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A pugnacious take on markets
Book review: A Man For All Markets: Beating The Odds, From Las Vegas To Wall StreetA Man For All Markets is an entertaining read for those who want to beat the markets, says Matthew Partridge.
Ask the average person what they think about gambling and they'll probably repeat the popular saying that "the house always wins". In the same vein, many academics still believe that it is impossible to beat the market consistently the efficient market hypothesis (EMH). Yet the career of Edward Thorp shows that neither statement is necessarily true. In his recent memoir, Thorp recounts how he started a war between punters and casinos that rages to this day before moving on to finance, where he spearheaded the quantitative investing revolution.
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While doing postdoctoral research in mathematics at MIT, Thorp came up with a way to reverse the casino's edge in blackjack. He spotted that the probability of drawing various cards was dependent on those cards that had previously been dealt and thus players who "counted cards" could tip the odds in their favour.
Casinos were originally sceptical that his system would work in practice but when he began winning, they rapidly became hostile, drugging his drinks and worse, as Thorp's success paved the way for legions of gamblers to follow in his wake. After being blacklisted from Las Vegas, Thorp turned to the stockmarket, beginning a second career as a hedge-fund manager that allowed him to amass an estimated fortune of $800m.
Thorp's pugnacious style makes A Man For All Markets a lively read. He is scathing about the morality of many of those whom he crossed paths with, whether in Las Vegas, Wall Street, or academia. While you may not agree with everything that he says, he makes his views extremely clear on a wide range of issues, from indexing to financial regulation.
But the book also has plenty of educational value. For example, ordinary investors can also learn a lot from his observations about how human nature pushes people into bad investment decisions. At the same time, those who dream of following in Thorp's footsteps will appreciate the amount of detail that he provides on the various strategies that he and his team employed.
What the press said
A Man For All Markets is "the kind of thing any would-be investor, to say nothing of casino cowboy, ought to read", says Kirkus Reviews. "Thorp's in-the-trenches account of gaming the system(s) is a pleasure and instructive, too." Thorp's experiences teach us "important lessons about the functioning of markets and the logic of investment", says Burton Malkiel, a leading proponent of the EMH, in The Wall Street Journal.
Just as "casinos changed their rules when the card counters invaded", hedge funds "lose their edge as opportunities for arbitrage are exploited with more money and returns diminish". "For anyone who's even remotely interested in finance or investing I can't recommend Thorp's book enough," concludes John Maxfield on Motley Fool. "It's a riveting read and one you won't soon forget."
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