Fortune's Formula (40 page)

“had agents…place his real bets”: Sullivan 1979.

Hoover, Mafia, and fixed races: See Sullivan 1979; Kristi and Mark Fisher’s “J. Edgar Hoover” at www.carpenoctem.tv/mafia/hooverj.html.

“You’ll never know how many races”: 1993 PBS show
Frontline
, “The Secret File on J. Edgar Hoover.” See www.alternatives.com/crime/hoover.html.

II. BLACKJACK

Kimmel physical description: Thorp, interview.

Math paper “Greek” to Kimmel: Ruchman 2001.

90 percent of profit to Kimmel and Hand: Thorp, interview.

Kimmel said he could protect Thorp from cheaters: Thorp, interview.

Pearl necklace: Thorp (e-mail) denies the amusing statement in O’Neil 1964, repeated in Bruck 1994, that they appraised the pearls and found them to be worth $16.

Gift of salami: Bruck 1994, 31.

Hand description: Thorp, interview; also Ruchman 2000.

“What was he a bookie for?”: Bruck 1994, 32.

East Coast tracks, El Rancho Hotel: Bruck 1994, 30.

Hunt bet a million on a football game: Eddie Hand claims this in Bruck 1994, 32.

“Kimmel is known to be a lifetime associate”: Bruck 1994, 29–30. (By 1965, Ed Thorp qualified as one of the best-known gamblers!) 85 Bernstein’s discovery of counting: Peter Ruchman’s unpublished interview with Jack Newton, supplied by Ed Thorp. Bernstein was probably not the first to get the idea. See the discussion of counting history in Thorp 1966.

Kimmel accompanied by two women: Thorp, e-mail.

Kimmel and casino people not pleased to meet: Thorp, interview.

Planning for Reno trip: Thorp 1962, O’Neil 1964.

“No one can win all the time”: Smith and Noble 1961, 31 (which gives a slightly different wording) and 201 (photo of sign).

Miles of one-way mirrors: Smith and Noble 1961, 95.

Lady Luck: See throughout Smith and Noble 1961, such as 35, 79.

Lost savings in 1929 crash: Smith and Noble 1961, 150.

Sheriff closed game; paid fine: Smith and Noble 1961, 149.

Most guns had drawn blood: Smith and Noble 1961, 37.

“You’re not going to shoot any dice”: Smith and Noble 1961, 166–67.

Alcoholic and compulsive gambler: See Vogel 1999 (where craps dealer and family member Neil Cobb says Harold Smith, Sr., “had a problem with alcohol”) and especially Smith and Noble 1961. Though the autobiography has Smith saying “I believe I was not, nor am I now, an alcoholic” (p. 209), he makes a strong case for the opposite conclusion throughout. “Apparently I was a periodical [drinker] whose periods crowded so closely on each other at times as to find me drinking daily and weekly for weeks at a crack. It was bad in all ways and this I knew…But…[e]ven after twelve and thirteen days of steady drinking I knew salt from pepper” (p. 210).

“Cowboying”: Smith and Noble 1961, 213.

Forced to eat hen manure: Smith and Noble 1961, 137.

Dorothy’s infidelity, divorce settlement: Smith and Noble 1961, 177–85.

First-refusal stock option: Smith and Noble 1961, 104.

Stock worth $8 million: See Smith and Noble 1961, 140. In 1961 the casino was valued at $25 million, and Harold owned a third of it.

Saw moth; talked into entering “psycho ward”: Smith and Noble 1961, 223.

Swore off alcohol for four years, then six: Smith and Noble 1961, 25, 317.

Joe Bernstein’s ace count: Smith and Noble 1961, 118–19. It is conceivable that Kimmel accompanied Bernstein on this trip, and this may have been why Kimmel did not accompany Thorp and Hand at Harolds Club.

“He’d watch me like a hawk”: Thorp, interview.

“Oh, help me, please help me”: Thorp 1962, 46.

“I…will…not…leave…this…place!”: O’Neil 1964, 88.

“more trouble than an $18 whore”: O’Neil 1964, 87.

Challenge to pit boss: Thorp 1962, 46.

$10,000 to $21,000 in 30 person-hours: Thorp 1966, 73.

Revell bet everything on roulette: Reuters story, “Briton Bets All on Vegas Roulette Spin—and Wins,” April 11, 2004.

Made virtual $24,000 in test run: Liversidge 1987.

“Everybody else was really, really nervous”: Thorp, interview.

“We didn’t trust the casinos not to bug our rooms”: Thorp, interviews.

“cased the wheels”: Betty Shannon, interview.

Description of roulette play: Ed Thorp and Betty Shannon, interviews.

Brought soldering irons: Thorp, interview.

Test of roulette computer: Thorp 1998.

“it was pretty clear to me that this group”: Thorp, interview.

50 percent raise in salary: Thorp, interview.

Ranch house: O’Neil 1964, 80.

“The Relation Between a Compact Linear Operator…”: Thorp 1959.

Random House unenthusiastic: Thorp, interview.

“System players!”: Thorp 1966, 65.

0. 10 percent in favor of player: This figure, cited in the 1966 edition of
Beat the Dealer
, was due to Julian Braun. The Braun figure was still an approximation. Peter Griffin later derived an exact figure of 0. 13 percent in favor of the optimal (but noncounting) player.

“Jack, I didn’t think it would be worth two cents”: Peter Ruchman’s interview with Jack Newton.

“a promoter who manipulated people”: Thorp, e-mail to Peter Ruchman, supplied by Thorp.

“The typical counter, as the casinos see him”: Hiltzik 1995, 18.

“To enter a casino with the ability”: Snyder 1983, 1998, 2003.

“one of those young men”: O’Neil 1964, 88.

Beard as disguise: Thorp 1966, 133–36.

Peripheral vision, bargain breakfasts, $25,000: O’Neil 1964, 88–89.

“One of the most ingenious aspects”: O’Neil 1964, 89.

“How the heck do I know how he does it?”: Vickrey 1993, 61.

“All I know is he wrote a book”: Vickrey 1993, 61.

Thorp’s book compared to Kefauver hearings: Vickrey 1993, 61.

“It tasted like they’d dumped a box of baking soda”: Liversidge 1988, 72.

“I know of three beatings”: Liversidge 1988, 72.

“ideal for such torture”: Reid and Demaris 1963, 44.

“Now you son of a bitch”: Reid and Demaris 1963, 44.

Head of information coding and programming:
Newark Evening News
, Mar. 19, 1965, 15.

“They were very polite”: IEEE Oral History of Manfred Schroeder, August 2, 1994.

“Singing” computer voice technically easier: Manfred Schroeder, interview.

AT&T concerns about
2001
film: IEEE Oral History of John Pierce, August 19–21, 1992.

Death on trip to Manhattan: B. F. Logan and Manfred Schroeder, interviews;
Newark Evening News
, Mar. 19, 1965, 15. All three accounts disagree on minor details. I have mostly followed Logan’s account, which was the most complete. Schroeder remembered the cause of death as a heart attack. The
Evening News
does not give a cause. The
News
says Kelly collapsed “on the sidewalk in front of the company’s [Bell Labs’] office at 57 Bethune St. Logan remembers it as being on Fifth Avenue, near IBM’s headquarters.

III. ARBITRAGE

Passed over for tenure, “disability” of being from Kansas: Samuelson 1983.

“Let those who will, write the nation’s laws”: quoted in Bernstein 1992, 113.

RHM Warrant and Low-Price Stock Survey
: Bernstein 1992, 115.

“almost as if once a week”: Kendall 1953.

“nihilism…strike at the very heart of economic science”: Samuelson 1973.

Savage thought people who disagreed with him were stupid: See recollection of William Kruskal at http://www.umass.edu/wsp/statistics/tales/savage.html.

“Ever hear of this guy?”: Bernstein 1992, 23.

“the mathematical expectation of the speculator is zero”: Bachelier 1900.

“ridiculous”: Bernstein 1992, 116.

“It is not ordained in heaven”: Samuelson 1974, 19.

Research of Treynor, Sharpe, Black, Scholes: Cited in Samuelson 1974, 17.

“I’d be a bum in the street”: See http://www.westga.edu/~bquest/2002/market.htm.

“a loose version of the ‘efficient market’ or ‘random walk’ hypothesis”: Samuelson 1974, 17.

Samuelson bought Berkshire Hathaway: Ed Thorp brought this to my attention.

“In an efficient market”: Fama 1991.

1970 article proposing three versions: Fama 1970.

Studies suggesting that private information affects prices: See Roll 1988 and Cutler, Poterba, and Summers 1989.

“A respect for evidence compels me”: Samuelson 1974.

“Random Walk Cosa Nostra” nickname: Lowenstein 2000, 35, which quotes fund manager Victor Niederhoffer.

“Unless you’re working in a certain way”: Fano, interview.

“would call someone at MIT and they’d say”: Fano, interview. Ed Thorp likewise reports a sense that he was “fighting the establishment” and says he decided “not to waste time trying to publish papers I didn’t need to publish” on market inefficiency.

“I have a nice wife, wonderful kids”: Barzman 2003, 379.

“Are you happy?”: Barzman 2003, 379.

“Entirely without funds”: Letter, Vannevar Bush to Barbara S. Burks, Jan. 27, 1939, Bush’s papers, Library of Congress.

Complained new furnishings were like stage set: Norma Barzman, interview.

Saving in zero-interest checking account: Hershberg n.d. [1986].

“I’ve always pursued my interests”: Quoted in Lewbel 2001.

“When he was working on a theory”: Chiu, Lin, Mcferron, et al. 2001, 63.

“Once he was done with something”: Betty Shannon quoted in Chiu, Lin, Mcferron, et al. 2001, 60.

“I’ve spent lots of time”: Quoted in Lewbel 2001.

Shulman’s list story: Bernstein 1984, 135.

Legend of uncashed checks in office: See Coughlin 2001; Liversidge 1987.

Books read,
Where Are the Customers’ Yachts?
: Hershberg n.d. [1986].

“Usually in my experience”: Samuelson, personal letter, June 28, 2004.

“You weren’t affected by your success in the stock market”: Liversidge 1987 (Library of Congress transcript).

“Certainly not”: Liversidge 1987 (Library of Congress transcript).

Writing theories on napkins: http://chnm.gmu.edu/tools/surveys/responses/80/

Euler’s investments: Thorp 1969, citing G. Waldo Dunnington’s
Carl Friedrich Gauss, Titan of Science
(1955).

“I can calculate the motions of heavenly bodies”: Quoted in Dunbar 2000, 1.

Arbitrage comment: Chiu, Lin, Mcferron, et al. 2001, 59.

“The Portfolio Problem”: Shannon 1956b, Shannon’s papers, LOC. The lecture notes have a cover sheet incorrectly identifying them as notes taken by Peterson. Peterson has informed me that the notes were written by Shannon himself as a handout for the class.

“You know the economists talk about the efficient market”: Liversidge 1987.

Codex history: Aftab, Cheung, Kim, et al. 2001, 20–21.

Told Berlekamp it was not the time to buy stocks: Berlekamp in “Reflections of Some Shannon Lecturers” 1998, 20.

Equation on blackboard, explanation: Thorp, interview.

Zwillman’s widow claimed to own Kinney: Bruck 1994, 32.

“Service is our middle name”: Bruck 1994, 41.

“One day, a black guy came in”: Bruck 1994, 42.

Funeral business more profitable than parking lots: Bruck 1994, 28.

Ross a card-counter: Bruck 1994, 39.

Over $30 a share: See Bruck 1994, 57.

Caesar Kimmel share value:
Forbes
, June 1, 1970, 22.

“I’ve lived with this over the years”:
Forbes
, June 1, 1970, 22–23.

$10 billion revenue, $15 billion market value: Bruck 1994, 272.

Kimmel’s death, Ivi’s age: Bruck 1994, 242.

“I realized that if I pushed it”: Liversidge 1988, 70.

“I learned an expensive lesson”: Thorp, interview.

“promptly went down the tubes”: Thorp, interview.

Steak knives defective: Thorp, interview.

Sidney Fried, RHM Warrant Service: Thorp, interview.

“I got thinking about what it is”: Thorp, interview.

Long-short trades Kelly-optimal: Thorp 1998, 21–22.

“clique of group theorists”: Thorp, interview.

Kassouf’s Ph.D. thesis on warrants: Kassouf 1966.

Weekly research seminar, no students: Thorp, interview.

$40,000 to $100,000 in two years:
Newsweek
, Dec. 18, 1967; Laing 1974.

“after several false starts, I have finally hit pay dirt”: Letter, Ed Thorp to Claude Shannon, dated Dec. 23, 1965, in Shannon’s papers, LOC.

PQ: See Samuelson 1974.

“They have too high an I.Q. for that”: Samuelson 1974, 19.

“we’d get a certain cachet”: Thorp, interview.

“staggering”: Tudball 2003, 32.

“Just as astronomers loathe astrology”: Samuelson 1968.

“We had a different degree of daring”: Thorp, interview.

$2,000 attorney fee: Thorp, interview and e-mail.

Thorp looked at list when Regan left; concluded he would be chosen: Thorp, interview.

“He was going to do the things I didn’t want to do”: Thorp, interview.

“speculative tools used for conservative ends”: Loomis 1966, 240.

Two hundred hedge funds by 1968: Gabelli 1995–2003.

Survivor bias in TASS hedge fund returns: van der Sluis and Posthuma 2003; see also Hulbert 2003.

Meeting with Warren Buffett: Thorp, interview.

Got leads at courthouse; met Evans brothers: Thorp, e-mail.

Evans and Mario Puzo: Patterson 2003.

Evans interview in pool; asked same questions repeatedly: Thorp, interview.

Fund’s investors: Kandel 1969.

“The question wasn’t ‘Is the market efficient?’”: Thorp 2004–5.

Thorp had version of Black-Scholes formula by 1967: Thorp, interview and e-mail.

Hedge fund returns: Thorp, e-mail. The figures in Ziemba 2003 are higher (they may not include fees?).

Mizusawa needed only five hours of sleep: Thorp, e-mail.

“But I don’t think I’ll be able”: Weiss 2004.