Beat the Market: A Scientific Stock Market System

near mint 2nd printing of Mr. Thorp’s theories on investment strategies; used very successfully by him in his position as a hedge fund manager

Community Review

  • options are not for everyone, and a book written in 1967 is outdated.
    the book was not a success, as it was never updated.
    The author also wrote “beat the dealer” about card counting in 21.
    another system which is not for everybody, and -if you believe the movies- can
    lend you in the hospital, when you are caught counting in the casino.
    to some people, both systems are plain boring
    and rather demanding. if not nerve-wrecking.
  • The strategies in this wonderful book are only employable in Asia now, and in very limited ways (often insurance and bank stocks and bonds) but you take a lot of liquidity risk, so I’m not sure if you are still paid alpha over an expected return.

    Still, a marvellous read. Pre-dates the Black-Scholes by five years, but in a replicating portfolio no-arbitrage method (which implies a lognormally distributed expected equity return) which Thorp then correctly pointed out was arbitrageable.

    This book also serves as a curious filter rule. Those who read this and understand the old world and Thorp’s method most likely can see current methods and models and break them down and differentiate them into tractable and fantasy. Credit structures who’ve relied on standard cash-flow and default probability metrics would have done well to start with Thorp to see how what they construct can be de-constructed by clever boots who see both the strengths of the original construct, and the copula methods and correlation assumptions in the structure (and its decay) to make arbitrage opportunities. In other words; if they read Thorp and “get it” they have a lower likelihood of being hoodwinked going forward.

  • E. O. Thorp has made a tremendous career from finding opportunities and properly exploiting them as advertised in this ground breaking book. There is no one in the financial world who has had a better risk-adjusted return than Thorp for the last 30 years.

    Virtually unknown is the fact that years before, Thorp invented/discovered the formula that is attributed to Black-Scholes, with the exception of the risk-free interest rate factor, because of existing market structure that prevented interest from being a factor.

    And Thorp’s treatment of the Kelly Criterion makes this a standout work.

    Since many have never read this book yet or tried to apply the principles that Thorp revealed in this book, it would be easy to dismiss this as some worn-out idea that has come and gone. Far from it. There is a reason that the few copies that were printed are still in demand.

    The old saying is that those who can, do – while those who can’t, teach. Thorp proved that he was the former.

    If the principles from the book are understood the execution in different markets becomes apparent. In the last 20 years, I have applied the method in different forms in stocks, futures markets and LEAPS, with returns that exceeded the benchmarks stated in the book, with the same relative safety factors.

    As long as there are people making investment decisions; who change their views as to whether a tradeable is cheap or dear, the opportunity for this method will remain infinite.

  • It is a fact that serious wealth can be accrued through regular investment in the stock market over time. However, because it is complex and has a lot of volatility, improving your position in the beginning can be quite challenging. This article will give you a variety of tips that you can implement to become more successful in the stock market.

    If it seems too good to be true it probably is. If a return is being guaranteed, there’s a good chance that fraud is involved. There is no way to take part in investing without some risk and any broker that tells you otherwise is lying. This is not a person that you want to place your money with.

    Companies with wildly popular goods or services that seemed to gain visibility overnight should normally be avoided. Instead, wait to see if the business does well in the long term, or it could easily lose its value as quickly as it found it. You might want to stick to reliable products instead of fads when choosing stocks.

    Remember that individual stocks do not necessarily represent the entire market. A decent stock may soar while the overall market tanks, while a bad stock may plunge in value when the rest of the market is thriving. This is why it’s a good idea to diversify the types of stock you own, choosing stocks from a variety of companies in many different industries.

    Create your own index fund. Choose an index you would like to track, like the NASDAQ or Dow Jones. Buy the individual stocks that are on that index on your own, and you can get the dividends and results of an index mutual fund without paying someone else to manage it. Just be sure to keep your stock list up to date to match the index you track.

    Purchasing investment management software will really help you out if you are just starting with your investing. It is best to buy one software that will help you manage your money (profits, losses, subscriptions you pay for and stockbrokers you use). You should also buy a second software that you can use to track stocks, fund prices, company news, and any analysis that you perform.

    If you want to pick the least risky stock market corners, there are several options to look for. Highly diversified mutual funds in stable and mature industries are your safest bet. Safe individual stocks would include companies that offer dividends from mature business and large market caps. Utilities are non-cyclical businesses that are very safe. The dividends are almost as reliable as clockwork, but the growth potential is negligible.

    Strong, long-term investments are a smarter choice than rapid-fire trading. With the rapid pace at which the market fluctuates, not to mention fees and taxes that are applied to short-term trades, it is almost always a better idea to hold onto a few good stocks. When you do the required research and select a company and stock that has a promising future, the small daily fluctuations in price will be negligible, in light of the long-term gains that you will see, if you hold onto your shares.

    You can use the stock prices to track earnings. Short-term market behavior is generally based on fear, enthusiasm, news, and rumors. Long-term market behavior is mainly comprised of company earnings. These earnings can be used to determine whether or not a stock’s price will rise, drop or go completely sideways.

    As mentioned at the beginning of this piece, stock market investing can mean both great reward and significant intimidation. Keep this article in mind, as you start or continue to invest. Applying what you have learned will help you to make more money in the stock market.

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