the wall street journal has an interesting interview with edward thorp and bill gross in its weekend edition. they talk about how to beat the casino in black jack and how investors can use those learnings to make sound investment decisions — i guess it seems some people didn’t get that message. the advice thorp gives investors is:
You have to make sure that you don’t over-bet. Suppose you have a 5% edge over your opponent when tossing a coin. The optimal thing to do, if you want to get rich, is to bet 5% of your wealth on each toss — but never more. If you bet much more you can be ruined, even if you have a favorable situation.
ok, not necessarily rocket science but in today’s market something to remembers. towards the end of the conversation, thorp makes another interesting statement:
In the last 15 years or so, there has been a large flow of capital into the hedge-fund world, from $100 billion in the early 1990s to $2 trillion now. But the amount of available investing opportunities hasn’t increased that much. That has led to the over-betting phenomenon Bill and I were talking about, or gambler’s ruin.
i guess something bankers and investors forget is that there is only a finite amount of money in this world.
Filed under: economy, short to mid term risk | Leave a Comment
Tags: economy, hedge funds, stock market, wall street journal
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