Edward O. Thorp

Edward O. Thorp built an investment business from a habit of testing claims for himself. Born in Chicago in 1932, he studied physics before completing a mathematics PhD at UCLA in 1958. After posts at MIT and New Mexico State University, he joined UC Irvine in 1965. His work joined mathematical questions with experiments that could be checked outside a classroom. Blackjack supplied an early test. Thorp used probability and computation to show how the changing mix of cards could affect a player’s advantage. Beat the Dealer first appeared in 1962. He also worked with Claude Shannon on a wearable device for roulette. These were separate projects: the card-counting system did not depend on the roulette computer. He then studied securities whose prices were linked, rather than relying only on forecasts of a market’s direction. At Irvine he met economist Sheen T. Kassouf, with whom he wrote Beat the Market in 1967. The book explains their approach to warrants and hedging. It is a historical account of a method, not a guarantee that its trades remain useful. In 1969 Thorp started Convertible Hedge Associates with Jay Regan. The partnership later became Princeton/Newport Partners; in his 2011 interview he dates that name change to 1974. He described using models, computers and offsetting positions to manage investments. The fund closed in 1988, and he later ran a separate statistical-arbitrage fund. A successful model still depended on people, operations and the limits of its setting. His 2017 memoir, A Man for All Markets, connects these projects with the choices behind them. The useful pattern is to test an apparent edge, examine what could defeat it and decide how much time the enterprise deserves. These are editorial lessons drawn from his record, rather than a promise of investment returns or a set of rules that he prescribed for every founder.