The Story of Ed Thorp and How He Beat the Casinos
Casinos and other gambling establishments have the edge over the players, and this edge is usually big enough that no amount of strategy can really negate it in the long run.
Before 1962, casino owners and players alike believed that all casino games are inherently “rigged” in favor of the house, which is why casinos openly welcomed players with a playing “system.”
Edward O. Thorp (known as Ed Thorp) was the man who changed all this by proving that some casino games could be beaten by using pure logic and intellect without any cheating.
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BornEdward Thorp biography is astounding. The famous mathematician, statistician, and stock market investor made a name for himself by working on games such as blackjack, baccarat, and roulette. Ed Thorp net worth is estimated at $800 million.
This is the story of Edward O Thorp, the man who invented card counting in blackjack, who wrote the blackjack book and probably cost casinos worldwide more money than any other man who ever lived without cheating or stealing a penny.
Ed Thorp Highlights
- Got a Ph.D. in mathematics at the age of 26
- Discovered the first card counting system for blackjack
- Wrote the book “Beat the Dealer” in 1962
- Inspired card counters around the world, including the MIT Team
- Made millions in the stock market
- Wrote multiple bestselling books on gambling and the stock market
- Caught the Bernie Madoff scam 17 years before it was exposed.
Who Is Edward Thorp?
Born on August 14, 1932, Edward Oakley Thorp is an American math professor who invented the first card counting system and became known in the world as the man who beat the casinos.
Thorp was born in Chicago and spent his youth pursuing mathematics and probability as his fields of study. In 1958, at just 26 years of age, he received a Ph.D. in mathematics at the University of California with his thesis “Compact Linear Operators in Nomad Spaces.” Right after getting this degree, Edward O Thorp worked at the prestigious MIT, the school that would later give birth to the famous MIT blackjack team.
His career as a mathematics professor also included stints at the New Mexico State University between 1961 and 1965 and the University of California, Irvine between 1965 and 1977.
Yet, Ed Thorp’s academic work as such is not what made him famous among the general public, although his work related to gambling did, in fact, start in a classroom.
“In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them. I chose to investigate blackjack. As a result, chance offered me a new set of unexpected opportunities.”
Edward O. Thorp Discovers Blackjack Card Counting
Ed Thorp discovered gambling and card games while on a newlywed’s trip to Las Vegas with his wife and immediately noticed that all the games that were being spread were directly related to mathematics, his life’s passion.
Using an IBM 704 computer and his newly-acquired skills in the programming language Fortran, Thorp started looking at the game of blackjack from a strictly scientific point of view.
After reading the research paper related to “The Kelly Criterion,” Thorp started looking at different ways that a player could possibly get an advantage over the house.
What became clear to him fairly quickly is that the odds of winning would change based on the cards that were left in the deck, an idea that researchers had previously missed and that led Edward Thorp net worth to hundreds of millions.
In a short time, Thorp came up with a method, today known as the Edward Thorp blackjack strategy, that included keeping track of the cards that were dealt face up and increasing the bet to give the player an edge over the casino.
He wrote a paper about his findings and was about to present it at an American Mathematical Society conference in Washington, expecting a small crowd of his peers. Instead, he was greeted by gamblers, media, and others who were interested in his theory.
In 1962, Edward O. Thorp wrote the book “Beat the Dealer” which explained the card counting technique in great detail, as well as ways one could use the strategy in an actual casino.
At first, casinos across America did not believe the Ed Thorp blackjack strategy or care about its existence, but the popularity of the book and rising numbers of card counters became problematic.
Thorp’s first practical tests took place in Reno and Las Vegas, financed by professional gambler Manny Kimmel. Thorp and his team were successful in beating the house, as were many others who used the same technique.
It turned out that the card counting strategy developed by Thorp was, in fact, giving players a significant edge over the house, and improved versions of it along with various social engineering strategies were now beating the casinos for significant amounts of money.
At the time, the gambling world was dominated by mobsters, who did not look kindly on anyone trying to take their livelihood or “cheat” them out of their hard-earned money.
Ed Thorp would later claim that he was even drugged in a Las Vegas casino at one time and that his car was tampered with to cause a fatal accident, although this was never proven.
As times evolved, casinos tried to outlaw advantage play as cheating and started implementing other measures to prevent card counters from being successful.
Thorp’s book on blackjack sold in more than 700,000 copies and made the New York Times bestseller list, with thousands of copies still being sold every year to this day.
Card counting is not as easy as it used to be since casinos now shuffle the decks more often and use more decks simultaneously, but the principle of card counting in blackjack remains a legitimate one in 2022.
Thorp’s Work on Baccarat and Roulette
Edward’s findings on blackjack and the subsequent measures that casinos took to prevent card counting gave the math genius ideas about how to beat other games as well.
In the 60s, Thorp developed techniques that could be used to beat the game of baccarat, with a similar concept of card counting being used at the baccarat tables.
According to Thorp, the game of baccarat is infinitely more profitable for the casinos, as they rake in as much as eight times more profit at baccarat tables than blackjack.
Thorp’s baccarat strategy also worked but met with similar problems as the blackjack one, which is why he also looked into the game of roulette.
Roulette could not be beaten with any counting or brains alone, and it was clear that a gadget would need to be used to beat the house.
Thorp enlisted help from Claude Shannon, an expert on information theory, and together they developed a computer that could predict the outcomes of a roulette spin by tracking the speed of the ball and the wheel.
This device was used by Thorp and his colleague in actual casinos with success, and various versions of such a wearable computer that could fit in one’s pocket are still used by roulette players in the world to this day.
That said, the use of wearable computers and electronic gadgets to play casino games is now actually against the law in the US and some other countries, so one should be careful about applying any such gadgets.
Edward O Thorp Graduates to the Big Leagues
Ever since the 1960s, the same time when he got into casino games research, Thorp started investing in the stock market. He traded almost 100 billion dollars during his career, so it’s no wonder that Ed Thorp net worth is estimated at roughly 1 billion dollars.
His brilliant mind found ways to make significant profits in the market. In 1967, he published the book “Beat the Market” which described in detail his arbitraging system, which relied on the price differences between two correlated commodities.
Using this investing system and the bankroll he acquired from his blackjack card counting techniques, Thorp was able to amass wealth and start his first hedge fund.
His first hedge fund was called Princeton Newport Partners and was so successful that it was turning down any investor who could not produce a $10 million investment within a few years.
By the middle of the 1970s, Thorp had made millions in the market and was still inventing new ways to make unprecedented profits on the exchange.
Thorp’s company was indicted and convicted of fraud in 1987, although Thorp himself was not implicated in the scandal. This led to him leaving the hedge fund.
In 1991, Thorp was working as a financial consultant for a client and came across a portfolio which included trades with Bernard Madoff. He did not approve of these trades and consulted his client that Madoff was trying to defraud him.
Sure enough, Madoff was exposed as a con artist in 2008, 17 years after Thorp was aware of the fraud.
Thorp says he didn’t blow the whistle at the time due to his obligation to preserve his client’s confidentiality. Unfortunately, the client did not heed the advice and lost significant funds on the Madoff investments.
Where Is Thorp Today?
Today, Edward Thorp is 89 years old and still going as strong as ever. Believe it or not, Thorp is still sharp and has a lot to say about investments of all sorts, which he does on occasion in interviews he gives to the media and others who care to listen.
Thorp wrote a book called “A Man for All Markets”, in which he compared the world of gambling and the world of investing and showed how the two were similar and how he was able to beat both.
Ed Thorp has stepped away from the world of gambling, mostly because he sees the stakes as too low these days since he is used to trading in millions on the stock exchange.
Thorp continues to trade in all sorts of commodities in his old age and remains a force to be reckoned with even these days when his investments are not as large as they used to be.
In 1998, Thorp demonstrated that he could make a return on investment of 20% over 28 years of his investing career, an incredible feat by any measure.
While he beat the market for millions playing all sorts of fields, Edward Thorp recommends people invest in low-cost index funds and play it safe.
As he says, the playing field is usually tilted in favor of the wealthy, and the majority of all wealth is accumulated due to the crooked playing field.
If you want to profit, you should avoid getting into the trap of trying to win under such circumstances or find a way to tilt the playing field in your favor.
Does Card Counting Still Work?
The one thing you are probably still wondering after reading all about Edward O. Thorp is whether or not you can still profitably count cards in a casino.
The short answer is yes; you can still count cards and probably make a profit. However, there are many obstacles standing in your way.
First of all, any major casino in the world now uses a shoe with multiple card decks in it, making card counting significantly more difficult. Secondly, the dealers will shuffle the deck more often, which will make any counting efforts worth much less, as your count will rarely be significant enough. Finally, casinos are used to banning players who try to count and have developed techniques to recognize card counters quickly and effectively.
Yet, if you can find a casino that is not as proficient in these measures, you may still be able to use Ed Thorp’s work and profit in the blackjack game. Just keep in mind that card counting is not what it used to be, and you will need to make quite an effort to find a place where you can successfully count cards without any ramifications.
FAQ
How Did Edward Thorp Become Rich?
Edward Thorp won a huge amount of money at the card tables in casinos across the US. After his success with casino games, Thorp moved into playing the stock market and launched his own hedge fund, Princeton Newport Partners, which was one of the most successful for 20 years. He also made a vast amount of money by investing in Warren Buffet's company Berkshire Hathaway.
What Is Ed Thorp Most Famous For?
Ed Thorp is best known as the father of modern card counting. He was the first to devise a system that could give players a significant advantage in single-deck blackjack games, which at the time were widely available in casinos. He later published the book "Beat the Dealer", which became a New York Times bestseller straightaway after selling 700,000 copies.
What Is Edward Thorp's Net Worth?
Edward Thorp has an estimated net worth of $800 million. He continues to make money from his shares in Berkshire Hathaway, but he has never revealed how many he owns.
What Is Edward O Thorp Doing Now?
Born in 1932 and with a vast personal fortune, Edward Thorp could have retired long ago. However, he is the President of Edward O. Thorp & Associates, and he is known to still take an interest in the trading world.
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