Fortune's Formula

The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

William Poundstone

Hill and Wang

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In 1956 two Bell Labs scientists discovered the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein’s. The other was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of making as much money as possible, as fast as possible.

Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenonally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Fortune’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.

Shannon believed it was possible for a smart investor to beat the market—and Fortune’s Formula will convince you that he was right.

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Excerpted from Fortune’s Formula by William Poundstone. Copyright © 2005 by William Poundstone. Published in September, 2005 by Hill and Wang, a division of Farrar, Straus and Giroux, LLC. All rights reserved.
 Prologue:
The Wire Service


The story starts with a corrupt telegraph operator. His name was John Payne, and he worked for Western Union’s Cincinnati office in the early 1900s. At the urging of one of its largest stockholders, Western Union took a moral stand against the evils of gambling. It adopted a policy of refusing to transmit messages reporting

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Reviews

Praise for Fortune's Formula

Praise for Fortune's Formula:

“Seldom have true crime and smart math been blended together so engagingly.” -- The Wall Street Journal

“An amazing story that gives a big idea the needed star treatment . . . Fortune's Formula will appeal to readers of such books as Peter L. Bernstein's Against the Gods, Nassim Nicholas Taleb's Fooled by Randomness, and Roger Lowenstein's When Genius Failed. All try to explain why smart people take stupid risks. Poundstone goes them one better by showing how hedge fund Long-Term Capital Management, for one, could have avoided disaster by following the Kelly method.” --Business Week (four stars)

“’Fortune’s Formula’ may be the world’s first history book, gambling primer, mathematics text, economics manual, personal finance guide and joke book in a single volume. Poundstone comes across as the best college professor you ever hand, someone who can turn almost any technical topic into an entertaining and zesty lecture.” —The New York Times Book Review

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About the Author

William Poundstone

William Poundstone is the bestselling author of nine nonfiction books, including Labyrinths of Reason and The Recursive Universe.

William Poundstone

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Available Formats and Book Details

Fortune's Formula
The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
William Poundstone

e-Book Agency

e-Book Agency
Farrar, Straus and Giroux
Hill and Wang
June 2010
e-Book Agency
ISBN: 9780374707088
ISBN10: 0374707081
5 1/2 x 8 1/4 inches, 400 pages, Includes 8 Pages of Black-and-White Illustrations, 13 Graphs and Charts, Notes, a Bibliography, and an Index
$9.99

Trade Paperback

Trade Paperback
Farrar, Straus and Giroux
Hill and Wang
September 2006
Trade Paperback
ISBN: 9780809045990
ISBN10: 0809045990
5 1/2 x 8 1/4 inches, 400 pages, Includes 8 Pages of Black-and-White Illustrations, 13 Graphs and Charts, Notes, a Bibliography, and an Index
$16.95
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Hill and Wang

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