A MAN FOR ALL MARKETS

If you follow the contemporary literature on modern finance it’s inevitable to read about Ed Thorpe, the mathematician who successfully developed a system for beating blackjack and thereafter went on to have an illustrious career managing several hedge funds. Now those interested to learn more about Thorpe in his own words can do so with the publication of his autobiography, A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.

Thorpe describes his autobiographical turn as, among other things, “an odyssey through science, mathematics, gambling, hedge funds, finance, and investing.” It's a fitting description. In A Man for All Markets readers are given a glimpse into Thorpe’s childhood, growing up as a precocious child in the aftermath of the Great Depression and coming of age during World War II. We learn of his affinity for science and for numbers, of his exemplary record as a student and how he came to pursue a degree in mathematics, later becoming a professor in the same field.

As a mathematician, Thorpe would develop a mathematical system for beating casinos at blackjack (academically peer reviewed and published, natch), which would drastically change the trajectory of his life. Easily, his escapades in Las Vegas’ casinos, where he tested his theories, allowed him to make several multiples of the salary he was making as a mathematics professor, though this would earn him notoriety among many casino operators and get him banned from several casinos altogether. Interestingly and in keeping with his interest in games of chance, he would also go on to co-develop perhaps the first truly wearable computer: a device designed to help predict the outcome of roulette–once again, a purely academic endeavor.

Later and like many other quants, Thorpe would turn his attention to financial instruments, specifically warrants, and become intrigued with arbitrage and hedging. Armed with his own research, he would make small investments and start managing investments for friends and family. At first, he would keep his academic and financial pursuits distinct, profiting from proprietary models that he would keep private (he claims to have deduced an equivalent to the Black-Scholes option pricing formula on his own) while still publishing scholarly research on related topics. Eventually, he would opt to dedicate himself full time to trading stocks and derivatives, becoming a massively successful hedge fund manager rubbing elbows with the likes of Warren Buffet.

More than a straightforward autobiography, A Man for All Markets also offers a cursory guide at these two preoccupations of Thorpe (blackjack and finance), presumably rehashing material Thorpe previously wrote about in his earlier books, Beat the Dealer and Beat the Market, albeit in abridged form.

Thorpe noticeably revisits several themes in the course of his autobiographical account. One is his unflinching belief that logic and rationality should always prevail when faced with decisions to make or problems to solve. Another is his frustration that both casinos and markets are rigged in the sense that operators (for casinos) and lawmakers (for markets) can always change the rules when it suits their purposes, something Thorpe learned the hard way after publicizing and testing his blackjack system in Las Vegas and later finding his early hedge fund, Princeton Newport Partners, under investigation for alleged improprieties. Finally, there is his repeated criticism of that cornerstone of finance known as the efficient market hypothesis, mainly on the premise that his own success demonstrates that markets cannot be efficient: after all, if this were the case, how could anyone exploit the arbitrage opportunities that made a person such as himself wealthy?

However one feels about this latter critique–which comes up frequently enough in finance circles and has proponents and detractors alike–one can’t argue with Thorpe’s success, nor that he has the temperament of a conservative financial investor. “[D]on’t bet on an investment unless you can demonstrate by logic, and if appropriate by track record, that you have an edge,” he reminds readers in A Man for All Markets. Or take this cautionary nugget: “I call the flip side to the wisdom of crowds lunacy of lemmings.” Also: “As Keynes said, the market can remain irrational longer than you can remain solvent.” Heeding such advice would reap dividends (pun intended) for anyone dabbling in finance.

Autobiographies are interesting to the extent that their authors have led interesting lives, and it doesn’t get much more interesting than a mathematics professor that brought casinos to their knees and ascended the commanding heights of modern finance within his lifetime. Yet the appeal is more than just professional. While it’s true that there’s a lot one can learn about gambling and finance in A Man for All Markets, the most important lesson that Thorpe seeks to impart is one that appeals to our very humanity: “Whatever you do,” he writes, “enjoy your life and the people who share it with you, and leave something good of yourself for the generations to follow.”