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Edward O. Thorp's Principles

Overview

Applied mathematics and probability to gambling, arbitrage, and investing.

Style

Probability, arbitrage, position sizing, risk

Firm

Princeton/Newport Partners

Period

1932-

Edward O. Thorp

Principles

Repeatable rules that beginners can study and adapt.

Applicable principles

Understand expected value before placing a bet.

Position sizing determines survival.

Look for testable mispricings.

Do not let leverage destroy a statistical edge.

Turn these principles into a pre-investment checklist. If an idea cannot pass the checklist, staying out is often better than forcing action.