The stories of three mathematicians that beat the house and the market to earn $26 billion dollars.
Mathematics is the language of the universe, and those who understand it can harness its power to make incredible fortunes. The world’s richest gamblers are those who have mastered the art of probability and used it to their advantage.
Whether it’s playing poker or investing in the stock market, these individuals have used their mathematical skills to make billions of dollars. And in many cases, they have done it without any inside information or influence on the economic scene.
So what makes mathematicians so powerful? It’s the ability to see patterns and relationships that others can’t. And in the world of gambling, those who can see these patterns and relationships are often the ones who come out on top. Let us look at a couple of examples of success stories:
Chris Ferguson, a professional poker player and winner of over $9.6 million in prize money, is something of a legend in the casino world. But what many don’t know is that Ferguson is also a math genius, using his skills to calculate the odds and make the right moves to win big.
Ferguson began playing poker while studying at UCLA and quickly realized that he had a talent for the game.
Ferguson’s biggest win came in 2000, when he took down the first-ever World Series of Poker Main Event, earning a massive $1.5 million payout. Since then, he has continued to rack up winnings and is now widely considered to be one of the best poker players in the world.
What makes Ferguson special is his contribution to implementing GTO (Game Theory Optimal) strategies in poker. His methods removed all emotion from the game and focused purely on game theory and statistics, which resulted to be quite profitable for him.
In the world of finance, there are few figures more legendary than Jim Simons. A former codebreaker for the U.S. Department of Defense during the Cold War, Simons is now a billionaire hedge fund manager who has used his mathematical genius to achieve unparalleled success in the markets.
Simons is the founder of Renaissance Technologies, a hedge fund that uses complex algorithms to trade in financial markets. Since its inception in 1982, Renaissance has generated incredible returns for its investors, averaging 66% annualized before fees and 39% after fees.
Simons is a true math whiz, with a remarkable ability to solve complex problems. The most profitable fund under Renaissance Technologies — The Medallion Fund is legendary in the investment world. During the 2008 financial crisis, the fund posted a gain of +82% net of fees, while the S&P 500 lost -37%.
There is no doubt that Jim Simons is one of the smartest investors in the world. His success in using math to earn billions is a testament to his genius. He has been able to attract some of the brightest minds in the world to work for his hedge fund company which further enhances the development of new profitable investment methods.
Simons has also made contributions to the fields of mathematics and physics. He and his team developed numerous quantitative analysis systems that have dominated the hedge fund world for over twenty years.
As reported by Bloomberg Billionaires Index, Simons’ net worth is estimated to be $25.2 billion dollars, making him the 66th-richest person in the world
Edward O. Thorp is an American mathematician, professor, and hedge fund manager. He is the author of 1962 “Beat the dealer”, which outlined various card counting techniques for winning at blackjack. He is also the author of the 1968 “Beat the market”, which proposed the first systematic model for using arbitrage and hedging principles to beat stock market indexes.
In the early 1970s, Thorp became the first person to successfully employ a market timing strategy for mutual funds, earning him the title “the father of the mutual fund.” In 1976, Thorp founded the first hedge fund to employ a quantitative approach to investing, which he called “the convertible arbitrage.”
This strategy, which Thorp called “the most powerful in the world,” generated incredible returns for its investors for over a decade. Thorp’s hedge fund, Princeton-Newport Partners, was one of the most successful hedge funds of the 1980s, earning its investors an average of more than 20% per year.
Edward’s net worth is estimated to be $800 million dollars.
More hall of fame names:
A common belief is that only short-term traders rely heavily on technical analysis, while long-term investors use a more fundamental approach. The reality is that both methods work and a certain combination of both is best for the highest precision when investing.
From the history of wealth management firms that rely mostly on technical analysis, we can see that when it is done right it can be one of the most lucrative ways to exploit the market. This is contrary to the widespread lie that “technical analysis is astrology for men” or “technical analysis is just gambling”.
What people rarely mention in the discussion of fundamental investing on the other hand is that the largest institutions in the world have two key things that give them an edge over the rest of the market:
1) Influence on the economic scene:
There is a reason why many people dislike the investment approach of George Soros and wealth management firms like BlackRock. They have a large amount of capital to leverage, which gives them the power to influence markets and create wealth on a scale that few others can match, but that is not everything.
Additionally, it is common knowledge that institutions from that height have a huge influence on the mass media, so as soon as they decide to move in or out of an investment sector, all other investors have to follow suit.
BlackRock alone controls more than $10T and has a stake in most major financial institutions and economies in the world. Even if you are not directly invested in them, your bank, government, or pension fund is likely to be.
BlackRock is frequently criticized for funding climate destruction by supplying fossil fuel companies with a steady stream of capital leading to exponential risks for the planet, both environmental and financial.
A famous story about George Soros is from 1992 when the British pound was in crisis, and he single-handedly “broke the Bank of England” and made $1B in a single day by betting against the value of the British pound.
On September 16, 1992, George Soros made history by successfully executing a short sale of $10B worth of Pound Sterling, earning him a profit of $1B in a single day.
By doing so, he effectively “broke” the Bank of England, which was forced to devalue the English Pound in order to avoid complete financial collapse.
Takeaway: big players can build an economic architecture that suits their needs and empowers them, no matter what the consequences may be to the rest of the population.
2) Insider trading:
Insider trading is a type of securities fraud that occurs when a person uses non-public information about a company to make trades in its stock.
This can be done by buying or selling the stock, or by recommending that others do so.
There are two primary types of insider trading: legal and illegal
Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally.
Illegal insider trading occurs when a person trades stock based on material, nonpublic information. This type of trading is a violation of securities laws and can be punished with fines and jail time.
Here are three examples of insider trading:
1. One of its employees was taking part in an NFT-related insider trading scheme on the NFT platform OpenSea
2. Owner and principal of investment fund sentenced to three years in prison for insider trading and investment fraud that yielded more than $7 million in criminal profits by trading securities shortly before the company’s earnings announcements were publically available.
3. Trader at large Canadian Asset Management Firm was charged with insider trading for engaging in a front-running scheme where he gave out private information to relatives in order to make profitable trades.
When not caught, insider traders can have a huge financial impact and an edge over the rest of the population. And while it is true that predicting economic trends is a must in investing, it is those that have the information before anyone else who make the biggest buck with this method.
Using mathematics, statistics, and pattern recognition is a lot more than “astrology for men” and the most successful hedge fund managers and gamblers in the world have used these analytical methods to earn up to billions of dollars across their lifespan.
While the world is also full of great fundamental investors like Warren Buffet, there is also a dark side to big financial corporations that is rarely talked about. Trying to predict economic changes based on the limited information that is publically available can be as hard as trying to figure out what the latest candlestick indicates.
The goal of this research is not to make you choose one investment philosophy over the other, but rather to appreciate both and take the most out of them.
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