I’ve done a lot of reading and studying about quantitative investment strategies and investors over the years and one of the running themes I’ve found in the various books and articles I’ve read over time is the name Ed Thorp. Thorp is a pioneer in the quantitative investment world who was so far ahead of his time that he was developing strategies, pricing relationships and market theories that would later turn into Nobel Prize-winning ideas and billion dollar hedge fund strategies.
I first came across Thorp through his old book, Beat the Dealer, when I became interested in blackjack at a young age (it helped me marginally at the casinos). His blackjack system was so successful that the casinos had to change their rules in the 1960s to make it harder for him to beat them.
So I was excited to read Thorp’s new book, A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Markets, about his life, gambling stories, and investment ideas.
One of the more interesting aspects of Thorp’s story was when he shut down his ultra-successful hedge fund, Princeton Newport Partners, in the late-1980s. He likely left billions of dollars on the table considering how much money hedge fund managers make these days but he had a really great perspective on the whole thing:
As Princeton Newport Partners closed I reflected on the proposition that what matters in life is how you spend your time.
Though the ending of PNP was traumatic for us all, and the future wealth destroyed was in the billions, it freed us to do more of what we enjoyed most: spend time with each other and the family and friends we loved, travel, and pursue our interests.
Success on Wall Street was getting the most money. Success for us was having the best life.
He also shared the story of a couple billionaires to illustrate this point:
When J. Paul Getty was the richest man in the world and manifestly not fulfilled, he said the happiest time of his life was when he was sixteen, riding waves off the beach in Malibu, California. In 2000, Los Angeles Times Magazine, speaking of new multibillionaire Henry T. Nicholas III of Broadcom Corporation, said, “It’s 1:30 a.m. He’s just turned 40—at his desk, in a dimly lit office. He hasn’t seen his wife and children, ‘my reason for living,’ for several days. ‘The last time we talked, [Stacey] told me she missed the old days, when I was at TRW and we lived in a condo. She told me she wants to go back to that life.’ But they can’t go back because he can’t let up.” (They later divorced.)
There are a couple ideas that came to mind when I read this passage. One is that there’s a huge difference between contentment and happiness. And two is that there’s something to be said for figuring out what enough means to you personally.
People often say that their ultimate goal is to achieve happiness. I think this is an incomplete way to view the world because there are many things you can do that can make you happy, but few people are ever able to be content once they find that elusive happiness. Billionaire J. Paul Getty saying he was happiest at age 16 riding waves off the beach in Malibu is pretty telling. He had all the money he would ever need but he was more fulfilled as a teenager on the beach.
I remember listening to Jerry Seinfeld talk with Howard Stern a few years ago and Stern asked him why he decided to end the show Seinfeld after 9 seasons (even though he was reportedly being offered $5 million an episode to come back). Seinfeld said it was more of a quality of life decision for him than anything. He wanted to go out on top and knew he didn’t really need any more money. He was content going out on his own terms.
Obviously, all of these stories entail people with more money than they could ever spend in a lifetime. But this idea still applies for those of us who don’t have hundreds of millions of dollars. I don’t know how many times over the years I’ve thought to myself, “If I can just make $xx/year, I’ll be set.” This works until you reach that goal and realize there’s always another level you’ll be searching for as ‘enough’ turns into a moving target. It becomes an endless game where all of your effort that goes into doing what you think will make you happy actually leaves you miserable.
I loved Thorp’s ideas that time is all that matters in life and having the best life is more important than having the most money. The first step might be to understand the difference between the pursuit of happiness and the figuring out how to be content with what you have.
A Man for All Markets
The Personal Success Equation