It was during the late-50’s and early-60’s, when Ed (Edward Thorp), a math genius and professor at MIT, took on the challenge of discovering a way to get an edge playing gambling games such as blackjack, roulette and baccarat. Long story short; Ed won—and he’s now considered the father of card counting.
From there, the next obvious move for Ed was to take on financial markets—which he also did with a great degree of success. His first hedge fund, Princeton Newport Partners, achieved an annualized return of 19.1% (before fees) over a 19-year period, with 227 of 230 months being profitable—the worst monthly loss being less than 1%.
How a math professor at MIT became interested in blackjack, roulette, baccarat, and in general, beating the dealer.
Ed a well educated math and science genius believed the roulette spinning ball speed and velocity of the rotor could give an edge on predicting the out come. He was interested in observing in person and this is how he made to his first visit to a casino. At the time he was about to finish his PhD in UCLA. He wanted to visit Las Vegas for charismas Holiday. Before making the visit he came across a paper in a statistics journal that would give a slight edge to win on Blackjack. (actually around 1%). He started a test with 10K USD. In the first 40 min he lost 80% of his roll. But he noticed in the casino that neither the players nor the house knew what they were doing.
Going back to office he had access to an IBM machine – Punch card based system. Coded a FORTRAN 2 code and tested and fine tuned his strategy. He wrote a paper and it got viral. Then he met Manny Kimmel (infamous underworld figure but an uneducated good gambler) they started with 10K USD bankroll and after 20 hours adjusting and 20 hours of serious gaming with the strategy the nearly doubled the bankroll.
1964 rules of blackjack changed… Battle btw casino and gambles started.
Ed meets Claude Shannon at MIT – just because he wanted to publish his paper and somebody had to sponsor for a fast publishing. They constructed a wearable computer to be used in roulette table – forecasting the out come depending on the speed of ball and rotor with 44% edge.
- Beat the Dealer [Amazon]
This is how the book came out.
2% Edge is what a winning strategy gives the gambler.
- A Man For All Markets [Amazon]
- The Kelly Capital Growth Investment Criterion [Amazon]
All of then great reads.
MIT Professor Emeritus Claude E. Shannon, known as the father of modern digital communications and information theory, died Saturday, February 24 at the Courtyard Nursing Care Center in Medford, Mass., after a long battle with Alzheimer’s disease. He was 84 years old.