Red-Blooded Risk: The Secret History of Wall Street

Quants to Wall Street

A lot of gambling quants moved to Wall Street in the early 1980s, representing maybe 20 of the 100 or so rocket scientists who arrived around the same time. Other rocket scientists had been floor traders or other kinds of risk takers. What we had in common were quantitative training, a similar view of the world, similar aspirations, and at least several years of experience supporting ourselves with independent risk-taking activities.

We also had in common a few books, first among which were Edward Thorp's Beat the Dealer (Random House, 1962) and Beat the Market (Random House, 1967), the latter written with Sheen Kassouf. Ed was the mathematics professor who analyzed and popularized blackjack card counting, and also beat the house at other casino games. In the mid-1960s he turned to investing and invented or perfected an extraordinary number of what are now the standard hedge fund strategies. In addition, he is crucially important as the first person to expand upon and popularize the work of John Kelly (whose work was the basis of risk ignition, as explained in Chapter 3). Let me correct a possible misapprehension. I have mentioned antisocial blackjack card counters and will expand more on the type. This is not meant to disparage anyone; it is an exaggerated stereotype useful for distinguishing attitudes toward risk. However, it is most definitely not meant to disparage Ed Thorp. There is a world of difference between inventing blackjack card counting, proving ...