Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

The book covers subject of scientific betting system developed by great minds like Claude Shannon and Ed Thorp. They used the system to beat casinos to start with and then used same principles to earn handsome returns in stock markets. The author has developed a dry subject into an interesting read with topics covering stories of mafias, casinos and activism of the likes of Rudy Giuliani, LTCM fiasco etc. Every story eventually leads to betting system and betting syndicates. In the process the author has explained the Kelly criterion in great details with ample examples of its practical use by successful investors and portfolio managers. We are also introduced to the genius of Claude Shannon, the father of Information Theory and Digital Revolution.The book is a must read for every serious investor. The book is highly recommended by no less than Charlie Munger.

Must read for money managers

This book taught me a great deal about risk and return. I learned about how some smart guys make lots of money while other super smart guys lose it all. Verily, this book truly contains the Fortune's Formula (Kelly Method).

This book unfolds the story of gambling right from Horse race betting to Stock Market. Its not for people who are looking for strategies to become rich.Along with the Gambling it also includes the history of Crime in America, the Scientific development in 20th Century and Corporate Structure. Interesting read.

The flow is missing. You need a lot of background about gambling and betting and US jury system to have some semblance of the topic.You would be hard pressed to understand the Kelly's Formula if that's the reason you ventured to read this book. You would find a lot of references to hollywood, mafia, and some MIT professors like Claude Shannon and Paul Samuelson. Also talks about Ed Thorp, Lousie Bachlelier et el. However I am not interested in the love life of Claude Shannon or some gangster running a betting racket rather his particular secret sauce of beating the market which I was hard pressed to find.I wished the author stuck to one character and followed him through instead of getting embroiled in all sort of disjointed characters whom you would not remember the moment you kept the book down.I find the book to be drab and just plain vanilla. It could have been a classic if structured well but I would suggest you skip this one and read about Kellys Criteria on the internetAt the end of the day I was hard pressed to understand the Kelly criteria or its application.

Unfortunately, this book is too formulaic. Its typical who has done what book with a lot of history and trivia. I was expecting how and why Kelly Crriterion and information theory works.

Chegou antes do prazo! Amei!

Una lectura ampliamante recomendable para aquellas personas que les gusta el mercado de valores, las apuestas e historias de personas brillantes que incursionaron en estos temas. El libro va entrelazando personajes de manera inteligente y, al menos en mi caso, cada vez quería continuar leyendo sin parar.

“Fortune’s Formula” is the Kelly Criterion from J.L. Kelly Jr. who was a mathematician at Bell Labs in the 1950s. Essentially the formula gives the optimal size of bets in order to win as much as possible over time while reducing the risk of ruin. The thing for the reader to realize is that the Kelly Criterion has no utility unless the bettor or investor has an advantage. That needs to be repeated: on an even bet, such as tossing a coin the Kelly strategy is to bet nothing, zero, zilch.Before I get into the review of this excellent and very interesting book I want to relate an experience I had some years ago, sometime in the early 1980s. I thought I had come up with a way to bet on baseball games in Las Vegas with an advantage over the line (that is over the bookie’s vigorish). For a season I studied results compared to the betting line. I was so sure I had a clear advantage that the next problem became how to run up my money efficiently without taking the chance of going broke. In other words, non-mathematician that I am, I was seeking something like Kelly’s Criterion. And what I came up with turned out to be very similar to his formula, although I don’t recall exactly. Unfortunately when I got to Las Vegas it didn’t take me long to realize I had no advantage and therefore didn’t make any bets.Okay, back to the book. An excellent way to get an idea of the scope of this work is to look at the parts. Part One is titled “Entropy,” Part Two is “Blackjack,” Part Three is “Arbitrage,” Part Four is “St Petersburg Wager,” Part Five is “RICO” (Racketeer-Influenced and Corrupt Organization), Part Six is “Blowing Up,” and Part Seven is “Signal and Noise.” Along the way you will meet gangsters, the Italian and Jewish mafias, a young and very aggressive Rudolph Giuliani, the Hong Kong horseracing scene in which some people made millions (it was the only legal betting allowed by law in Hong Kong) and some keen ideas on how to make money gambling or investing. But what really makes this book so interesting is the light that Poundstone shines on two giants in the science of information, gambling and investing, namely Claude Shannon and Edward O. Thorp.Shannon is known as the father of information theory and in many respects as the founder of the digital world we live in today. He was also an astute investor as Poundstone reveals. I don’t think it would be an exaggeration to say that Shannon was a genius.Thorp first became known to the public with his book “Beat the Dealer” (first edition, 1962) which presented a winning strategy for blackjack. I read that book when I was still in my twenties with great enthusiasm but never employed the strategies since my memory is rather ordinary. Instead I played poker, but that, as they say, is another story. What is astonishing about Thorp that I learned here is that his hedge fund, Princeton-Newport Partners was one of the most successful ever. A dollar invested in the fund in 1969 would grow to $14.78 in1988. Yes, wow.Poundstone explains in detail how all this happened and it is a fascinating story. I’m amazed at how much work he put into this book and all the information he acquired. He is an outstanding and prolific journalist as well as an MIT grad, although I must say that the organization of the book was a bit freestyle. Additionally there are some errors and some unclear passages. Consider this on page 39: Ed Thorp (as a boy) “would buy a pack of Kool-Aid for five cents and sell the mixed beverage to hot WPA workers for one cent a glass. Ed could get six glasses from a pack for a penny profit.”What is not right here is that you needed to add sugar to the Kool Aid which would be an additional expense.On page 68, Poundstone writes: “Kelly described his idea this way: A ‘gambler with a private wire’ gets advanced word of the outcome of baseball games or horse races…”It’s unclear what year this was but regardless of the year you can’t get “advanced word of the outcome” of a baseball game.One more example: Poundstone writes: “In 1993 Ed Thorp” learned from a computer science person who “had discovered” that pro basketball teams “that had to travel to the city in which a game was played tended to do poorer than a team that didn’t have to travel. A team that had to play a number of games in a row did poorer on average than a team given more rest between games. These variables were not properly weighted in bookies’ odds.” (p. 322)This is not true even in 1993. The two factors mentioned are just exactly the sorts of factors that are built into the bookies’ betting line, as any serious sports bettor knows.Part of the pleasure in reading this book is in the way that Poundstone exposes stupidity in what would seem to be high places. Here’s a quote from Mark Rubenstein who is a professor of finance at UC Berkeley. He’s talking about the Black Monday stock market crash of October 19, 1987:“So improbable is such an event that it would not be anticipated to occur even if the stock market were to last for 20 billion years, the upper end of the currently estimated duration of the universe. Indeed, such an event should not occur even if the stock market were to enjoy a rebirth for 20 billion years in each of 20 billion big bangs.”Gee, I hope he was just funning us.(BTW, my baseball betting delusion came about because I used the line in the Los Angeles Herald Examiner which was a stale line that didn’t account for recency. My approach was to weight recent results more heavily that older results. When I got to Vegas and saw the Vegas line it was clear that their betting lines did indeed consider recency.) --Dennis Littrell, author of “The World Is Not as We Think It Is”

This is a really interested book. I thought is started out a little slow and was hard to get into, but it picks up. It's super interesting how mathematical everything is. The book is good if you are into casinos and gambling, stock markets and wall street, or simply trying to money, as it blurs the line between wagering and investing which almost comes down to being the same thing. It is a good read and provides a fascinating look into how a couple guys developed a formula for making money.

Entertaining from the start till the end. Another great book from Poundstone shedding lights on fabulous characters of the 20th in various fields ranging from the fringe of the society to the scientific world.As usual the reader will gain great insight on the many topics covered.