In many ways, Thorp’s biography reminds me of Surely You're Joking, Mr Feynman – it is the autobiography of a curious and extremely intelligent person who found success in the many areas he looked at. Thorp’s initial claim to fame was devising a system for gaining edge in Blackjack by counting cards (subsequently authoring Beat the Dealer), and even more impressively, actually using this system to make money.
He later turned his prodigious intellect towards the markets, deriving the Black-Scholes formula for pricing warrants several years before Black and Scholes did (and making a boatload of money in the process), and later pioneering the “statistical arbitrage” that would mint a generation of quant billionaires.
Thorp’s greatest strength was his unique ability to apply advanced mathematics to the real world, as a practitioner. There are probably better financial mathematicians out there (perhaps even people like Merton and Scholes), but few had the meta-rationality to understand when to trade-off rigour for practicality, nor the courage to go out there and do it!
As an autobiography, it is a little bit unfocused and I think a general reader might feel that it goes into too much detail on some of the technical aspects (though I enjoyed this!). I’ll leave it to Thorp to summarise his own philosophy:
First, rather than subscribing to widely accepted views—such as you can’t beat the casinos—I checked for myself. Second, since I tested theories by inventing new experiments, I formed the habit of taking the result of pure thought—such as a formula for valuing warrants—and using it profitably. Third, when I set a worthwhile goal for myself, I made a realistic plan and persisted until I succeeded. Fourth, I strove to be consistently rational, not just in a specialized area of science, but in dealing with all aspects of the world. I also learned the value of withholding judgement until I could make a decision based on evidence.
When you reincarnate as practitioner, you want the mountain to give birth to the simplest possible strategy, and one that has the smallest number of side effects, the minimum possible hidden complications.
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I viewed everyone I met as my equal, due the same respect I wanted, unless their behavior showed me otherwise.
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Joseph Heller and Kurt Vonnegut were at a party given by a billionaire when Vonnegut asked Heller how it felt to know that their host might have made more money in one day than Heller’s Catch-22 since it was written. Heller said he had something the rich man could never have. When a puzzled Vonnegut asked what that could be, Heller answered, “The knowledge that I’ve got enough.”
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Lesson: It doesn’t pay to push the other party to their absolute limit. A small extra gain is generally not worth the substantial risk the deal will break up.
Again, meta-rationality.
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Let me be clear. I don’t object to some people being richer, even much richer, than others. I object to gain of wealth through political connections rather than earning it by merit. If a basketball franchise pays my neighbor Kobe Bryant $20 million a year because it takes that much to get him, fine. But if hedge fund managers bribe politicians to put a clause in the laws cutting the tax rate on much of their income to a fraction of the percentage the average worker pays, I object.
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Whatever you do, enjoy your life and the people who share it with you, and leave something good of yourself for the generations to follow.
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