Edward Torp – Warren Buffett From The World Of Gambling
Mathematics in gambling is needed as anywhere. The ability to count and memorize maps allows you to get an advantage over the dealer. American professor mathematics edward torp first conducted a scientfic study on this topic. He proved the opportunity to defeat stably in blackjack using card counting. Publication of the book "beat a dealer" in 1966 led to the confusion of las vegas casino and atlantic city.
|date of birth||august 14, 1932|
|place of birth||chicago, illinois, united states|
What is hidden for genius
Edward torp was born in a poor family who trid to survive at any cost. Childhood passed during the great depression, so poverty forced the young man to learn from all his might. The efforts were rewarded – he received a doctoral degree in mathematics at the university of california. It happened in 1958.
After learning, edward 2 years worked at massachusetts technology university. In 1961, he settled a professor of mathematics to the state educational institution in new mexico. In 1965, he moved to california university. The first 2 years he taught mathematics, and later – finance. Work in prestigious universities contributed to his scientific research.
The first steps of scientist in gambling
During education, edward was not at al all an avid player. Interest in blackjack arose due to a random converse in the university corridor. Sevel professors discussed gambling entertainment – they argued that the casino could not benefit due to the advantage of the institution.
"I usually recommend people to put half kelly so that they are less afraid of" – edward torp
By the moments, the mathematician was already familiar with the financial strategy of kelly’s criterion, which appeared in 1956. This approach pushed him to check theory of professors about the impossibility of consistently winning the casino. The future author of bestseller began to study blackjack. Mathematics immediately noticed some features – the greater the deck of large cards, the higher the advantage of the player.
In the massachusette university of technology, torpe had access to the ibm 704 computer. To learn how to manage them, he learned fortran programming language. Computing equipment made it possible to calculate the probability and check how missing maps affect the final result in blackjack. Based on the data obtained, a simple scheme was developed, which increased the player’s advantage of 0.27% to 0.61%, depending on the rules.
In the 1950s, ibm 704 computers were used in naca
On paper, the strategy looks simple:
- A group of cards from a to 9 is assigned +4.
- From 10 to k – -9.
If the player receives a positive number to the end of the deck, his chances of winning are increasing. In this case, it is profitable to raise a bet. In the long run, the system player will be in the plus.
From theory to practice
As a scientist, edward torp understood that it is nessary to conduct practical research to confirm the efficiency of the system. To do this, he invested $ 10,000 personal funds, and also took kimmel – the former bookman and a rich professional player in partners. Initially, they went to casino rino and lake tahoe. The first results of the experiment were successful – for the weekend, the mathematician won $ 11,000.
Its method soon began to actively discuss casino employees. In many institutions, edward refused to let, so in las vegas he used a discuise. Glasses with rounded edges and overhead beard turned out to be enough to go through the main entrance. About the success of tape spoke fans of gambling, which prompted him to release the book "beat dealer" in 1966. Circulation amounted to 700,000 copies – this is enough to hit the bestseller list the new york times.
Casino will not be in fools
The book of taurope was demanded not only among the players, but among the managers of the casino – the latter thought about how to deal with counting cards. Among the decisions made:
- Using several decks. In the calculations, the mathematician took into account one, so its results lost a scientfic substantiation.
- Frequent shuffle. Dealers began to mix cards long before the end of the deck.
- Refusal of the game. If someone was suspected of using card counting, he was immediately exhibited for doors.
Torp – cause of other prohibitions
Back in 1955, edward torp thought about creating a portable computer – today such devices are called smart clocks. The final working version was made in june 1961 together with claude shannon. They created a device with a pack of cigarettes. The computer with a high proportition predicted the resulting number in the rouletitte due to to determination of the speed of the ball and the rotation of the wheel.
The prototype of the wearable computer in the massachusetts
Thanks to the small computer, the advantage of the player increased to 44%. Torp beguame the first person who began to use such a technique for predicting the result in roulette. Until 1966, partners kept the device secret. In 1985, in nevada, local authorities banned the use of computers for a casino game. Later, similar laws appeared in all jurisdictions. Similar computer programs for playing rouletitte were developed with the development of online casinoes.
Transition to the world of investment
In an interview with the investor’s podcast, edward torp admitted that thanks to gambling and fees for books earned a decent amount. The presence of money pushed him to invest in the stock market. The first investments were unsuccessful, after which he decided to engage in the study of securities seriously. Torp began to use mathematics and experience in casino to now get an advantage in a truly "big game" – rates on the stock exchange can reach hundreds of millions of dollars. The result of his research was the book "beat the market", published in 1967.
The former colleague in the university of california arranged edward meeting with warren buffett in 1968. The latter at that time had already managed to become a noticeable figure in the investment market due to several successful investments. By this time, warren bought the berkshire hathaway control package. In 1982, a former player also invests money in the american holding company. Then the cost of one share was $ 982.5, but in 2021 their price exceeded $ 350 thousand. Investments in berkshire hathawy stayed for edward torp most successful for all his trader career.
Parallels between gambling and investment
Edward torp consider one of the most successful capital management managers. For 20 years, the princeton newport partners hedge foundation had an avarage annual yield in 19.One%. The successes of mathematics in the casino and in the stock market allowed him to hold parallels, giving 5 advice to players and investors.
- Both can analyze. Blackjack and stock market has a data set. They can be analyzed to understand what results can cause actions. Gambling – a closed system with fewer factors, so make predictions much easier than on the stock market.
- Strategy development. Having considered various action options and the results obtained, you can create a successful tactics. The flow counting system is no longer effective in blackjack, but his book has become a source for the development of other victory techniques in a casino.
- Check strategy. To make sure effectiveness, optional to make rates for real money. Computing power of modern computers is hundreds of times higher than ibm 704. This is enough to test any technique. The main thing is to take into account all variables in the formula.
- Capital management. According to edward torp, kelly’s criterion is one of the best ways to calculate the bet. This approach allows you to find an optimal balance between risk and profitability.
- Psychological resistance. No strategy will give 100% advantages, so in practice it remains likely to go into minus. If the bank decreased, it is important not to lose his head and continue to strictly follow the tactics. In the extreme case, you can carry out calculations and check the technique.