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A Man for All Markets Book Review

Posted: Wed Jan 30, 2019 1:55 pm
by Smashter
Dragline recommended "A Man for All Markets" by Edward O. Thorp a long time ago, and I finally got around to reading it.

It's the life story of a math genius who invented black jack card counting and then went on to make a gazillion dollars running a hedge fund.

Here are my thoughts:

His early and mid life (first 2/3 of the book) is fascinating. He grew up poor during the Great Depression but managed to use his incredible intellect to master high level science at a young age. He was almost entirely self taught and amused himself by doing complex experiments in his garage, which included launching homemade rockets and building radios. All the while he was getting up at 4 AM to do a paper route so that he could save money for college. He barely ever saw his parents, as they worked non-stop.

He ended up getting a scholarship to Berkeley at age 16 because of a state wide physics test taken by thousands of California high schoolers. He'd only heard about the existence of the test a month prior to taking it, and he hadn't studied much physics leading up to it. Yet, he got the highest score. He believes his personal experiments and tinkering gave him a deeper understanding of physics than the other students who were only book trained.

The last 1/3 of the book deals with his experience investing and running a hedge fund. He goes way deep into how one can go about executing an investment strategy. He uses examples from his own life and shows you the math he was using to make his decisions. He goes deep.

It probably says a lot about me that I was riveted reading about how his mother stole the money he had saved to pay for college yet bored to tears reading about the minutia of why he decided to buy Palm Pilot's parent company pre-IPO.

My eyes glazed over reading about how he would identify arbitrage opportunities in the stock market, but I bet some folks here would love it. The last 1/3 of the book would make good reading for those who read ERE and then thought, "I wish I could read 100+ more pages about investing written by someone with a remarkably similar mind to Jacob that was full of examples proving that the efficient market hypothesis is a bunch of BS."

But here's an interesting thing to note -- Despite the absolute beatdown Thorp lays on the efficient market hypothesis, he still recommends index investing for the vast majority of people. And if I am remembering correctly, he recommends using the P/E ratio of stocks as a whole as a rule of thumb for determining good times to buy.

I think it was Tyler9000 who said a while back something along the lines of, "Jacob can model the inside of neutron stars, so it makes sense he'd be a good investor. I don't have the raw talent or the desire to get to that same level, so I index and diversify." That's the same feeling I got finishing the book. This guy Thorp is so smart that you can't even be jealous, you can just be amazed.

That said, I found it reassuring that after the author spent about 10 pages talking about how well his hedge fund performed, it only ended up beating out the Small Cap stock index by about 1% over the same 15-ish year time frame. (His fund was much less volatile, though. It never even had a single down month!)

All in all it's a fun read. My main reason for posting was because I think a lot of people would enjoy reading the extensive thoughts of an investing savant who uses so much math and so many examples. If you love math and investing, this is the book for you.

Re: A Man for All Markets Book Review

Posted: Wed Jan 30, 2019 4:28 pm
by Mister Imperceptible
I was interested in the Kelly Criterion and thought about picking up a copy of Thorp’s “Beat The Dealer.” Thanks for the review Smashter.

Re: A Man for All Markets Book Review

Posted: Wed Jan 30, 2019 4:48 pm
by jacob
Do NOT blindly use the Kelly criterion! It is super-sensitive to the tails of the probability distribution and since that is where many of those bets are actually made ...

Re: A Man for All Markets Book Review

Posted: Wed Jan 30, 2019 6:23 pm
by Mister Imperceptible
Hehe, wouldn’t think of doing it blindly! ... on2007.pdf