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Friday, August 16, 2019

A Man for All Markets

A Man for All Markets is Ed Thorp's autobiography. It's a great book about how Thorp went from being a mathematician to being the first person to systematize and develop a system for beating blackjack, and then created the modern hedge fund. It's filled with great anecdotes:
We had been told that slide rules would be allowed for the first time this year but that they weren’t necessary. As an afterthought I brought along a ten-cent toy slide rule—all I felt I could afford—thinking I could always do a quick rough check of my calculations if I had any extra time. As I worked through the test I knew every answer. But then the last section of the test was distributed. This part of the exam required many more calculations than I could do by hand in the time allowed. My cheap tiny slide rule was worthless. Out came the full-sized well-machined slide rules all around me. Surprise! Slide rules were not merely optional—they were necessary for anyone who wanted to win. There was no credit given for showing the correct method, only credit for a numerical answer, to a specified level of “slide rule accuracy.” I was sickened by the realization I would likely not place high enough to get the scholarship I needed and unhappy with myself for not preparing by purchasing a hard-to-afford top-of-the-line slide rule. It seemed so unfair to convert a test about chemistry into one about slide rule arithmetic. Be that as it may, I set to calculating by hand as quickly as I could. In the end, I was only able to complete 873 of the entire exam’s 1,000 points’ worth of questions, so this was the most I could possibly score. I knew the top winner typically got 925 to 935, so I had no chance at first place. When my father picked me up I was forcing myself not to cry and could barely talk. In class Mr. Stump could see that I was chastened and obviously had done badly. We didn’t talk about it. I wrote the episode off to my own naïveté. But I did go out and buy the best slide rule I could afford. A couple of weeks after the test, Mr. Stump called me aside to tell me the results. My score was 869 points out of the 873 points I had answered. First place was far ahead at about 930, but second and third place were just a few points ahead of my fourth-place finish. With a good slide rule I could have been first. (Kindle Loc 716)
 And once again, Thorp emphasizes how important public universities like UC Berkeley is to the poor and under-privileged:
The scoring pattern of the chemistry exam was repeated, only this time I was first with 931 points. The second-place winner was fifty or sixty points behind. Surpassing the smug and privileged, I had first pick of the scholarships that were offered, wavering between Caltech and UC–Berkeley. Caltech, my first choice, offered full tuition, but I did not have an extra $2,000 per year for the dormitories and expenses. Pasadena was expensive and I knew of no place nearby within my budget. I simply couldn’t afford Caltech. My UC–Berkeley scholarship, the largest they then gave, was for $300 a year. Tuition, which was $70 a year, was covered separately for me by a scholarship for children of World War I veterans. Berkeley also had low-cost room and board just off campus. Cheaper yet was the Student Cooperative Housing Association, with room and board for $35 per month and four hours of work a week. When I picked Berkeley, I consoled myself with the hope that at least there would be plenty of girls and my social life might bloom. (Kindle Loc 831)
My kindle highlights page from the book is chock full of great stories:
 Most people I’ve met haven’t thought through the comparative values to them of time, money, and health. Think of the single worker who spends two hours commuting forty miles from hot and smoggy Riverside, California, to a $25-an-hour job in balmy Newport Beach. If the worker moves from his $1,200-a-month apartment in Riverside to a comparable $2,500-a-month apartment in Newport Beach, his rent increases by $1,300 a month but he avoids forty hours of commuting. If his time is worth $25 per hour he would save $1,000 ($25 × 40) each month. Add to that the cost of driving his car an extra sixteen hundred miles. If his economical car costs him 50 cents a mile or $800 a month to operate, living in Newport Beach and saving forty hours’ driving time each month makes him $500 better off ($1,000 + $800 − $1,300). In effect he earned just $12.50 per hour during his commute. Does our worker figure this out? I suspect he does not, because the extra $1,300 a month in rent he would pay in Newport Beach is a clearly visible cost that is painfully and regularly inflicted, whereas the cost of his car is less evident and can be put out of mind. (Kindle Loc 4724)
 What's amazing to me is that Thorp, unlike many of his cohorts who made tons of money at Wall Street, decided to fold up his company (which had been brought down not by poor investments, but by poor ethical decisions on the part of one of his partners):
Vivian and I would make the most of the one thing we could never have enough of—time together. Success on Wall Street was getting the most money. Success for us was having the best life. (Kindle Loc 3647)
Clearly, this is a man who's thought through everything, and made good decisions at every step of the way. I hope to get Bowen to read this book one day, because I think that not only does it explain why it's great to be good at math and thinking, but also that many of the most important decisions aren't just about probability and money, but about choosing the right people to partner with.


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