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June 28, 2024 • 1hr 2min
Business Tricks We've Learned From Gamblers, Pickup Artists, & Feynman
My First Million
In this episode, Sam Parr and Shaan Puri discuss the fascinating story of Ed Thorpe, a mathematician who applied probability theories to beat casino games and later became a successful hedge fund manager. They use Thorpe's story as a launching point to explore broader ideas about pursuing interests, believing in possibilities, and achieving success. The hosts share personal anecdotes and insights on how these principles can be applied in business and life.
Business Tricks We've Learned From Gamblers, Pickup Artists, & Feynman
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Key Takeaways
- Ed Thorpe, a math prodigy, applied probability theories to beat casino games like blackjack and roulette, making significant profits
- Thorpe went on to create one of the first quantitative hedge funds, making 20-25% returns annually for 30 years
- Pursuing interests and hobbies without expectations of outcomes can lead to unexpected breakthroughs and success
- The "Roger Bannister Effect" shows that once someone achieves a seemingly impossible feat, others quickly follow suit
- Believing something is possible is a crucial first step to achieving it - "Step 0" is having conviction it can be done
- Creating a new category for your business/product can be more effective than competing in an existing crowded category
- A "virtuous cycle" of belief driving action and results can propel continued success and growth
Introduction
In this episode, Sam Parr and Shaan Puri discuss the fascinating story of Ed Thorpe, a mathematician who applied probability theories to beat casino games and later became a successful hedge fund manager. They use Thorpe's story as a launching point to explore broader ideas about pursuing interests, believing in possibilities, and achieving success. The hosts share personal anecdotes and insights on how these principles can be applied in business and life.
Topics Discussed
Ed Thorpe's Journey from Math Prodigy to Casino Beater (00:00)
Sam Parr introduces the story of Ed Thorpe, a mathematical genius who grew up poor but excelled academically:
- Thorpe scored exceptionally high on standardized tests as a young teenager
- He earned a scholarship to Berkeley and later got his PhD in mathematics from UCLA
- As a professor, Thorpe became interested in applying probability theories to real-life situations, particularly casino games
Thorpe developed a system to beat blackjack by counting cards:
- He published a paper explaining his theory
- To prove it worked, he practiced at home with distractions to simulate casino conditions
- A mobster named Manny fronted him $10,000 (about $80,000 today) to test the system
- Thorpe made $11,000 profit in one weekend at a Las Vegas casino
Thorpe went on to write a bestselling book about his blackjack techniques, which led to casinos recognizing him and forcing him to wear disguises.
Thorpe's Roulette System and the World's First Wearable Computer (04:51)
After success with blackjack, Thorpe turned his attention to beating roulette:
- He developed a system to predict where the ball would land based on its initial position and wheel speed
- Thorpe created a small wearable computer to assist with calculations
- He used a two-person team - one to input data via foot taps, another to place bets based on the predictions
- This was considered the world's first wearable computer
"This was actually the world's first wearable. You know, like an iPhone or like an Apple Watch is a wearable. This was the world's first wearable, and it worked, and he killed it. He made a lot of money," explains Sam.
Thorpe's Transition to Investing and Hedge Funds (08:31)
After accumulating wealth from his casino exploits, Thorpe turned to investing:
- He spent months studying investing and lost money at first
- Thorpe discovered options trading and developed a mathematical approach to investing
- He focused purely on numbers rather than fundamentals of companies
- Thorpe started one of the first quantitative hedge funds
- Over 30 years, his fund made 20-25% returns annually
Sam notes that Thorpe eventually shut down his fund in 2005, saying "I have enough. I don't need anymore. This has been fun while it lasted. I'm out."
Pursuing Interests Without Expectations (12:24)
The hosts discuss how Thorpe's story exemplifies the value of pursuing interests without specific expectations:
- Many of Thorpe's breakthroughs started as hobbies or curiosities
- He approached problems from first principles, starting with basic experiments
- This approach is similar to renowned physicist Richard Feynman
Shaan shares: "Jack Smith is exactly like this...He's one of these guys...He built companies. He's sold it. His whole origin story was one of the very first podcasts on this feed."
The Importance of Belief and the Roger Bannister Effect (36:07)
Shaan introduces the concept of the "Roger Bannister Effect":
- Before Roger Bannister ran a sub-4-minute mile, it was thought to be impossible
- Within months of Bannister breaking the barrier, several others also ran sub-4-minute miles
- Simply knowing something is possible can increase the likelihood of achieving it
Shaan explains: "Just the knowledge that there is a solution actually increases your probability of getting to a solution. Just the knowledge that somebody else has found a solution without telling you how at all will increase your probability."
The Law of Category in Business (43:54)
Shaan discusses the "Law of Category" from the book "The 22 Immutable Laws of Marketing":
- It's better to own a category than to participate in one
- If you can't be first in a category, create a new one
- Examples include the "Hot Ones" YouTube show and Wander's "hotelified homes" concept
"Without taking more effort, if you simply just define a new category, you now have a reason to buy an RTB, a reason for a customer to come use your product, come use your service," Shaan explains.
The Virtuous Cycle of Belief and Action (47:52)
Shaan introduces the concept of a "virtuous cycle" as opposed to a vicious cycle:
- High conviction leads to greater action, which produces better results
- Results reinforce belief, leading to even more action
- This creates a self-reinforcing cycle of improvement and success
"If you are stuck or if you're at a plateau or you're not exactly where you want to be, step zero is you have to somehow trick yourself into raising your level of belief that it is possible," advises Shaan.
Shaan's Blackjack Adventure (50:06)
Shaan shares a personal story about attempting to count cards at a casino:
- Inspired by books on card counting, he and friends developed a system
- They practiced for weeks and traveled to a riverboat casino to try their strategy
- The plan fell apart due to real-world complications and nerves
- They lost all their money on one bad hand
This led to a failed attempt to run their own underground blackjack game at college, highlighting the importance of considering all angles, including legal risks, in business ventures.
Conclusion
The episode uses Ed Thorpe's remarkable story as a springboard to discuss broader principles of success and innovation. Key themes include the value of pursuing interests without expectations, the power of belief in achieving seemingly impossible goals, and the importance of creating new categories in business. The hosts emphasize that while hard work and "eating s**t" may be necessary at times, following genuine interests and believing in possibilities can lead to unexpected breakthroughs and success. They encourage listeners to apply these principles in their own lives and business ventures, always keeping an open mind to new opportunities and approaches.