Book Review: A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, by Edward O. Thorp.

Book Review: A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market, by Edward O. Thorp.

  • David G. Schwartz
February 20, 2017 6:24 PM
  • David G. Schwartz

Even if you don’t know the name Ed Thorp, you know his work. Thorp, more than anyone else, is responsible for blackjack card counting, the bane of many a manager of table games.

During a 1958 Christmas vacation trip to Las Vegas, Thorp put into action a blackjack strategy devised by four other mathematicians. After playing, Thorp realized that the strategy did not account for the fact that blackjack was a game of dependent outcomes—every card played changes the gaming conditions.

Thorp, a UCLA mathematics Ph.D., then programmed an IBM 704 mainframe computer at MIT (shared with 30 other universities) to determine the best strategy for blackjack, manually punching a series of cards which, when fed to the computer, instructed it to perform calculations. After weeks of work, he found that the house had only a 0.21% edge if a player played perfectly with the strategies he had used that Christmas vacation.

51S51H9sAzL._SX326_BO1,204,203,200_Then came the good stuff. Further IBM calculations proved that Thorp was right: taking cards out of play did substantially alter the odds – to the extent that the player, not the house, could have the edge. Today, we take this for granted, but in 1960s, this was terra incognito. After presenting his theory—and the numbers that backed it up—Thorp received a bevy of media attention, including a Washington Post profile by a young Tom Wolfe. Casino executives insisted that they sent cabs to pick up “system players” at the airport (Thorp notes that he is still waiting for one of those cabs). His 1962 book-length explanation of card counting, Beat the Dealer, went on to become a bestseller that permanently changed how casinos run. It brought about legions of advantage players and forced rule changes in blackjack. It also, not so coincidentally, vaulted blackjack over craps in popularity. That’s a bigger impact than most members of the Gaming Hall of Fame can boast.

Thorp recounts his blackjack adventures with humor and perspective. For managers, this will be interesting reading, since casino executives do not come off particularly well.

Inventing card counting is probably the least interesting of Thorp’s major achievements. His second was a collaboration with the legendary mathematician Claude Shannon, the father of information theory, to create the world’s first wearable computer. (A single smartphone, today, has far more computing power than that IBM mainframe.)

A wearable computer was a solution to another gambling problem Thorp considered—beating the game of roulette. With Shannon, Thorp designed and built a cigarette-pack-sized computer that could help predict roughly where a roulette ball would fall. The computer, and the system, worked, although Thorp chose to publish his results rather than leave academia and concentrate fulltime on winning money from casinos.

When he published his roulette paper, Thorp was already beginning work on this third major breakthrough, that the markets could be beaten. Thorp calls Wall Street “the greatest gambling arena on earth.” Thorp was fighting against the prevailing academic orthodoxy that markets functioned efficiently and could not, over time, be beaten (at least without cheating by insider trading). Most academics and traders were as dogmatic and closed-minded as casino executives in this regard: the house always wins, end of story. But Thorp, one of the first “quants”, thought otherwise. He was able to identify and exploit inefficiencies in market pricing of securities and bonds, developing a strategy that would return a nearly-guaranteed gain regardless of how the market moved.

Thorp’s discoveries enabled him, with considerable theoretical and computational elbow grease, to make himself and his partners millionaires. Over the next fifty years, Thorp gained a bank account—and battle scars—that vindicated his belief that the markets could be beaten. Thorp’s market adventures will likely interest casino readers more than his gambling ones, which they have probably heard in one form or another over the years. Along the way he met figures like Warren Buffet and predicted trouble from Long Term Capital Management and from Bernie Madoff.

In this section of the book, Thorp offers investing and wealth management advice that many casino readers may find personally useful. Even simple breakdown of who is considered rich (and super rich) is helpful. Casino workers and executives deal with a lot of money (and many wealthy patrons) every day. Thorp’s battle-tested insights are a welcome hedge (pun intended) against the distorted picture of personal wealth that many people have. Thorp will show you how to calculate, very easily, just where you fit along the axis of money. In addition, his asset management tips may help you keep more of what you’ve earned.

Thorp, in the end, is one of the people who made the modern casino what it is. That alone is reason to read his story, but his market adventures and insights into risk and investment give his memoir a value that far transcends the merely historical. Thorp comes across as brilliant but utterly approachable. If you work in tables you might wish he’d never thought about beating the game of blackjack or popularized his findings, but his is one of the most intelligent and incisive minds ever to contemplate anything casino-related. The industry, on the whole, is better off for it.

This is an excellent autobiography and an outstanding book. The expected value of learning more about Thorp’s remarkable life, then, is overwhelmingly positive. Reading Thorp is, as always, a true advantage play.

A Man for All Markets: 51S51H9sAzL._SX326_BO1,204,203,200_: (January 2017, 416 pages) is published by Random House. ISBN 978-1400067961