"making millions the easy way" documentary

Discussion in 'Educational Resources' started by richardyu301, Apr 16, 2006.

  1. Thanks for posting the PDF, should be an interesting read.
  2. zxcv1fu


    Since the late 1960's he has used his knowledge of probability in the stock market and by discovering and exploiting a number of pricing anomalies in the securities markets he has made a significant fortune. He is now president of "Edward O. Thorp & Associates" in Newport Beach and manages a hedge fund.

    Princeton-Newport was Thorp's first hedge fund and it achieved an annualized net return of 15.1 percent over 19 years. In May 1998 Thorp reported that his personal investments yielded an annualized 20 percent rate of return averaged over 28.5 years.

    These days, Thorp trades about 4.5 million shares in as many as 3,000 transactions a day. Looking for "short-term mispricings," he shorts the overpriced and buys the underpriced. If he's right just better than 50 percent of the time, he'll make money. "Each trade has about a one-half-a-percent edge when it's put on," Thorp claims, "but we end up losing about a quarter of a percent to transaction costs--spread, commissions, SEC taxes--so we end up with a net edge of about a quarter of a percent on each trade. If we can do a tenth of a percent a day, we're going to have a real good year." The goal is simple. "What we try to do is make 15 percent or more, annualized, for investors year after year, with low risk," says Thorp, who, because he holds hundreds of positions, will not be undone by a single mistake. Since its start in August 1994, Thorp's Ridgeline Partners fund has returned about an annualized 30 percent before fees (about 23 percent after fees). He says the fund has had positive returns in 82 percent of its months in operation. What makes this extraordinary performance all the more impressive during the market's long rise is that a typical day's return has only a slight positive association with the direction of the market: The fund's beta is just 0.1. (A beta of 1.0 means the performance of a stock or a fund essentially matches that of the Standard & Poor's 500 Stock Index; index funds that track the S&P usually have betas between 0.98 and 1.02. Betas above or below 1 indicate, respectively, more or less volatility.) In short, Thorp is beating the market while taking on less risk than the market itself offers investors.

    Why he does not sell his system or open a chat room to make money? Is it he made tons of money from the market he does not have to:cool:
  3. nbates