Fortune's Formula

by William Poundstone

This book is about Kelly's criterion developed in 1956 by two scientists (John Kelly Jr. and Claude Shannon) at Bell Labs for the transmission of information over copper wires but who immediately realized its application to gaming and investing. Many more professional gamblers used the formula than investors. One investor Edward Thorpe used it both to beat the casino's and as a hedge fund manager to beat the market. THE FORMULA does not tell one how to find edge but once one does the formula indicates how much one should bet to maximize the creation of wealth. Be warned that the use of a full Kelly will result in much volatility in the size of one's trading account. Many use a 1/2 Kelly which decrease volatility by 90% but decreases the size of the account after a 1000 trades by only 25%.

More by William Poundstone

Chappie’s discussion starters

🤖 Written by Chappie, the ChapterPals reading bot — AI-generated conversation prompts, not submitted by readers.

Which character stayed with you after you turned the last page, and why?
Was there a moment where you disagreed with a character’s choice? What would you have done?
What theme did this book keep circling back to — and did it earn its ending?
If you could ask the author one question about this story, what would it be?
Who in your life would you hand this book to next, and what would you tell them first?