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

William Poundstone
4.6 out of 5 stars  See all reviews (16 customer reviews)
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Product details

  • Paperback: 386 pages
  • Publisher: Hill & Wang (19 Sep 2006)
  • Language: English
  • ISBN-10: 0809045990
  • ISBN-13: 978-0809045990
  • Product Dimensions: 21 x 13.9 x 2.8 cm
  • Average Customer Review: 4.6 out of 5 stars  See all reviews (16 customer reviews)
  • Amazon Bestsellers Rank: 9,278 in Books (See Top 100 in Books)

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Product Description

Fortune's Formula In 1961, MIT mathematics professor Ed Thorp made a small Vegas fortune by "counting cards"; his 1962 bestseller, "Beat the Dealer," made the phrase a household word. With Claude Shannon, the father of information theory, Thorp next conquered the roulette tables. In this prosaic but fascinating cultural history, the author tells not only what they did but how they did it. Full description

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Customer Reviews

4.6 out of 5 stars
4.6 out of 5 stars
Most Helpful Customer Reviews
7 of 7 people found the following review helpful
5.0 out of 5 stars Profitable Gambling Systems 3 Mar 2011
By DigiTAL
Format:Paperback|Verified Purchase
This book is an entertaining and non-technical biography of the Kelly criterion -- a betting equation which shows you how much of your wealth to bet on each round of a profitable gamble so as to maximise the growth rate of your wealth.

Suppose you might a biased coin which will land heads twice as often as tails. A fellow gambler is willing to offer even odds against heads; how much should you bet on this profitable gamble? Assuming the bet can be repeated many times, you shouldn't stake your entire bankroll on the first gamble, as, if you lose, you will be unable to gamble again. The Kelly criterion shows you which fraction of your net worth to bet on this gamble -- or any other profitable gamble -- so as to maximise your average end wealth.

William Poundstone describes the life of the Kelly formula by introducing us to some of its most famous users: Ed Thorp, who used it when counting cards at blackjack and in his early hedge fund; and Claude Shannon, who used it in his stock market speculation and who built a roulette wheel prediction device with Thorp. Poundstone also explains how the partners of Long-Term Capital Management (LTCM) would have done well to heed the formula's advice. He also covers the spirited academic debate behind the formula: including the links it shares with the work of Daniel Bernoulli, and Paul Samuelson's witty opposal to its overuse (there are many good reasons to bet less than the amount implied by the Kelly formula).

This is another five star book from William Poundstone.
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40 of 46 people found the following review helpful
5.0 out of 5 stars Inside Info on How the Market Got Beat 6 Feb 2006
By Rolf Dobelli TOP 500 REVIEWER
Format:Hardcover
This is a fascinating book about the sociology of ideas and, specifically, about information theory. Author William Poundstone explores how Claude Shannon, the major developer of information theory, affected finance, investing and gambling. These activities seem disconnected, but they all rely on managing uncertainty. Like any great idea, information theory attracted major personalities: gamblers, mobsters, academics, economists, traders and people who just wanted to make money. The story weaves through a collection of memorable people (from seventeenth-century mathematicians to Ivan Boesky) to present pertinent mathematical and scientific theories, and to explore how people used them. At times, the connections between events seem strained, but they all come together. This book is encyclopedic, exceptionally informative, and packed with great stories and characters. We enthusiastically recommend it to anyone seriously interested in investing, the sociology of ideas, or gambling. Indeed, read it twice: once for its theories and practical investment advice, and the other to relish its personalities.
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2 of 2 people found the following review helpful
3.0 out of 5 stars Fortune's a jade 10 Mar 2011
Format:Paperback|Verified Purchase
William Poundstone, for my money, is the best science writer operating today. If you can bear Malcolm Gladwell, you'll appreciate the quality when you make the switch to Poundstone. And he rarely does that sketch portrait schtick about the bearded researcher in the Hawaian shirt at an untidy desk in a cramped office on a leafy campus either, thanks.
This book, I'm sorry to say, is not his best. In fact it's two books. One is about how to beat the system, by fair ways or mostly foul. Hence the crime stories. The second book is an examination of Efficient Market Theory. EFT is the notion that since all public information is already in the price, you can't beat the stock market.
You can see why the two stories overlap. But they are, or should be, separate.
Beating the stock market is, however, what some people routinely do. And anyone who has owned shares has already been baffled how share prices can ignore great events but yo-yo on trivialities. From Bachelier to Samuelson, EFT has ignored these obvious problems. But it's very difficult to confound EFT, because you have to design a scientific way of beating the market. The Kelly system got most of the way to being scientific. Ah, but science is replicable. And once there are more than a few Kelly betters in the market the scientific advantage disappears.
Many of the great names, from Bernoulli (utility) to Shannon (information) get name checks here, useful if you're going to interview with an investment bank. I'd give the book 4 stars if it was by anyone else, and I really don't quarrel with previous critics who've given it five. It's just that I have got used to having very high expectations of this author.
Try
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1 of 1 people found the following review helpful
5.0 out of 5 stars Engrossing - and also useful 15 May 2011
Format:Hardcover|Verified Purchase
Other reviewers have remarked on how entertaining this book is; those who have read some of Poundstone's other works will find this no surprise. There are some wonderful anecdotes and insights here, with hard-ish science mixed in nice pen-portraits of the main protagonists.

However, having an interest in sports betting and investment, I also found the book very helpful in explaining the benefits and potential pitfalls of the Kelly approach (as Poundstone mentions, there is still antipathy towards the approach among some gambling experts who really should know better). In particular, he takes pains to explain why Kelly succeeds over both level staking and Martingale systems, and how volatility can be controlled through reduction in Kelly proportions and also diversification. I have benefited personally for these and other insights in the book, which I can thoroughly recommend.
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Most Recent Customer Reviews
5.0 out of 5 stars Excellent background knowledge
If you are a trader, then you must read this book more than once. Insightful and written in a way which allows easy understanding. An "absolute must read".
Published 6 months ago by Mr. G. Bu Chedid
5.0 out of 5 stars This book was excellent...
I was looking for books on Claude Shannon, and didn't find any popular nonfiction available. This was the one I did find, and it was well worth the read! Read more
Published 6 months ago by Jon Gibson Mcgill
5.0 out of 5 stars History of Investing. As good as a Yale Lecture
Anyone interested in investments, from betting on horses to Casinos to Stock Markets this gives a history of the principles. Read more
Published 9 months ago by Londontrainer
5.0 out of 5 stars Top story!
Really entertaining read, thoroughly enjoyed this book. It was an Amazon offer with the book I did want, and this one is much more fun and interesting. Top entertainment!!
Published 13 months ago by M. Canning
5.0 out of 5 stars brilliant!
this book gives the best explaination on kelly formula - fact. apart from that it's a in depth story on investment theory and card counting in vegas to name a few wonders of this... Read more
Published on 15 Sep 2011 by Gcrikey
5.0 out of 5 stars Good deal
The book came in a really good condition and within the time frame that was settled! This seller is recommendable.
Published on 22 Mar 2011 by Alex
4.0 out of 5 stars Do you want to get rich quickly?
Fortune's Formula by William Poundstone can be said to be about the Kelly Criterion; a way to deal with uncertainty that gives the best return for your money without running the... Read more
Published on 23 Jan 2011 by A. P. J. Jansen
4.0 out of 5 stars Enlightening
This a very well written and very interesting book. He is very good on the personalities involved and on the more technical areas. Read more
Published on 15 Dec 2010 by The Emperor
4.0 out of 5 stars Informative, well-written and thoroughly enjoyable
This book manages to educate, entertain and inform in several different ways. We have the stereotypically eccentric academics taking on the casinos and the markets and winning. Read more
Published on 10 Dec 2010 by S Gleadall
5.0 out of 5 stars Kelly formula for calculating investment bets
I picked up this book because Mohnish Pabrai, the author of The Dhandho Investor, recommended it. The author describes the Kelly Formula that was developed by John Kelly at Bell... Read more
Published on 15 Nov 2009 by Mariusz Skonieczny
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