the financial markets, but casinos as well.
A Man For All Markets By Ed Thorp – Review
To give you a quick rundown of the book, it starts off with some detail about Ed’s childhood and upbringing. As a child of the Great Depression, Ed wasn’t born into riches but soon discovered he had a special talent for numbers and for deep thinking.
Where others would take things at face value, Ed learnt from an early age to question everything around him. It is this skill that helped him achieve so many incredible things in his career – from the mathematics departments of academia to the blackjack tables of Las Vegas to the trading floors of Wall Street.
As detailed in the book, Ed Thorp has been many things including:
- A highly respected mathematics professor
- A pioneer in modern probability theory and options
- The father of card counting (in which Thorp invented a way to beat the casinos at blackjack)
- The father of the wearable computer (which Thorp used to beat the casinos at roulette)
- A hedge fund pioneer
- Best-selling author
Modern Day Genius
A Man For All Markets reveals how Thorp rejected the popular belief that casinos could not be beaten.
Combined with smart money management rules, Thorp invented a method of card counting that he used to win at the blackjack tables, at the same time putting his life in danger during a time when casinos were run by mob bosses.
He even published his findings in a bestselling book called Beat The Dealer which professional blackjack players still look up to today.
Later, Thorp turned his attention to roulette tables, where he designed the first wearable computer made up of thin wires that ran down to his shoes. Using the concealed device, Thorp was able to estimate the speed of the roulette ball and more easily predict where the ball would end up. This gave him a huge advantage in the betting.
After success in the casinos and in academia Thorp needed a new challenge and he found it in financial markets. His first forays in the markets were less than successful but Thorp persevered by finding new and innovative ways to beat the market.
In 1969, he founded Princeton Newport Partners, arguably the first hedge fund of its kind, and so began a long period of outperformance against the market where Thorp was able to locate low risk arbitrage and hedging opportunities.
Before it was shut down in 1988, PNP had produced annualised returns of 15.1% (including only three losing months) against 10% for the S&P 500 and with significantly less risk.
In Pursuit Of An Edge
One of the things I like most about this book is Thorp’s relentless pursuit of an ‘edge’ and the belief that a mathematical edge is imperative in order to succeed.
Without an edge, you simply cannot profit. This book hammers it home and that is why it is such a good read for traders and investors.
Thorp also continually refers to the mental models that have helped him on numerous occasions whenever confronted with a complicated problem. Models such as Occam’s razor (p. 153), feedback loops (p. 202) and margin of safety (p.162).
It’s Thorp’s broad, lateral way of thinking and his relentless pursuit of an edge that makes him such a great gambler and trader.
What Makes a Man For All Markets So Good?
Thorp’s fund, Princeton Newport Partners, was shut down in 1988 after it became embroiled in a scandal involving the junk bond schemes at Drexel Burnham Lambert. Though Thorp was cleared of any wrongdoing, events during that period obviously took their toll and caused the fund to close.
If it wasn’t for those events, it’s plausible that PNP would still be around today. If so, it would likely be one of the biggest hedge funds in the world and Ed Thorp one of the world’s richest men. As such, his fame and wealth would probably be on the same level as investors like Warren Buffett and Jim Simons.
(Not that he would want it necessarily. Thorp comes across as a humble type of guy who is uninterested in fame or wealth).
If Buffett or Simons wrote a book revealing their secrets it would surely be an instant classic, given their notoriety.
But Buffett’s books are mostly written from the outside looking in, by observers or those with close ties to Buffett. And Simons is notoriously secretive about the methods used at his fund Renaissance Capital.
And that is why the book A Man For All Markets is so good.
Ed Thorp is a true trading legend who has conquered the toughest of battlefields, Las Vegas and Wall Street. In A Man For All Markets he shares his story. And what a story it is.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information or entertainment purposes only. It is not a recommendation or personalised investment advice. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance, historical or simulated results are not a reliable indicator of future returns and may not account for real world settings. Financial trading is full of risk and margin trading can lead to financial losses totalling more than what is in your investment account. We take care to present accurate analysis but mistakes in backtesting and presenting of analysis regularly occur. Please read the Full disclaimer.
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