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#604: Master Investor Ed Thorp on How to Think for Yourself, Mental Models for the Second Half of Life, How to Be Inner-Directed, How Basic Numeracy Is a Superpower, and The Dangers of Investing Fads

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Jun 28, 2022

Guest

Edward O. Thorp

Edward O. Thorp, an acclaimed author and legendary blackjack player, dives into his investment philosophy honed over decades. He emphasizes the power of basic numeracy as a superpower for informed decision-making. Thorp shares insights on navigating long-term investments and the importance of self-awareness in leadership. He warns against blindly following fads and highlights how understanding market psychology can lead to better outcomes. Plus, the conversation includes practical strategies for maintaining both mental and physical health.

01:33:38

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ADVICE

Long-Term Investing and Risk

Prepare for market volatility when investing long-term in risky assets.
Be prepared to hold for an extended period to ride out downturns.

insights

INSIGHT

The Changing Hedge Fund Landscape

The hedge fund landscape has shifted, favoring wealthy, tax-exempt investors.
An index of all hedge funds would likely be unattractive now.

volunteer_activism

ADVICE

Beware of Popular Investments

Be wary of popular investments where everyone already knows the potential.
Widespread knowledge of an investment often indicates a lack of edge.

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Investing Mindset: Short vs Long-Term

05:42 • 22min

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Navigating Long-Term Investing

28:08 • 8min

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Mastering Math and Market Psychology

36:02 • 10min

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Mindful Health Management

46:24 • 20min

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Navigating Inner vs. Outer Direction

01:06:10 • 7min

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Empowering Decision-Making Through Numeracy and Personal Insights

01:12:40 • 3min

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Navigating Life: From Hair Loss to Marathon Mindset

01:15:52 • 9min

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Future Focus: Technology and Well-being

01:24:51 • 9min

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#3343

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Ben Goldacre

In 'Bad Science,' Ben Goldacre critiques the current state of science as presented to the public, focusing on the misrepresentation of science by the media, the flaws in alternative therapies, and the misleading practices of pharmaceutical companies. The book explains basic scientific principles, such as the placebo effect, regression to the mean, and the importance of randomized and double-blinded trials. Goldacre also discusses cognitive biases, the role of media in promoting public misunderstanding of science, and the ethical issues in drug development and advertising. Written in an engaging and humorous style, the book aims to help readers differentiate between good and bad science practices.

#2094

• Mentioned in 21 episodes

More money than God

Hedge Funds and the Making of a New Elite

Sebastian Mallaby

More Money Than God provides the first authoritative history of hedge funds. The book tells the inside story of hedge funds, from their rebel beginnings to their current status as powerful financial entities. It covers key figures and institutions, such as A.W. Jones, George Soros, Julian Robertson, and Long-Term Capital Management, and explains how hedge funds have shaped the financial landscape. Mallaby's work is based on extensive interviews and provides a balanced view of the industry's impact on finance and the global economy.

#1590

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Extraordinary Popular Delusions and the Madness of Crowds

Charles Mackay

David J. Schneider

This book, first published in 1841, is an early study of crowd psychology by Charles Mackay. It chronicles numerous instances of mass hysteria and popular delusions, including economic bubbles like the South Sea Bubble and Tulipomania, the Crusades, witch-hunts, and other peculiar follies. Mackay presents these examples to illustrate how easily the masses can be led astray by various delusions and how human folly remains a constant across different times and places. The book is divided into sections such as 'National Delusions,' 'Peculiar Follies,' and 'Philosophical Delusions,' and is known for its engaging and witty narrative style.

#1018

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The Power Law

Venture Capital and the Making of the New Future

Sebastian Mallaby

In 'The Power Law', Sebastian Mallaby provides a riveting and meticulously researched account of the venture capital industry. The book delves into the history of tech incubation in Silicon Valley and worldwide, featuring key figures from firms like Sequoia, Kleiner Perkins, Accel, Benchmark, and Andreessen Horowitz. It covers iconic successes and failures, such as the birth of Apple and the rise and fall of WeWork and Uber. Mallaby also examines the 'power law' that drives the VC business, where a few massive successes compensate for numerous failures. The book highlights the industry's influence on innovation, its biases, and the rising competition from China's venture capital sector.

#5750

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The Man Who Beat the Market

How Ray Dalio, David Swensen, and Other Hedge Fund Managers Made Billions in the Financial Crisis and How You Can Too

Gregory Zuckerman

In 'The Man Who Beat the Market', Gregory Zuckerman delves into the strategies and philosophies of successful hedge fund managers such as Ray Dalio and David Swensen. The book provides insights into how these managers navigated and profited from the financial crisis, and offers lessons for individual investors on how to make informed investment decisions.

#2165

• Mentioned in 20 episodes

Beat the dealer

A Winning Strategy for the Game of Twenty-One

Edward O. Thorp

In 'Beat the Dealer', Edward O. Thorp shares the revolutionary point system that has been successfully used by professional and amateur card players for generations. The book includes an overview of the basic rules of blackjack, proven winning strategies ranging from simple to advanced, methods to overcome casino countermeasures, ways to spot cheating, and charts and tables to illustrate key concepts. It is considered the bible for players of this game of chance and has been instrumental in changing the rules in Las Vegas casinos. The book also includes perforated cards to help players implement the strategies in the casino.

#2384

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The Unthinkable

who survives when disaster strikes and why

Amanda Ripley

In 'The Unthinkable', Amanda Ripley delves into the human responses to some of history’s most epic disasters, from the explosion of the Mont Blanc munitions ship in 1917 to the World Trade Center attacks on September 11, 2001. She consults leading brain scientists, trauma psychologists, and other disaster experts to understand the psychological and neurological aspects of survival. The book outlines the 'survival arc' of denial, deliberation, and decision, and provides practical advice on increasing one’s chances of survival in disaster scenarios. It also explores themes such as crowd psychology, the brain’s fear circuits, and the role of heroism and resilience in the face of disaster.

#7589

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The Lonely Crowd

A Study of the Changing American Character

David Riesman

Published in 1950, 'The Lonely Crowd' is a seminal work by David Riesman, Reuel Denney, and Nathan Glazer that critiques post-WWII American society. The book introduces three types of social character: the 'tradition-directed', 'inner-directed', and 'other-directed'. It argues that the 'other-directed' type, characterized by conformity to external social norms, was becoming dominant in American culture, leading to a sense of alienation and inner desolation despite material prosperity. The book had a significant impact on intellectual and cultural discourse, influencing the New Left and countercultural movements of the 1960s.

#1052

• Mentioned in 36 episodes

A Man for All Markets

From Las Vegas to Wall Street, How I Beat the Dealer and the Market

Edward O. Thorp

In this book, Edward O. Thorp recounts his remarkable career, from inventing card counting systems to beat blackjack dealers, to developing mathematical formulas that gave him an edge in the financial markets. Thorp's story includes his invention of the world's first wearable computer to predict roulette outcomes, his detection of the Bernie Madoff scheme, and his interactions with notable figures like Warren Buffett and Rudy Giuliani. The book offers practical wisdom on investing, asset allocation, and wealth management, making it an intellectual thrill ride for readers interested in finance and mathematics.

#21729

• Mentioned in 2 episodes

Mathemagic

Arthur Benjamin

Brought to you by Wealthfront automated investing, Vuori comfortable and durable performance apparel, and Eight Sleep’s Pod Pro Cover sleeping solution for dynamic cooling and heating.

Edward O. Thorp (@edwardothorp) is the author of the bestseller Beat the Dealer, which transformed the game of blackjack. His subsequent book, Beat the Market, coauthored with Sheen T. Kassouf, influenced securities markets around the globe. He is also the author of A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.

Edward was one of the world’s best blackjack players and investors, and his hedge funds were profitable every year for 29 years. He lives in Newport Beach, California.

You can find our first conversation here.

Please enjoy!

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[06:39] The value of long-term thinking and the price of short-term thinking

[07:57] What is a common stock warrant?

[09:52] Why are people generally poor at taking longer term (or alternative) perspectives?

[11:08] Conversing about numeracy and common misunderstandings

[15:00] How to become more numeracy literate

[20:18] It’s Raining Man

[22:31] The Rule of 72

[26:14] Making the best financial decisions with unknown variables

[35:57] How to have fun learning about probability and statistics

[37:47] How to get an edge in hedge fund investing (with book recommendations)

[46:23] Ed’s methods for losing (or maintaining) weight and looking 60 in spite of being almost 90 years old

[53:38] Favorite beer

[55:03] Music as stress reduction

[56:02] Avoiding unnecessary risks

[1:04:12] The age-guessing experiment

[1:06:17] Other-directed vs. inner-directed and takeaways from The Lonely Crowd by David Riesman

[1:14:35] How an 89-year-old maintains hair growth

[1:17:20] Using scrap time

[1:19:45] A big change in Ed’s later life that increased its quality

[1:22:16] New reflections, future hopes, and parting thoughts

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