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lukewhitestone's review
4.0
Kind of a peculiar book, but quite good. I was much more into the first half, which did an excellent job weaving the stories of gangsters, Bell Labs geniuses (Claude Shannon and John Kelly) and the people at their intersection (Ed Thorpe). The treatment of the math is also quite well done, a shade more technical than you'd expect from a mainstream nonfiction book, which I think is the right amount for a non textbook (often books shy *away* from math, which can detract from certain subjects). I learned a lot about the history of mathematical thought around gambling in the 20th century, and it was cool to learn more about aspects of probability and risk management.
The book lost me a little in the second half. Part of it was I wasn't as interested in the financial applications of the Kelly Criterion, but I wasn't *disinterested* either. Rather I think the story got too muddled by that point. Too many characters and not enough flow or intrigue. The Rudy Giuliani part was interesting, as was LTCM, but beyond that I felt the book was too unfocused. If you're into post-1980 financial stories about risk you might get more out of it than I did.
Overall very good, and I might refer back to this book now and again. 4 stars.
The book lost me a little in the second half. Part of it was I wasn't as interested in the financial applications of the Kelly Criterion, but I wasn't *disinterested* either. Rather I think the story got too muddled by that point. Too many characters and not enough flow or intrigue. The Rudy Giuliani part was interesting, as was LTCM, but beyond that I felt the book was too unfocused. If you're into post-1980 financial stories about risk you might get more out of it than I did.
Overall very good, and I might refer back to this book now and again. 4 stars.
woodelf9ca's review
3.0
A mixed bag of a book. Felt like a collection of a lot of only vaguely related stories. Some parts were really good and others were pretty bad.
nghia's review
2.0
This book has a pretty misleading title. It purports to be the untold story of a scientific betting system. And you do get that. But it turns the "story", such as it is, it pretty slight. The vast majority of the book is taken up with totally unrelated side stories and anecdotes. These add character and color -- I suppose -- but they have literally nothing to do with the Kelly Criterion.
If you want a scattershot of brief stories from people even 3rd-degree connected to the Kelly Criterion, then you'll find a few interesting stories about the mob-owned parking lots turning into Warner Brothers, about Claude Shannon's personal investing, about Long-Term Capital Management's collapse, about card counting in Las Vegas casinos and so on.
The Kelly Criterion itself gets surprisingly short shrift. The academic debate appears to have lasted only about 10 or 15 years and has been quiescent since the 1970s. 95% of academics think the Kelly Criterion is somewhere between wrong & useless. And 5% of academics (who are largely not economists) think it is not just useful but nearly mandatory. And those positions haven't shifted in decades.
The Kelly Criterion's application to betting is briefly detailed but little more is said than, "Yep, Ed Thorp used it while betting on blackjack and some horse racing bettors in Hong Kong said they use it". But it seems that the real success there was the card counting and horse betting systems...the Kelly Criterion was not the deciding factor.
There's a long story about the collapse of Long Term Capital Management. It takes several chapters. It has nothing to do with the Kelly Criterion except to seemingly say, "If they had used the Kelly Criterion they wouldn't have collapsed. Oh, except using the Kelly Criterion would have undermined their entire business model so the company wouldn't have existed in the first place." In addition to being seemingly irrelevant, it is hardly a ringing endorsement of the Kelly Criterion. What's more, it isn't clear that the Kelly Criterion would have saved them. LTCM didn't go to $0. They fell by 50% and then competitors saw blood, stopped rolling their debt, customers starting redemptions, and so on. It seems like the same thing could happen with the Kelly Criterion -- after all, nothing in the Kelly Criterion prevents you from losing 50% in a matter of days. You could easily see the same liquidity spiral while using the Kelly Criterion.
Likewise, there's a fairly long section about Claude Shannon's alleged lifetime investing success. Something like 80% of his holdings were in just 3 stocks. Which hardly seems compatible with the Kelly Criterion. Leaving aside the dubiousness of relying on after-the-fact self-reported investing gains.
I found the part of the book about the academic arguments the most interesting part. Unfortunately it takes until nearly the 50% mark for that happen. I had nearly given up by that point. Here are some examples to show what I mean about colorful examples of people who are only very tangentially related to the Kelly Criterion:
The chapter "Eternal Luck" is about John Koonmen. He worked in Lehman Brother's Tokyo office. He joined Amber Arbitrage. He squabbled with his boss over splitting profits and left. He founded Eifuku Master Trust. Over 7 trading days in 2003, Eifuku Master Trust lost 98%. He closed the fund and went to Africa to photograph wildlife.
What's the connection? It is just a random story of a hedge fund that blew up. The Kelly Criterion is nowhere in the picture.
Likewise, there's a long section about the rise of Rudy Guiliani, use RICO to prosecute mobsters and (eventually) Michael Milken (the junk bond king). What's the relationship to anything related to the Kelly Criterion? It works like this: Ed Thorp is a big believer in the Kelly Criterion. His hedge fund needed a broker, so they chose Michael Milken. That's enough of a connection to have several chapters about Michael Milken, who in no way shape or form cared anything about the Kelly Criterion.
Ultimately, the book is largely about Ed Thorp because he's the person who seems to have used the Kelly Criterion the most. (Or at least talked about it the most.) Nowadays should we just read Ed Thorp's own book about himself ("A Man For All Markets")?
If you want a scattershot of brief stories from people even 3rd-degree connected to the Kelly Criterion, then you'll find a few interesting stories about the mob-owned parking lots turning into Warner Brothers, about Claude Shannon's personal investing, about Long-Term Capital Management's collapse, about card counting in Las Vegas casinos and so on.
The Kelly Criterion itself gets surprisingly short shrift. The academic debate appears to have lasted only about 10 or 15 years and has been quiescent since the 1970s. 95% of academics think the Kelly Criterion is somewhere between wrong & useless. And 5% of academics (who are largely not economists) think it is not just useful but nearly mandatory. And those positions haven't shifted in decades.
The Kelly Criterion's application to betting is briefly detailed but little more is said than, "Yep, Ed Thorp used it while betting on blackjack and some horse racing bettors in Hong Kong said they use it". But it seems that the real success there was the card counting and horse betting systems...the Kelly Criterion was not the deciding factor.
There's a long story about the collapse of Long Term Capital Management. It takes several chapters. It has nothing to do with the Kelly Criterion except to seemingly say, "If they had used the Kelly Criterion they wouldn't have collapsed. Oh, except using the Kelly Criterion would have undermined their entire business model so the company wouldn't have existed in the first place." In addition to being seemingly irrelevant, it is hardly a ringing endorsement of the Kelly Criterion. What's more, it isn't clear that the Kelly Criterion would have saved them. LTCM didn't go to $0. They fell by 50% and then competitors saw blood, stopped rolling their debt, customers starting redemptions, and so on. It seems like the same thing could happen with the Kelly Criterion -- after all, nothing in the Kelly Criterion prevents you from losing 50% in a matter of days. You could easily see the same liquidity spiral while using the Kelly Criterion.
Likewise, there's a fairly long section about Claude Shannon's alleged lifetime investing success. Something like 80% of his holdings were in just 3 stocks. Which hardly seems compatible with the Kelly Criterion. Leaving aside the dubiousness of relying on after-the-fact self-reported investing gains.
I found the part of the book about the academic arguments the most interesting part. Unfortunately it takes until nearly the 50% mark for that happen. I had nearly given up by that point. Here are some examples to show what I mean about colorful examples of people who are only very tangentially related to the Kelly Criterion:
The chapter "Eternal Luck" is about John Koonmen. He worked in Lehman Brother's Tokyo office. He joined Amber Arbitrage. He squabbled with his boss over splitting profits and left. He founded Eifuku Master Trust. Over 7 trading days in 2003, Eifuku Master Trust lost 98%. He closed the fund and went to Africa to photograph wildlife.
What's the connection? It is just a random story of a hedge fund that blew up. The Kelly Criterion is nowhere in the picture.
Likewise, there's a long section about the rise of Rudy Guiliani, use RICO to prosecute mobsters and (eventually) Michael Milken (the junk bond king). What's the relationship to anything related to the Kelly Criterion? It works like this: Ed Thorp is a big believer in the Kelly Criterion. His hedge fund needed a broker, so they chose Michael Milken. That's enough of a connection to have several chapters about Michael Milken, who in no way shape or form cared anything about the Kelly Criterion.
Ultimately, the book is largely about Ed Thorp because he's the person who seems to have used the Kelly Criterion the most. (Or at least talked about it the most.) Nowadays should we just read Ed Thorp's own book about himself ("A Man For All Markets")?
tonnguyen's review
4.0
I wasn't sure what to expect, but the author managed to neatly tie different concepts such as information theory, casino gambling, hedge funds horse racing, and organised crime into an interesting historical story.
charliemudd's review
4.0
I started and quit this book a while back. I picked it up again after reading "Trading Bases" because I remembered that it offered an explanation of the Kelly betting strategy. I think the reason that I didn't like it the first time was twofold: 1) The Kelly criterion seemed over-simplified and maybe even wrong; and 2) I had nothing to apply it to at the time. Now that I understand it, and have more active interests in investing (and possibly building a betting model for baseball), it is more alluring. The book covers the 20+ people that were involved in coming up with, critiquing, and arguing against the Kelly criterion; in fact, it was too many people to keep up with and made many of the personalities blur together. I would have liked more about the theory and its practical applications and less about the myriad of people that were peripherally involved. However, it still keep my interest and I enjoyed it on my second try.
mholla's review
3.0
I liked aspects of this book - I was barely aware of Shannon, so I really like the introduction to his theories. The story is incredible overall, but I found the stock market stuff (the second half, roughly) less interesting and less understandable to me.
With that said, I would recommend this book to people who are nerdy in certain ways.
With that said, I would recommend this book to people who are nerdy in certain ways.
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