“When you begin to think for yourself, the whole world changes and becomes much clearer.”
— Edward O. Thorp
Edward O. Thorp (@edwardothorp) is the author of the bestseller Beat the Dealer, which transformed the game of blackjack. His subsequent book, Beat the Market, coauthored with Sheen T. Kassouf, influenced securities markets around the globe. He is also the author of A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.
Edward was one of the world’s best blackjack players and investors, and his hedge funds were profitable every year for 29 years. He lives in Newport Beach, California.
Please enjoy!
Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Stitcher, Amazon Music, or on your favorite podcast platform. Watch the video on YouTube here.
Brought to you by Wealthfront automated investing, Athletic Greens all-in-one nutritional supplement, and Eight Sleep’s Pod Pro Cover sleeping solution for dynamic cooling and heating. More on all three below.
#596: Edward O. Thorp, A Man For All Markets — Beating Blackjack and Roulette, Beating the Stock Market, Spotting Bernie Madoff Early, and Knowing When Enough is Enough
This episode is brought to you by Wealthfront! Wealthfront pioneered the automated investing movement, sometimes referred to as ‘robo-advising,’ and they currently oversee $28 billion of assets for their clients. It takes about three minutes to sign up, and then Wealthfront will build you a globally diversified portfolio of ETFs based on your risk appetite and manage it for you at an incredibly low cost.
Smart investing should not feel like a rollercoaster ride. Let the professionals do the work for you. Go to Wealthfront.com/Tim and open a Wealthfront account today, and you’ll get your first $5,000 managed for free, for life. Wealthfront will automate your investments for the long term. Get started today at Wealthfront.com/Tim.
This episode is brought to you by Eight Sleep! Eight Sleep’s Pod Pro Cover is the easiest and fastest way to sleep at the perfect temperature. It pairs dynamic cooling and heating with biometric tracking to offer the most advanced (and user-friendly) solution on the market. Simply add the Pod Pro Cover to your current mattress and start sleeping as cool as 55°F or as hot as 110°F. It also splits your bed in half, so your partner can choose a totally different temperature.
And now, my dear listeners—that’s you—can get $250 off the Pod Pro Cover. Simply go to EightSleep.com/Tim or use code TIM at checkout.
This episode is brought to you by Athletic Greens. I get asked all the time, “If you could use only one supplement, what would it be?” My answer is usually AG1 by Athletic Greens, my all-in-one nutritional insurance. I recommended it in The 4-Hour Body in 2010 and did not get paid to do so. I do my best with nutrient-dense meals, of course, but AG further covers my bases with vitamins, minerals, and whole-food-sourced micronutrients that support gut health and the immune system.
Right now, Athletic Greens is offering you their Vitamin D Liquid Formula free with your first subscription purchase—a vital nutrient for a strong immune system and strong bones. Visit AthleticGreens.com/Tim to claim this special offer today and receive the free Vitamin D Liquid Formula (and five free travel packs) with your first subscription purchase! That’s up to a one-year supply of Vitamin D as added value when you try their delicious and comprehensive all-in-one daily greens product.
What was your favorite quote or lesson from this episode? Please let me know in the comments.
SCROLL BELOW FOR LINKS AND SHOW NOTES…
Want to hear another episode that touches on the world of investing? Listen to my conversation with Ray Dalio, in which we discussed how Ray thinks about investment decisions, the three books he would give to every graduating high school or college senior, how he might assess cryptocurrency, and much more.
#264: Ray Dalio, The Steve Jobs of Investing
SELECTED LINKS FROM THE EPISODE
- Connect with Edward O. Thorp:
- Beat the Dealer: A Winning Strategy for the Game of Twenty-One by Edward O. Thorp | Amazon
- Beat the Market: A Scientific Stock Market System Edward O. Thorp and Sheen T. Kassouf (PDF) | ResearchGate
- A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market by Edward O. Thorp | Amazon
- University of California
- How to Play Blackjack | Vegas How To
- Blackjack Basic Strategy Chart by Edward O. Thorp | Chasing the Frog
- Kelly Criterion | Investopedia
- A Brief Journey Inside the IBM 704 | Archival History of Computing at MIT
- National Academy of Sciences
- A Favorable Strategy for Twenty-One by Edward O. Thorp | ResearchGate
- American Mathematical Society
- The Stockpicker’s Burden, and Other Lessons | Barron’s
- How a Math Professor Led a Revolution in Las Vegas | RTD
- How to Play Roulette | Vegas How To
- 10 of the Best Compound Exercises for Muscle and Strength | Openfit
- Aerobics Program for Total Well-Being: Exercise, Diet, and Emotional Balance by Kenneth H. Cooper | Amazon
- Yes, Race Walking Is an Olympic Sport. Here’s How It Works. | Vox
- New Mexico State University
- Stock Warrants vs. Stock Options | Investopedia
- Black-Scholes Model | Investopedia
- Cboe Global Markets
- How Warren Buffett Made Berkshire Hathaway a Winner | Investopedia
- Equity | Investopedia
- Market Efficiency | Investopedia
- Risk | Investopedia
- Preventing the Spread of the Coronavirus | Harvard Health
- The 4% Rule | Investopedia
- Cryogenics | Wikipedia
- Meet the People Who Want to Live — And Keep Their Wealth — Forever | Policy Genius
- Global Management Consulting | McKinsey & Company
- Collar | Investopedia
- The Card Sharp Who Cottoned onto Madoff’s Fraud in 1991 | Forbes
- Madoff Investment Scandal | Wikipedia
- Bear Stearns | Wikipedia
- National Association of Securities Dealers (NASD) | Investopedia
- Why Can’t You Go Faster Than Light? | Fermilab
- Externality | Investopedia
- Svante Arrhenius, the Man Who Foresaw Climate Change | OpenMind
- Tragedy Of The Commons | Investopedia
- Elon Musk Thinks Every Child Should Learn About These 50 Cognitive Biases | Inc.
- Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger | Amazon
- Psychology of Human Misjudgement According to Charlie Munger | LinkedIn
- Fundamental Attribution Error | Ethics Unwrapped
- Thinking, Fast and Slow by Daniel Kahneman | Amazon
- Carbon Tax | Wikipedia
- Moral Foundations of Politics by Ian Shapiro | Coursera
- The Wolf at the Door: The Menace of Economic Insecurity and How to Fight It by Michael J. Graetz and Ian Shapiro | Amazon
- Who Lost Biden’s Agenda? Democrats Offer Competing Theories for Failure of ‘Build Back Better’ | NBC News
- Poll Finds 96 Percent Support Social Security | AARP
- The Changing World Order: Why Nations Succeed and Fail by Ray Dalio | Amazon
- Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy by Francis Fukuyama | Amazon
- The End of History and the Last Man by Francis Fukuyama | Amazon
- A Quantitative Investment Management Company | Renaissance Institutional
- The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman | Amazon
- Leading Global Market Maker | Citadel Securities
- Princeton Newport Partners | Wikipedia
- Do What You Love, The Money Will Follow: Discovering Your Right Livelihood by Marsha Sinetar | Amazon
- Incerto: Fooled by Randomness, The Black Swan, The Bed of Procrustes, Antifragile, Skin in the Game by Nassim Nicholas Taleb | Amazon
- Catch-22 by Joseph Heller | Amazon
- Kurt Vonnegut on the Secret of Happiness: An Homage to Joseph Heller’s Wisdom | The Marginalian
SHOW NOTES
- Edward fills us in on where he grew up, how he was educated, what made the application of mathematics to gambling such a compelling challenge, and why he rushed to publish his successful system after testing it in the real world. [04:51]
- What reference material did Edward use in his first trip to the blackjack table in Vegas, and why was Claude Shannon at MIT — a person known to be difficult to reach — willing to spare five minutes to meet with him around this time? [12:01]
- What method did Edward and Claude devise to beat roulette with the assistance of what MIT considers to be the first wearable computer? [15:11]
- Edward looks great for a man in his 60s — which is especially incredible when you consider he’s 89! Is it just a case of lucky genetics, or does he follow some kind of mortality-cheating health regimen? Has his approach to remaining in shape changed over the years? [17:13]
- How did finance and investing enter the picture for Edward? Where did this lead, and who did he meet along the way? [25:19]
- What was it about Warren Buffett that made Edward come away from their first meeting convinced he’d someday be the richest man in the world? [34:22]
- If Edward were teaching a seminar in investing to a modern student body (some of whom might not possess an aptitude for math), what frameworks would he impart to get them started? [38:55]
- What lessons learned from investing are transferable to other areas of life? [43:50]
- Even at 89, Edward considers himself a long-term thinker. How might those of us who struggle to think beyond the short-term be more like Edward? [45:59]
- How did Edward suss out that something was fishy about the way the Madoff brothers were doing business 17 years before everybody else finally caught on? [50:58]
- Exploring the mental models of externalities, the tragedy of the commons, and fundamental attribution errors. [59:15]
- What you should be reading and listening to if you want to enact positive change in the world right now — politically or evolutionarily. [1:08:29]
- What investors, aside from Warren Buffett, impress Edward — and why? [1:13:48]
- How has Edward known where to draw the line between growing a business and withdrawing before it consumed all else in his life? What catalyzed his decision to wind things down? [1:17:48]
- What does independence mean to Edward and how did he spend his time after winding down the investment side of things? [1:22:52]
- Is there anything Edward’s particularly curious about learning right now? [1:24:27]
- Pondering a conversation between Joseph Heller and Kurt Vonnegut and other parting thoughts. [1:26:37]
MORE EDWARD O. THORP QUOTES FROM THE INTERVIEW
“If you’re a long-term investor, you should just buy and hold equities. And the best place to have bought and hold equities has been the US for the last couple of hundred years.”
— Edward O. Thorp
“Do what you love and the money may follow. If it does, that’s fine. If it doesn’t, you’re still doing what you love.”
— Edward O. Thorp
“When the Chicago Board Options Exchange opened for business in April 1973, the only people on the floor were my traders. It was like having machine guns against bows and arrows.”
— Edward O. Thorp
“If you really are interested in investing, it’s worth educating yourself and trying to do it because you will learn a lot about investing. You might actually find a way to win, and you’ll learn about how the world works and a lot about life too. The things you learn from what seems like a narrow, specialized field, generalizes very widely to all kinds of things if you’re the kind of person who can take a lesson in one part of life and transport it to another part of life.”
— Edward O. Thorp
“There’s an old saying, ‘Give a person a fish and they eat for a day; teach a person to fish and they eat for a lifetime.’ And it’s a similar thing for thinking. If you give somebody advice about a problem, they might solve that one problem. If you teach them how to think about problems, they can solve problems for the rest of their life.”
— Edward O. Thorp
PEOPLE MENTIONED
DISCLAIMER FROM TIM FERRISS: I am not an investment adviser. There are risks involved in placing any investment in securities or in Bitcoin or in cryptocurrencies or in anything. None of the information presented herein is intended to form the basis of any offer or recommendation or have any regard to the investment objectives, financial situation, or needs of any specific person, and that includes you, my dear listener or reader. Everything you’re going to hear in this interview is for informational entertainment purposes only.
Related and Recommended
The Tim Ferriss Show is one of the most popular podcasts in the world with more than 700 million downloads. It has been selected for “Best of Apple Podcasts” three times, it is often the #1 interview podcast across all of Apple Podcasts, and it’s been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.