Edward Thorp

Dr Edward O. Thorp, the phenomenal mathematical talent from the United States, has a resume that reads like something out of a movie. Thorp has taken both the gambling and investment communities by storm. In 1949, Thorp conceived of a system to beat roulette by physical prediction and went on to invent (with Claude Shannon) the first wearable computer to successfully predict roulette outcomes in Las Vegas.

Ed Thorp is best-known for being the genius who devised a system to beat the game of Blackjack. His card counting strategy was outlined in his 1962 best-selling book (and still in print) book, Beat the Dealer. Several experts have acknowledged that Beat the Dealer single-handedly changed the future of Las Vegas. The book has sold over 600,000 copies, and thrust Edward O. Thorp into the public limelight.

Moving to the world of investment, Thorp formulated (with Sheen Kassouf) the concept of delta hedging - a key step towards Black-Scholes. Using intuitive and plausibility arguments he guessed and applied what would later come to be called the Black-Scholes formulae, in the correct risk-neutral form, to make himself a fortune in the stock market from 1967 onward.

He then founded (in 1969 with Jay Regan) the first market-neutral derivatives-based hedge fund, Princeton-Newport Partners, that produced a legendary track record. Amongst others, he ran the statistical arbitrage based Ridgeline Partners (1992-2002).

Thorp’s investment pools have shown a profit during each of the 42 years between 1966 and 2003 with annualised returns to investors averaging 15% to 20%, depending on the entity.