Quotes from Edward O. Thorp

chose young smart people just out of university because they were not set in their ways from previous jobs. Better to teach a young athlete who comes fresh to his sport than to retrain one who has learned bad form.

Especially in a small organization, it was important that everyone work well together. As I was unable to tell from an interview how a new hire would mesh with our corporate culture, I told everyone that they were temporary for the first six months, as were we for them. Sometime during that period, if we mutually agreed, they would become regular employees.

In order to attract and keep superior staff, I paid wages and bonuses well above the market rate. This actually saved money because my employees were far more productive than average.

With that system, people who used their sick leave got more days off with pay and were rewarded over those who didn't use it. I removed this instance of what economists call a perverse incentive by giving everyone a single pool of paid leave days that accumulated based on the number of hours worked and covered paid holidays, vacations, days off, and illness.

Portfolio insurance was designed to protect investors from large market declines. Ironically, the cure became the cause.

was learning to work things out for myself, not limited by prompting from teachers, parents, or the school curriculum. I relished the power of pure thought combined with the logic and predictability of science. I loved visualizing an idea, and then making it happen.

The lesson of leverage is this: Assume that the worst imaginable outcome will occur and ask whether you can tolerate it. If the answer is no, then reduce your borrowing.

Kelly Criterion are: (1) The investor or bettor generally avoids total loss; (2) the bigger the edge, the larger the bet; (3) the smaller the risk, the larger the bet. The Kelly Criterion, not having been invented by the old-line academic economists, has generated considerable controversy.

In a typical life cycle, prior to adulthood we consume more than we produce. As we acquire education and training, we contribute more to society than it takes to support us. During this period, a prudent or fortunate investor will accumulate wealth from which to draw upon later as he ages and reduces his income from work.

The 2008 collapse in housing prices had the same cause: unlimited unsound loans to create highly leveraged borrowers.

Beginning in the 1980s, government, including presidents, Congress, and the Federal Reserve, gave us three decades of reduced regulation of the financial industry. Leverage, easy money, and "financial engineering" then brought a series of asset bubbles and threats to the stability of the financial system itself.

Nassim Taleb asked why, after a driver crashes his school bus, killing and injuring his passengers, he should be put in charge of another bus and asked to set up new safety rules.

But I realized that the odds as the game progressed actually depended on which cards were still left in the deck and that the edge would shift as play continued, sometimes favoring the casino and sometimes the player.

We were guided by what we had learned from the charitable giving we had done over several decades. One principle was to make the gift transformative, with an impact well beyond what you'd expect from the monetary amount. We also wanted to fund projects that wouldn't happen without our support. These conditions were met.

I decided to begin by finding the best strategy to use when I knew which cards had already been played.

The next decision is whether or not to double down, which is to double your bet and draw exactly one card to the first two cards of a hand.

In counting cards, it's mainly the fraction remaining that matters, not the number.

This sounded like it would be interesting for a while, but I didn't think I would have the freedom I expected to find in academia to follow my interests wherever they led.

What I had done was focus on a price that was of unique historical significance to me, only me, namely, my purchase price. Behavioral finance theorists, who have in recent decades begun to analyze the psychological errors in thinking that persistently bedevil most investors, call this anchoring (of yourself to a price that has meaning to you but not to the market).

First, you bought something you didn't really understand, so it was no better or worse than throwing a dart into the stock market list.

Even more valuable, I learned at an early age to teach myself.

Education has made all the difference for me. Mathematics taught me to reason logically and to understand numbers, tables, charts, and calculations as second nature. Physics, chemistry, astronomy, and biology revealed wonders of the world, and showed me how to build models and theories to describe and to predict. This paid off for me in both gambling and investing.

Education builds software for your brain.

probability calculations needed to figure out gambling games or to solve problems in everyday life. We didn't need that skill to survive as a species in the forests and jungles.