Stock Warrants | Edward Thorp’s 20% Annual Return For 30 Years

March 13, 2017 Preston Pysh , CONTRIBUTOR   Shutterstock Edward Thorp is the bestselling author of Beat the Dealer. He revolutionized gambling as he proved how to beat blackjack with card-counting and invented the first wearable computer. As Thorp transitioned out of gambling, he then achieved the unthinkable with 20% annual returns over 30 years trading options. Below is an edited summary of his interview with The Investor’s Podcast where Thorp discusses probabilities and his storied investing career. Preston Pysh: [6:09] I am curious to know how you came up with the idea to beat the odds of blackjack when everyone else believed that it could never be done. Edward Thorp: By solving equations, it is possible to calculate the precise probabilities of losing, given any collection of cards for any number of decks. To calculate these probabilities, I first had a computer take out four aces from a full deck, and I discovered that the deck shifted in favor of the casino by quite a lot. This was good news because if I put back in four aces, I knew the exact opposite would happen and the cards would now be in my favor. I repeated this process with all ranks of the deck. When the deck is filled with big cards, it becomes in favor of the player. On the contrary, when the deck is filled with small cards, it shifts the edge in favor of the casino. Therefore, players want small cards to come out of the … Continue reading