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05 April 2018

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George Boardman

I'm always reminded of the really "smart" guys who think they've got the markets figured out, like the big-brains behind Long-Term Capital Management. Two Nobel laureates in economics were among the big-brains.

After some initial success, Long-Term managed to lose $4.6 billion in just four months! As they like to say on Wall Street, this time it's different.

George Rebane

GeorgeB 1119am - Indeed, and LTCM threw all caution to the wind, following neither Kelly nor RK (which didn't exist at the time). William Poundstone's 'Fortune's Formula' is a very entertaining look at the impact that people like Claude Shannon, John von Neumann, and John Kelly had on both casino gambling and securities markets. I recommend it to you.
https://smile.amazon.com/Fortunes-Formula-Scientific-Betting-Casinos/dp/0809046377/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=1522959128&sr=8-2

George Boardman

I read "Fortune's Formula" a couple of years ago, which brings me to Edward O. Thorp. A mathematician, Thorp is best known for figuring out how to win at blackjack, as explained in his book "Beat the Dealer."

Thorp is a big fan of the Kelly criterion and worked with Claude Shannon to develop the first wearable computer. He also figured out how to exploit pricing anomalies in securities, and he put his theories to work at Princeton/Newport Partners, where he got rich.

A couple of years ago, Thorp put up $1 million to endow a math chair at UC--Irvine. It almost makes me wish I had paid attention in my math classes.

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