Legend Ed Thorp Shares Investing Tips Gained from Blackjack

Ed Thorp is a legendary gambler who broke the secrets of card counting in the early 1960s. But what’s less known about Thorp is is acumen for investing. He’s built a multimillion-dollar portfolio over the years through a mixture of math and commonsense. Thorp recently opened up about his investing strategies with Forbes. Not surprisingly, […]

Ed Thorp is a legendary gambler who broke the secrets of card counting in the early 1960s. But what’s less known about Thorp is is acumen for investing.

He’s built a multimillion-dollar portfolio over the years through a mixture of math and commonsense.

Thorp recently opened up about his investing strategies with Forbes. Not surprisingly, he learned much of this advice through his blackjack card counting career. Here are a few of the tips that he offered.

Investing Requires Strategy, Just Like Blackjack

Any serious blackjack player uses strategy to reduce the house edge and win more money. Thorp explains that investors must also develop a good strategy. Here’s an excerpt from the article:

“Similarly, in investing Thorp developed an approach for evaluating stocks. His main focus was identifying pricing anomalies in the securities market. By understanding whether a stock was over- or undervalued, he was able to take profitable long or short positions.

“This approach helped Thorp and others launch the first market neutral hedge fund in 1969, which cleverly ties into the title of the new book A Man for All Markets.  

“And although his key performance indicators are proprietary, his success is very public. In 1998 Thorp released a public statement stating that his personal investments have yielded in annualized 20% rate of return averaged over 28.5 years. A number which one can safely assume is in the neighborhood of his assets under management portfolio.”

Test Your Investing Strategy

Simply developing an investment strategy isn’t enough. Much how Thorp researched his original card counting strategy in the 1960s, he also uses advanced techniques to analyze investments.

“There are several virtual portfolios and back testing programs available online to test an aspiring money manager’s methods. Whichever program you choose the take away here is to fully test your methodology and make sure your strategy puts you on the right side of most of your trades. 

“You don’t always have to be right, but as long as you are right more often then you are wrong in a proportioned betting scheme you are very likely to be in positive territory over the long-term.”

You can catch all of Thorp’s investing tips by visiting the Forbes article that I linked to above.

 

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