Fortunes Formula

In 1956, two Bell Labs scientists discovered the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein's. The other was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of making as much money as possible, as fast as possible. Shannon and MIT mathematician Edward O. Thorp took the "Kelly formula" to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett's rate of return. Fortune's Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider's edge. Shannon believed it was possible for a smart investor to beat the market—and William Poundstone's Fortune's Formula will convince you that he was right.

This volume provides the definitive treatment of fortune's formula or the Kelly capital growth criterion as it is often called. The strategy is to maximize long run wealth of the investor by maximizing the period by period expected utility of wealth with a logarithmic utility function. Mathematical theorems show that only the log utility function maximizes asymptotic long run wealth and minimizes the expected time to arbitrary large goals. In general, the strategy is risky in the short term but as the number of bets increase, the Kelly bettor's wealth tends to be much larger than those with essentially different strategies. So most of the time, the Kelly bettor will have much more wealth than these other bettors but the Kelly strategy can lead to considerable losses a small percent of the time. There are ways to reduce this risk at the cost of lower expected final wealth using fractional Kelly strategies that blend the Kelly suggested wager with cash. The various classic reprinted papers and the new ones written specifically for this volume cover various aspects of the theory and practice of dynamic investing. Good and bad properties are discussed, as are fixed-mix and volatility induced growth strategies. The relationships with utility theory and the use of these ideas by great investors are featured.

This sharply intelligent, consistently provocative book takes the reader on an astonishing, thought-provoking voyage into the realm of delightful uncertainty--a world of paradox in which logical argument leads to contradiction and common sense is seemingly rendered irrelevant.

In 1999, when Napster made music available free online, the music industry found itself in a fight for its life. A decade later, the most important and misunderstood story—and the one with the greatest implications for both music lovers and media companies—is how the music industry has failed to remake itself. In Fortune’s Fool, Fred Goodman, the author of The Mansion on the Hill, shows how this happened by presenting the singular history of Edgar M. Bronfman Jr., the controversial heir to Seagram’s, who, after dismantling his family’s empire and fortune, made a high-stakes gamble to remake both the music industry and his own reputation. Napster had successfully blown the industry off its commercial foundations because all that the old school label heads knew how to do was record and market hits. So when Bronfman took over the Warner Music Group in 2004, his challenge was to create a new kind of record executive. Goodman finds the source of the crisis in the dissolution of the old Warner Music Group, the brilliant conglomerate of Atlantic, Elektra, and Warner Bros. Records. He shows how Doug Morris, the head of Atlantic Records, rose through the ranks and rode the CD bonanza of the 1990s to enormous corporate and personal profit before becoming embroiled in an ego-driven corporate turf war, and how all of Warner’s record executives were blindsided when AOL/Time-Warner announced in 2003 that it wanted nothing more to do with the record industry. When the music group was finally sold to Bronfman, it was a ghost of itself. Bronfman built an aggressive, streamlined team headed by Lyor Cohen, whose relentless ambition and discipline had helped build Def Jam Records. They instituted a series of daring initiatives intended to give customers legitimate online music choices and took market share from Warner’s competitors. But despite these efforts, illegal downloads still outnumber legitimate ones 19–1. Most of the talk of a new world of music and media has proven empty; despite the success of iTunes, even wildly popular sites like YouTube and MySpace have not found a way to make money with music. Instead, Warner and the other labels are diversifying and forcing young artists to give them a cut of their income from touring, publishing, and merchandising. Meanwhile, the average downloader isn’t even meeting forward-thinking musicians halfway. Each time a young band finds a following through music websites, it’s a unique story; no formula has emerged. If one does, Warner is probably in a better position than anyone to exploit it. But at the end of the day, If is the one-word verdict on Bronfman’s big bet.

A "highly entertaining history [of] global hustling, cola wars and the marketing savvy that carved a niche for Coke in the American social psyche” (Publishers Weekly). Secret Formula follows the colorful characters who turned a relic from the patent medicine era into a company worth $80 billion. Award-winning reporter Frederick Allen’s engaging account begins with Asa Candler, a nineteenth-century pharmacist in Atlanta who secured the rights to the original Coca-Cola formula and then struggled to get the cocaine out of the recipe. After many tweaks, he finally succeeded in turning a backroom belly-wash into a thriving enterprise. In 1919, an aggressive banker named Ernest Woodruff leveraged a high-risk buyout of the Candlers and installed his son at the helm of the company. Robert Woodruff spent the next six decades guiding Coca-Cola with a single-minded determination that turned the soft drink into a part of the landscape and social fabric of America. Written with unprecedented access to Coca-Cola’s archives, as well as the inner circle and private papers of Woodruff, Allen’s captivating business biography stands as the definitive account of what it took to build America’s most iconic company and one of the world’s greatest business success stories.

Jim Paul's meteoric rise took him from a small town in Northern Kentucky to governor of the Chicago Mercantile Exchange, yet he lost it all--his fortune, his reputation, and his job--in one fatal attack of excessive economic hubris. In this honest, frank analysis, Paul and Brendan Moynihan revisit the events that led to Paul's disastrous decision and examine the psychological factors behind bad financial practices in several economic sectors. This book--winner of a 2014 Axiom Business Book award gold medal--begins with the unbroken string of successes that helped Paul achieve a jet-setting lifestyle and land a key spot with the Chicago Mercantile Exchange. It then describes the circumstances leading up to Paul's $1.6 million loss and the essential lessons he learned from it--primarily that, although there are as many ways to make money in the markets as there are people participating in them, all losses come from the same few sources. Investors lose money in the markets either because of errors in their analysis or because of psychological barriers preventing the application of analysis. While all analytical methods have some validity and make allowances for instances in which they do not work, psychological factors can keep an investor in a losing position, causing him to abandon one method for another in order to rationalize the decisions already made. Paul and Moynihan's cautionary tale includes strategies for avoiding loss tied to a simple framework for understanding, accepting, and dodging the dangers of investing, trading, and speculating.

Praise for THE GREAT FORMULA "This book reminds me of Isaac Newton's discovery of gravity-a stunningly simple idea that changed the course of history. I've seen The Great Formula create millionaires with surprising speed. It's an exact recipe to turn a marginal business into a successful one." —David Garfinkel, author, Customers on Demand "Mark Joyner has once again succeeded at coming up with an entertaining and educational marketing masterpiece." —Dr. Mani Sivasubramanian, infopreneur and heart surgeon "With all the fancy buzzwords used to describe how to achieve success, here is a commonsense formula that cuts through the chatter and goes straight to the heart of what really works. This is truly a new perspective." —Joseph Sugarman, Chairman, BluBlocker Corporation "Save yourself a couple hundred thousand dollars on that degree. Clear out your bookcase. The MBA curriculum for this generation is The Irresistible Offer and The Great Formula." —Lou D'Alo, PowerUp! Coaching and Consulting

An Economist Best Book of the Year "Making Money and Keeping It" – The Wall Street Journal Over the past century, if the wealthiest families had spent a reasonable fraction of their wealth, paid taxes, invested in the stock market, and passed their wealth down to the next generation, there would be tens of thousands of billionaire heirs to generations-old fortunes today. The puzzle of The Missing Billionaires is why you cannot find one such billionaire on any current rich list. There are a number of explanations, but this book is focused on one mistake which is of profound importance to all investors: poor risk decisions, both in investing and spending. Many of these families didn’t choose bad investments– they sized them incorrectly– and allowed their spending decisions to amplify this mistake. The Missing Billionaires book offers a simple yet powerful framework for making important lifetime financial decisions in a systematic and rational way. It's for readers with a baseline level of financial literacy, but doesn’t require a PhD. It fills the gap between personal finance books and the academic literature, bringing the valuable insights of academic finance to non-specialists. Part One builds the theory of optimal investment sizing from first principles, starting with betting on biased coins. Part Two covers lifetime financial decision-making, with emphasis on the integration of investment, saving and spending decisions. Part Three covers practical implementation details, including how to calibrate your personal level of risk-aversion, and how to estimate the expected return and risk on a broad spectrum of investments. The book is packed with case studies and anecdotes, including one about Victor’s investment with LTCM as a partner, and a bonus chapter on Liar’s Poker. The authors draw extensively on their own experiences as principals of Elm Wealth, a multi-billion-dollar wealth management practice, and prior to that on their years as arbitrage traders– Victor at Salomon Brothers and LTCM, and James at Nationsbank/CRT and Citadel. Whether you are young and building wealth, an entrepreneur invested heavily in your own business, or at a stage where your primary focus is investing and spending, The Missing Billionaires: A Guide to Better Financial Decisions is your must-have resource for thoughtful financial decision-making.

From Ross Brawn—one of the most successful figures in Formula One auto racing—comes a compelling insider’s account of what it takes to win, featuring practical advice for overcoming obstacles and becoming a champion both on and off the racetrack. Formula One racing is a wildly popular global sport with millions of fans and billions more engineering dollars at stake. For four decades, Ross Brawn has been one of the most innovative technical directors and team principals in the high-stakes world of Formula One. He is considered the most successful competitor in the history of Formula One to date, and “the closest thing there is to a certifiable genius” (The Wall Street Journal). Leading Benetton, Ferrari, Honda, and Mercedes, he has worked with legendary drivers such as Michael Schumacher, Jenson Button, and Lewis Hamilton to make them Grand Prix champions. Now, in this fascinating book, presented as a frank conversation between Brawn and fellow Formula One competitor Adam Parr, Brawn reflects upon his career, shares the philosophies and methods that led to his success, and offers lessons that every leader working with teams—at work, play, or home—can use to achieve their own goals, too. Brawn and Parr share details about the unique pressures of Formula One racing and the intense, cutthroat world they inhabited, where coming in second place is never good enough. Just as Phil Knight recounted his accomplishments and devastating setbacks in the building of the Nike brand in the New York Times bestseller Shoe Dog, this book also provides a blueprint for leading teams, imparting lessons such as “Embrace Humility,” “Invest in People and Culture,” “Strive for Simplicity, Manage Complexity,” and much more.

An introduction to Spartan Races (races meant to challenge, to push, to intimidate, to test) from one of the "founding few" and creators, Joe De Sena.