Master Investor Ed Thorp on How to Think for Yourself, Mental Models for the Second Half of Life, How to Be Inner-Directed, How Basic Numeracy Is a Superpower, and The Dangers of Investing Fads (#604)

“An important thing for everyone is to think about the world and society as us instead of me and to try to act that way and to think longer term. Think about how the things one does affects the people around not only right away but down through the years.”

— Edward O. Thorp

Edward O. Thorp (@EdwardOThorp) is the author of the bestseller Beat the Dealer, which transformed the game of blackjack. His subsequent book, Beat the Market, coauthored with Sheen T. Kassouf, influenced securities markets around the globe. He is also the author of A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market.

Edward was one of the world’s best blackjack players and investors, and his hedge funds were profitable every year for 29 years. He lives in Newport Beach, California.

You can find our first conversation here.

Please enjoy!

Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Stitcher, Amazon Music, or on your favorite podcast platform. You can watch on YouTube here.

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The transcript of this episode can be found here. Transcripts of all episodes can be found here.

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Want to hear Ed’s first time on this show? Have a listen to our conversation here, in which we discuss applying math to gambling, beating roulette with the first wearable computer, longevity regimens, impressing Warren Buffett, investment skills that transfer to other areas of life, methods for enacting positive change, lifelong learning, and much more.

What was your favorite quote or lesson from this episode? Please let me know in the comments.

SCROLL BELOW FOR LINKS AND SHOW NOTES…

SELECTED LINKS FROM THE EPISODE

• Connect with Edward O. Thorp:

Website | Twitter

• Beat the Dealer: A Winning Strategy for the Game of Twenty-One by Edward O. Thorp | Amazon
• Beat the Market: A Scientific Stock Market System Edward O. Thorp and Sheen T. Kassouf (PDF) | ResearchGate
• A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market by Edward O. Thorp | Amazon
• Edward O. Thorp, A Man for All Markets — Beating Blackjack and Roulette, Beating the Stock Market, Spotting Bernie Madoff Early, and Knowing When Enough Is Enough | The Tim Ferriss Show #596
• Stock Warrants vs. Stock Options | Investopedia
• Call Option | Investopedia
• Numeracy | Wikipedia
• The Two Cultures and the Scientific Revolution by C.P. Snow | Amazon
• Why Averages Are Often Wrong | Towards Data Science
• Compound Annual Growth Rate (CAGR) | Investopedia
• Bad Science: Quacks, Hacks, and Big Pharma Flacks by Ben Goldacre | Amazon
• Schaum’s Outlines | Amazon
• Calculating the Day of the Week in Your Head | K5 Learning
• Doomsday Rule | Wikipedia
• Rain Man | Prime Video
• 5 Mind-Blowing Things Kim Peek Could Do That You Can’t | ABA
• Rule of 72 | Investopedia
• Ed Cooke, Grandmaster of Memory, on Mental Performance, Imagination, and Productive Mischief | The Tim Ferriss Show #52 & #53
• Quit Smoking, Invest, Profit: See How Much You’d Have by Retirement | Make Use Of
• A Brief History of Equality by Thomas Piketty and Steven Rendall | Amazon
• Mathemagics: How to Look Like a Genius Without Really Trying by Arthur Benjamin and Michael Brant Shermer | Amazon
• Arthur T. Benjamin | The Great Courses
• Leading Global Market Maker | Citadel Securities
• What Are Hedge Funds? | Investopedia
• Investing in Amazon Stock (AMZN) | Investopedia
• More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby | Amazon
• The Power Law: Venture Capital and the Making of the New Future by Sebastian Mallaby | Amazon
• Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay | Amazon
• Extraordinary Popular Delusions and the Madness of Crowds | Wikipedia
• Crypto Winter Has Had a Chilling Effect on Coinbase and Robinhood | CNN Business
• How r/WallStreetBets Gamed the Stock of GameStop | The Verge
• What Your Body Shape (Apple, Pear, Carrot) Means for Your Health | Edward-Elmhurst Health
• Avatar | Prime Video
• Osteopenia (Low Bone Density): What Is It, Prevention, Symptoms, Causes & Treatment | Cleveland Clinic
• Mediterranean Diet 101: A Meal Plan and Beginner’s Guide | Healthline
• Mister Rogers Consistently Weighed 143 Pounds. The Significance Behind That Number | Biography
• The World of Guinness
• 9 Famous Thinkers from History Who Were Habitual Walkers | Flâneur Life
• Classical Music | Wikipedia
• Jazz | Wikipedia
• Preventing the Spread of the Coronavirus | Harvard Health
• The Unthinkable: Who Survives When Disaster Strikes — And Why by Amanda Ripley | Amazon
• Three Stages of Disaster Response | AvoidDenyDefend.org
• How the Texas Freeze Left an Austin Community in Crisis | Vox
• The Lonely Crowd: A Study of the Changing American Character by David Riesman, Nathan Glazer, and Reuel Denney | Amazon
• Yelp and the Wisdom of “The Lonely Crowd” | The New Yorker
• Myers–Briggs Type Indicator | Wikipedia
• Finasteride: Side Effects, Dosage, Uses, and More | Healthline

SHOW NOTES

• [06:39] The value of long-term thinking and the price of short-term thinking
• [07:57] What is a common stock warrant?
• [09:52] Why are people generally poor at taking longer term (or alternative) perspectives?
• [11:08] Conversing about numeracy and common misunderstandings
• [15:00] How to become more numeracy literate
• [20:18] It’s Raining Man
• [22:31] The Rule of 72
• [26:14] Making the best financial decisions with unknown variables
• [35:57] How to have fun learning about probability and statistics
• [37:47] How to get an edge in hedge fund investing (with book recommendations)
• [46:23] Ed’s methods for losing (or maintaining) weight and looking 60 in spite of being almost 90 years old
• [53:38] Favorite beer
• [55:03] Music as stress reduction
• [56:02] Avoiding unnecessary risks
• [1:04:12] The age-guessing experiment
• [1:06:17] Other-directed vs. inner-directed and takeaways from The Lonely Crowd by David Riesman
• [1:14:35] How an 89-year-old maintains hair growth
• [1:17:20] Using scrap time
• [1:19:45] A big change in Ed’s later life that increased its quality
• [1:22:16] New reflections, future hopes, and parting thoughts

MORE GUEST QUOTES FROM THE INTERVIEW

“When I meet somebody, I don’t think about them as being in any particular category. I think that as far as I’m concerned, they’re my equal and they know things I don’t know. I probably know things they don’t know too, but I can learn from them. And I usually try to hear what they have to say instead of telling them what I have to say.”
— Edward O. Thorp

“Measurement is important because you want facts on which to base what you do instead of hopes, beliefs, wishes, so on.”
— Edward O. Thorp

“You can work out and be fit and have high aerobics and so on, but if you’re not going in for routine colonoscopies and skin cancer checks and so on, you’re leaving a big risk factor open for yourself. So you’ve got to try to get rid of the risks that you can cover.”
— Edward O. Thorp

“Thinking long-term is one thing that running a marathon teaches us.”
— Edward O. Thorp

“The value of being around good people and not being around a few bad people is much higher than it ever was before.”
— Edward O. Thorp

“An important thing for everyone is to think about the world and society as us instead of me and to try to act that way and to think longer term. Think about how the things one does affects the people around not only right away but down through the years.”
— Edward O. Thorp

“A lot of these things that you make better now, for the future, will actually benefit us a lot sooner than you might think”
— Edward O. Thorp

PEOPLE MENTIONED

• Sheen T. Kassouf
• C.P. Snow
• Jeff Bezos
• Elon Musk
• Ben Goldacre
• Daniel Schaum
• John Horton Conway
• Dustin Hoffman
• Kim Peek
• Ed Cooke
• Thomas Piketty
• Arthur Benjamin
• Ray Dalio
• Sebastian Mallaby
• Charles Mackay
• James Cameron
• Fred Rogers
• Benjamin Stein
• Herbert Stein
• Milton Friedman
• Amanda Ripley
• David Riesman
• Katharine Cook Briggs
• Isabel Briggs Myers
• Michael Phelps