|Financial Times | by John Authers | Feb 03, 2017 |
Ed Thorp: the man who beat the casinos, then the markets:
"His Princeton Newport Partners fund, set up in 1969, is recognised as the first quant hedge fund (one that uses algorithms). Over 18 years it turned $1.4m into $273m, compounding at more than double the rate of the S&P 500 without suffering so much as one quarter with a loss. Thorp's then revolutionary use of mathematics, options-pricing and computers gave him a huge advantage."--end quote
"So, why is he so negative about Wall Street? Without raising his voice, he launches an indictment. "Adam Smith's market is a whole lot different from our markets. He imagined a market with lots of buyers and sellers of things, nobody had market dominance or could impose things on the market, and there was a lot of competition. The market we have now is nothing like that. The players are so big that they control the levers of financial policy." There are still plenty of Ponzi schemes on Wall Street too, he says, and not just Bernard Madoff, whose epic fraud he claims to have spotted more than a decade before it collapsed. In 1991, Thorp did some due diligence for a consultancy that asked him to look through their hedge fund investments. Madoff's returns instantly looked too good to be true, he says.--end quote
He tried checking the trades that Madoff had reported making against those reported in the official record. Half of them could not have happened because there was zero volume (the number of shares traded) in those options on the day the trades were supposed to have been made. "Once you know half of them are fakes, it's pretty hard to believe the other half are real.""
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~Edited by: jeff on: 3/6/2017 at: 10:37:45 AM~