The Father of Card Counting – Ed Thorp

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Ed Thorp - The Father of Card Counting
A proud moment – meeting Ed Thorp (right)
Every January I attend the Blackjack Ball – an invitation only event in Las Vegas for the professional blackjack community. Many of the best advantage players in the world travel from as far as Asia and Europe for an evening of  light revelry.  There was a very special guest at this year’s Blackjack  Ball. Blackjack luminary, Ed Thorp, attended the Ball for the very first time.  In 1962 Thorp published Beat The Dealer after  proving his system of card counting gave blackjack players an advantage over the house. Up until that point it was believed that it was impossible to legally beat the casinos at any game.
When Thorp was a professor at MIT, he built upon the work of four army mathematicians – Roger Baldwin, William Cantey, Herbert Maisel, and James McDermott.  In 1956, Baldwin, Cantey, Maisel and McDermott derived basic strategy, the set of optimal  playing decisions in blackjack.  The four army mathematicians came to be known as the “Four Horsemen”  in the professional blackjack world.   The Four Horsemen laid the foundation that was instrumental to Thorp forumulating a system that captured the dependent event nature of 21 and swung the advantage to players.
Thorp’s card counting days were short lived as he chose to only play  long enough to confirm that his card counting system worked.  In addition to having a distinguished career in academia, Thorp went on to apply the same principles and analytical skills  he used to formulate card counting to the financial markets.  Thorp ran one of the most successful hedge funds in the country. His investments yielded a 20% annualized return. In an interview, Thorp was quoted as saying, “The overlap of interest between gambling and the stock market is very high. It’s an amazing phenomenon. But there are so many similarities and so much one can teach you about the other. Actually, gambling can teach you more about the stock market than the other way around. Gambling provides an analytically simpler world, and you can see principles and test theories.”

Even in such an accomplished group, Thorp was the star of the evening, and he showed himself to be every bit as gracious as he is brilliant.  After delivering a short speech, Thorp received a rousing standing ovation. It was truly an honor for me and everyone in attendance to meet the man that made it all possible.

6 Responses

  1. Jake

    Hats off to Thorp for inventing card counting. And hats off to you for taking card counting to whole new level!

  2. Rando

    Awesome, have to give credit to Thorp but I would have kept it a secret and won millions and millions.

  3. BlackJack Syndicate | About the Team

    […] from MIT would take professional blackjack  to such heights.  In 1962 a professor at MIT namedEd Thorp published Beat The Dealer.  Thorp’s book revealed card counting – the first system that […]

  4. BJ

    If I remember from my readings, Thorp was already being watched by the Nevada casino’s for his play on Blackjack. I think he figured better to prove the system and move on to a bigger game, the stock market, than to run afoul of the casinos.

  5. Unrandom

    The casinos were dominated by the mob back when Thorp was doing his thing. If he was aware of that he was probably wise to steer clear of the tables and head for wall st. Was much easier and safer to be an advantage player on Wall st.

  6. lol

    I love parallel’s of card counting, market, strategy, game theory, poker, equilibrium/exploitative play and so on…
    Recently it occured to me that one of the exploitative strategies Warren Buffett employs on the market is “out performance on the way down”. He said he only hoped to just match the market on the way up. Many fund managers can beat market on the way up and so much pressure is on fund managers to beat market on the way up that the market will always be overcapitalized and unable to capitalize off a decline. This gave Buffett a huge edge in earlier limited partnership days by profiting on the way down (through “workouts”) such that he was able to buy everything that was undervalued, where as most were fully invest and could only sell something undervalued to buy something more undervalued. Additionally, with so few funds aiming for outperformance on the way up, it was easy to stand apart and attract capital in bear markets enabling him to raise more capital to buy low…
    Not to mention he was good at identifying value.
    Ben Graham would shift between 25% bonds and 75% stock and 75% bonds and 25% stock depending on his market outlook and attempt to handicap the probability and magnitude of direction via his allocation.
    Buffett in later years relied on insurance companies operating income to provide investment capital when he need it so it would allow him to add lower if needed.

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