What does finding an edge mean? Finding an edge in the casino meant finding a system that won money from the casino instead of losing money to the casino. In the market finding an edge was finding a way to do better than the index fund return. [10:35]
I was able to find an edge with the first quantitative hedge fund. It ran for just under 19 years. It made twice as much as the index did and had 1/20 or 1/50 the risk. In 230 months it only had 3 down months. The index has 96 down months during that time. [11:53]
You can apply finding the edge thinking to other things—like your life. For example: not smoking. That gives you on average 7 years more of life and the years you have will be somewhat healthier. Same for exercise. A few more years of life and those years are better. It doesn’t require much. A little discipline. A clear view of what is likely to happen. [13:15]
Little things like this—if you pay attention to them—add up. They stack up in your favor. They pay off. [14:32]
I liked interdisciplinary activity. That was always part of my academic life. [26:18]
I wrote a book about Blackjack that generated a good amount of royalties. It was the first time in my life I had money. It was zero balances at the end of the month before that. I decided I needed to learn how to invest. I spent two summers studying anything I could about finance. I am a teach yourself kind of person because I had to be when I was growing up. My parents were always working. I was on my own much of the time. [26:38]
Best advice Ed has: I think one of the most important things is to learn to think for yourself on anything important. Do your own work. Think through things rather than following what “experts” say. You will make better decisions over the long run. [32:01]
Jim Simons —who built arguably the most successful hedge fund ever—spent about 20 years in the wilderness trying to figure out how to do all this. With all types of false starts, mistakes, upsets, and emotion. [45:38]
Full video here: Finding the Edge: The Work and Insights of Edward O. Thorp
Learn from founders who came before you. Every week I read a biography of a founder and tell you what I learned on Founders podcast.
