ED Thorp Ed Thorp cracked blackjack, used the first wearable he year is 1938. The place, about 45 miles out of Chicago. On the steps of a computer to beat roulette, started the world’s first market a boy of not quite six faces off against a perplexed looking local man quantitative hedge fund, anticipated the Black- who holds a heavy tome belonging to the kid, and studies it with some skepti- Scholes formulae by five years, and has maintained cism. “Egbert 802 to 839,” the boy begins, quietly, and in a considered consistently excellent returns through nearly forty tone somewhat beyond his years he con- tinues, “Ethelwulf 839 to 857, Ethelbald years in hedged portfolios and derivatives. 857 to 860, Ethelbert 860 to 866, Ethelred I 866 to 871, Alfred the Great Dan Tudball reviews the life of one of quantitative 871 to 901, Edward I 901 to 924, finance’s great heroes, and speaks to the Ethelstan 924 to 940, Edmund I 940 to T946, Edred 946 to 955, Edwig 955 to 959, Edgar I 959 to 972, Edward II 975 to man himself 978, Ethelred II 978 to 1016, Sven 1013 In for the C2 ouWilmott’s Greatest Hits nt CountWilmott magazine 3 ED Thorp to 1014, Canute the Great 1016 to 1035, shopping expedition the young Thorp’s physics, electronics, astronomy and remember seeing pictures of homeless Harold 1036 to 1039, Harthacnute 1039 parents and friends were sat down try- mathematics. Being most interested in people in the newspapers, tattered to 1042, Edward III 1042 to 1066, ing to induce the child to speak - still a chemistry he sat for the All-Southern- clothes and that sort of thing. It’s some- Harold...” The man’s face sets in disbe- popular pastime in the Thorp house- California high school chemistry test, thing that people of that era remember lief as the boy continues his litany; the hold. Some people stepped out of the despite being a few years younger than very vividly. Saving everything, And that book he refers to is A Child’s History Of elevator and someone asked, “Where’s other students sitting for the exam. He had an impact on me, I was very frugal England by Charles Dickens - every the man gone?” Thorp recounts the came fourth in that part of the state, for the first twenty-five years of my life entry in the chronology of monarchs moment down the line from Newport and was very proud of that result but he and this allowed me to make it through recited from this boy’s memory to per- Beach “Oh, he’s gone to buy a shirt,” so recalls that the reason why he had only university on very limited means.” With fection. The boy’s father is equally everybody’s eyes popped out and the achieved that position rather than com- money in short supply, and with a bur- taken aback. Thorp Sr had long known next question was “‘Where has the ing first was down to a new section geoning interest in expensive experi- his son was a prodigy, but this display is woman gone?’ and I answered ‘Oh, requiring slide rules. Ed only had a mentation, Ed would deliver newspa- shocking. Only moments before the She’s gone to the bathroom to do pee- 10-cent slide rule, which was “a piece of pers at three in the morning in order to fund his science. When speaking to Thorp about A child with a preternatural gift for reflection, these formative years a vivid picture is painted of a child whose critical and and independence of thought – only prepared to analytical faculties were highly devel- oped. A child with a preternatural gift commit to something, whether an idea or a course for reflection, and independence of thought – only prepared to commit to of action, after the very deepest consideration. something, whether an idea or a course of action, after the very deepest consid- eration. Ed was fascinated with Morse man had questioned how such a young pee’ and their faces turned reddish and junk” in his hands. He decided to avenge code, and was a radio ham - this in itself child could read such a weighty vol- they started to ply me with questions.” himself the following year by taking the deriving from a passion for structure ume. He’d followed that with a chal- This revelation motivated Thorp’s analogous physics test and came out and organization. Certain gifts, like a lenge to name all the kings and queens father to see how much he could teach first, by a very large margin. It was this near photographic memory, died away of England in order and with the dates his young son. Reading primers led result that got him a scholarship to UC as life required the skill less, but even to of their reigns. And here was the child, swiftly to more complex books and Ed Berkeley - without it Thorp may not this day Ed has a facility for two and nearing the end of his recitation, sud- was reading confidently by the age of have been able to advance further in three dimensional geometry – which denly looking puzzled himself “Queen three and a half, successively more com- education, money was so tight. allows him to mentally map any jour- Victoria, I know when her reign began, plex books led to the showdown at the ney he makes and very quickly draw an but I don’t know when it ended.” But market. Between the ages of five and Austerity and reason accurate map from memory. Other les- then again, neither did Dickens. ten Ed devoured every scrap of reading Ed had grown up in the Depression era, sons learnt in childhood still resonate Edward Oakley Thorp was born on material he could get his hands on. and that defining time had affected him with Ed today, his commitment to August 14th 1932 in Chicago, Illinois. Worried that he was becoming too cere- just as deeply as his contemporaries. Reason and its values. “I think as far as His parents had met in Manila, when bral at the expense of other activities, Even at six years old, Ed had begun for- the way I approach things professional- Thorp Sr was stationed with the Ed’s parents were concerned he wasn’t mulating ways to assist with the house- ly and otherwise I’m unusually rational Philippine constabulary. That the child getting out enough – they started him hold income “It was a time when every- as people go and I don’t feel like I have Thorp was different was already evi- on building model airplanes, and then body was very poor, and I remember get- any of the usual areas of irrationality dent to his parents when, even at the bought him a mineral set when he was ting 5 - cent packs of Kool Aid, making that people have. I don’t want to offend age of two and a half he had not yet ten. This was followed by a chemistry six glasses out of each pack and selling but I’ll mention things like astrology uttered a single word. This difference set, which really set Ed off. He cordoned them at a penny a glass to WPA workers and tales from olden times about things was soon recognized as prodigy when off a section of the garage for his ‘exper- out on the streets who got hot and that allegedly happened. The place I the mute child, by then nearly three, iments’ which allowed an outlet for his sweaty in the summer. I remember I may go wrong from time to time is that was taken on a shopping trip to fascination with controlled explosions. saved every cent. Fortunately my father I may not have enough experience of Montgomery Ward, a department store These explosions, lead to an explosion was in a moderately secure job and we some aspects of the world, for instance in Chicago. During a break from the of another kind; from chemistry it was always had food on the table, but I as I grew up I was very naive about peo- 4 Wilmott’s Greatest Hits ple. Until I was nine I believed that everything I saw in print was true I found it impossible to believe other- wise. Until, that is, I saw two newspa- pers with conflicting information and that particular naivety disappeared rather rapidly after that.” The deck re-stacked Back in 1914 Ambrose Bierce wrote, “The gambling known as business looks with austere disfavor upon the business known as gambling.” However during Ed’s formative years through to the late 1960s the notion that the world of finance could derive valuable lessons from the world of casinos had not become the cliché that it is today. As far as gambling was concerned, Thorp’s first brush with that world was under the tutelage of an older cousin who would take his young relative to gas sta- tions that housed illegal slot machines in their washrooms. There, Ed was shown how to jiggle the handles on the machines to pay off when they shouldn’t. Naturally, money being scarce at the time, this was a delight – however it was not until he was at uni- versity that Thorp got to seriously thinking about gambling in relation to his innate talents for mathematics and physics. And the challenge that interest- ed him then was less getting the payoff when there shouldn’t be one, but rath- er when there should.