Donor proves one in a million

JOSEPH N. BELL

Fifteen years ago, after I had interviewed Edward Thorp for a profile

in the Los Angeles Times, I asked him -- since he was making all this

investment money for other people -- if he would consider taking me

on as a client. He said he would be glad to put me on his year-end

waiting list, but there was one pre-condition I must meet. I’d need

to deliver at least a million dollars in seed money to him -- and

he’d really prefer $2 million.

I told him I’d save up and let him know. I just checked, and I’m

$986,234 short, but when I read in the Pilot last week that Thorp and

his wife, Vivian, had contributed $1 million to the math department

at UC Irvine, I called him to see if I could still get in on the

action.

Typically, Thorp -- who lives in Newport Beach -- didn’t just give

his old department a million bucks. He put the money to work so that

-- like the Dogpatch ham, which you have to be at least 60 to

understand -- it will feed the UCI math department in perpetuity

while attracting exceptional mathematical talent to the campus.

Thorp is one of the reasons people like me work in journalism for

much too little money when we could be making a killing in the oil

business. Or at the blackjack table. We get to meet -- and know,

briefly -- people like Ed Thorp. Actually, I might have been able to

make my million by just following the directions in his book “Beat

the Dealer,” which -- the last I heard -- was just behind the Bible

in sales. God knows I tried. But I had neither the focus nor the

patience to follow his blackjack directions. Las Vegas is still in

business because most other gamblers suffer the same shortcomings.

As Thorp explained to me, “To make it work, you have to be

disciplined, intelligent and organized.” I don’t care to speculate on

which of these qualities I lack.

Thorp’s mind is in constant motion, seeking challenges, examining

them, discarding those that seem pedestrian (difficulty is a virtue)

and exploring those that don’t. It has been ever thus. Born in

Chicago and raised in Los Angeles, he tap-danced through school,

created his own laboratory at home, earned his B.A. in physics and a

Ph.D. in mathematics at UCLA (where he married an English major named

Vivian Sinetar) and went to work teaching at the Massachusetts

Institute of Technology.

Like a lot of graduate students in his field I’ve known, he amused

himself by creating a system to turn gambling odds in his favor.

Although the most common target is horse racing, Thorp set his sights

on Las Vegas. After several years of researching blackjack

possibilities and probabilities, he created a system that, properly

managed, he was certain couldn’t lose. He proved it out while

changing his teaching base to UCI. Then, evidence in hand and

published in the National Academy of Science Journal, he found

several angels willing to back him with the heavy money he needed to

score big.

Consistent winners attract quick attention in Las Vegas, where Big

Brother is watching from overhead. When Thorp was barred from the

casinos, he took to playing in various disguises. When his style of

play exposed him, no matter the disguise, the muscle turned

dangerous.

He was drugged one night, and began to bring a companion to

witness anything hostile that might take place. He avoided drinking,

but when his coffee was drugged to the point that he couldn’t walk

straight, and then he got an even stronger dose in a glass of water,

he decided it was time to explore some other line of moonlighting.

But he got in the last shot. Boy, did he ever. He wrote a book

describing his system in such detail that anyone who can count to 50

and keep his mind on business could win at blackjack.

“When they made it impossible for me to play,” he said, “I went

after them with other people through my book. They’ve had to change

the game repeatedly to try to keep their edge.”

Thorp turned his full attention to teaching such esoteric subjects

as probability and functional analysis, but he needed a new

challenge. He found it in the stock market, where he applied the same

sophisticated skills to a basic investment strategy called hedging

and came up with a mathematical formula that computerizes short-term

deviations in the market. It requires a lot of investment money to

profit from a small but sure edge, which -- he says matter-of-factly

-- virtually guarantees at least two-thirds of 1% gain and actually

averages 15% to 20% per year. From the beginning, his system

performed so well that he formed an investment company in Newport

Beach that has been the focus of his work ever since.

“When we set up a hedge,” he explains, “we just break out in our

computers the few things that make the prices of securities different

and look at them. Computers are simply tools, levers for our minds.

Levers can move things. Archimedes said, ‘Give me a long enough

lever, and I can move the world.’ These machines enlarge our

abilities. But people still have to write the programs.”

They write the programs in Thorp’s life, too. He and Vivian have

three children and six grandchildren, including a set of triplets and

a pair of twins. Thorp shut down his investment business a year ago

so he could better enjoy his family. He says he’s going to restart

his company in a year or two, but with a wistful note that suggests

he’s still thinking it over.

Meanwhile, he challenges his mind wherever and however he can.

Structuring the grant to UCI was one of those challenges. In his

donor’s comments, he calls the gift “A Million Dollars for

Mathematics -- and an Exercise in Finance” because it will “support

the research of an individual mathematician of exceptional talent”

while “using the power of compound growth” to create “one of the most

richly endowed” departmental chairs in the world.

Now, Ed Thorp will be looking for new challenges. At 71, he has

long played the odds in life and managed to identify and avoid most

of those that aren’t favorable.

If he decides to go back in the investment business, I plan to

retrieve my copy of “Beat the Dealer.” I see it as my last shot at

making that million bucks to get on his waiting list.

* JOSEPH N. BELL is a resident of Santa Ana Heights. His column

appears Thursdays.