My father, fortunate to be employed in the midst of the Great Depression, worked longer hours to support us. My mother was fully occupied by the new baby and was even more focused on him when, at six months of age, he caught pneumonia and nearly died.<\/p>\n
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He could be considered a Warren Buffett of quant traders. Thorp is a model of someone who theorizes how markets and games operate, tests his ideas through evidence and hard work, and then puts his \u201cskin in the game\u201d by playing with real cash. Thorp applied his lessons from casino games to financial markets. There are two ingredients for returns that beat the market. Lacking any background related to investing, Mr. Thorp spent the summer of 1964 educating himself, as he had on many other subjects earlier in life.<\/p>\n
Over the next couple of years I read books including Gulliver\u2019s Travels, Treasure Island, and Stanley and Livingstone in Africa. When, after an eight-month arduous and dangerous search, Stanley found his quarry, the only European known to be in Central Africa, I thrilled to his incredible understatement, \u201cDr. Livingstone, I presume,\u201d and I discussed the splendor of the Victoria Falls on the Zambezi River with my father, who assured me that they far surpassed trader<\/a> our own Niagara Falls. After teaching me counting, my father\u2019s next project for me was reading. I was puzzled and disoriented for a couple of days; then I saw that the groups of letters stood for the words we spoke. In the next few weeks I went through all of our simple beginner books and developed a small vocabulary. I saw printed words everywhere and realized that if I could figure out how to pronounce them I might recognize them and know what they meant.<\/p>\n The story takes a very interesting turn when Mr. Thorp is invited to meet Warren Buffett in 1969. Mr. Thorp had started to manage accounts for clients, one of whom was the dean of the graduate school at U.C. Mr. Gerard had been a limited partner in the famous Buffett Partnership which was in the process of winding down at the time. Investors in the Buffett Partnership would be receiving cash plus the option to receive shares in Diversified A Man for All Markets<\/a> Retailing and Berkshire Hathaway. In retrospect, we can say that people who took cash rather than shares were crazy but virtually no one at the time thought that Berkshire would become Mr. Buffett\u2019s investment vehicle for the next half century. In the idealistic view of economics, the stock market is a venue for providers of capital to invest in promising businesses that have the ability to generate attractive returns on capital.<\/p>\n He included Graham and Dodd\u2019sSecurity Analysisin his reading but also went further into scores of other books including the study of technical analysis. Early forays into investing in the silver market produced unsatisfactory results but Mr. Thorp\u2019s self education continued, eventually reaching the subject of common stock warrants. The fact that Mr. Thorp dedicates this much space in his memoir to personal finance indicates that he believes lack of education in this area is a serious impediment to the well being of the public.<\/p>\n Of course, there is an element of truth in this sentiment since capital is indeed provided to business via the stock market. However, the volume of trading in the stock market makes it clear that the majority of activity has little to do with providing capital to business or allocating capital to its best and highest use. Instead, in the short run, the stock market more closely resembles a casino with players who are interested in making quick gains. Ed dedicates quite a few Foreign exchange market<\/a> paragraphs to cement why the marketisn\u2019tefficient. First, he describes how a young college student leaked the fake news that Emulex\u2019 president was resigning and the SEC was looking into its books caused a 56% drop in a day until NASDAQ halted trading. It was later announced that it indeed was a prank, and all was swell. \u201cHow does the collapse of 60 percent in fifteen minutes in response to false information represent the rational incorporation of information into the price?<\/p>\n<\/p>\n
The Mathematics Of Money Management<\/h2>\n
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