Part 1

Why did you write this book [A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market]? The way I think about things is somewhat different than almost everybody that I meet. And that has been very helpful to me. Maybe I can get that across in this book. That motivated me to tell my story and hopefully do some good for other people. [2:00]

I was born in Chicago during The Great Depression. As a kid I went to a bad school. I was interested in science, math, physics, astronomy, electronics and so on. So I started teaching myself. [3:45]

When did you know that you were smarter than other people? I don’t think of myself or other people that way. Everybody is good at something. Any person knows something some other person doesn’t know. I don’t think in those terms. [5:40]

You perfected counting cards in blackjack. It is now very common because you wrote the best selling book: Beat the Dealer: A Winning Strategy for the Game of Twenty-One. Why? Mathematicians had spent a couple hundred years developing probability theory. With the theory they showed almost no gambling game could possibly be beaten. I thought it was a math problem worth telling people the answer to. That is how I got into it. [11:42]

When I was doing most of my playing, Las Vegas was mobbed up. People were being beat up, kicked out, cheated, drinks drugged. I had my drink drugged. They rigged the brakes of my car. I couldn’t stop the car with the brakes. I put on the emergency brake, shifted down, and turned off the key. I got the message. [15:50]

How did you go from Las Vegas to Wall Street? For the first time in my life I had some savings. I made some investments. They did terribly. I was an idiot. I had to think about this if I didn’t want to lose money. So I started educating myself about investing.[18:11]

I realized the lessons from gambling was a better training ground for understanding how to be a good investor. That seems surprising since investing is supposedly so complicated. You learn discipline. You learn money management. You learn to compute with numbers and probabilities. [19:00]

Paul Wilmot [a quant and author of the book The Money Formula: Dodgy Finance, Pseudo Science, and How Mathematicians Took Over the Markets] said it best. What happened was once the quantitative revolution got started on Wall Street a lot of people with mathematical training, but not a lot of street smart sense, began using models and formulas the didn’t have good thinking behind them. Example: Collateralized Mortgage Obligations. [20:33]

Full video: A Man for All Markets Part 1

Part 2

[While Ed was teaching at UC Irvine] Ralph Girard —the dean of the graduate school — was in investor in Buffett Partners Limited. Buffett Partners Limited was shutting down in 1968. Girard wanted another place to put his money. He invited me to dinner with Warren Buffett. We hit it off. Buffett asked me a bunch of questions and I answered. Girard decided to invest with me. [2:20]

Is Buffett a really bright guy? Yes. He is very smart. Much smarter than you would imagine. He talks a mile a minute. He is clever. He has good math skills. He is very comfortable with numbers. He can do a lot of computing in his head. [3:31]

What was your encounter with Bernie Madoff? Back in 1991 I was asked by a big international consulting firm to look at their portfolio. They had money with Madoff. When I saw it I said: What this guy is doing should only produce returns that are about like the stock market. When the market is up he should be up. When the market is down he should be down. But he’s never down. [4:30]

I noticed that there was a strange trade that would occur when the market should have taken him down. So he is making a profit every single month. For years. I said he is either a genius or a fraud. Odds are he is a fraud. [5:35]

I looked at his confirmation slips and went to see if the trades actually happened. Half of them never happened. These are fake confirmation slips. I tried going to Bernie Madoff Investments and they said the would not let me in the front door. [6:26]

Did you ever think I should go to the authorities with this? Bernie Madoff had been a chairman of NASDAQ. He was the biggest 3rd market trader in the US. He was on all types of committees. He was the establishment. The SEC checked him and gave him a rubber stamp of authenticity. This happened year after year after year. [7:30]

Investing is kind of like the Super Bowl. If you want a good Super Bowl team you need a good offense and a good defense. And a good defense keeps other people from taking your money. [8:41]

I started the first quantitatively based market neutral hedge fund [Princeton/Newport Partners] back in 1969. We only lost money in 3 months out of 230 months. . . Rudy Giuliani wanted my partner to give him dirt on Goldman Sachs and Michael Milken. My parter wouldn’t cooperate. So Giuliani raided our office. The trial dragged on for years at a great expense. The government ended up dropping prosecution of most people on most counts. [9:18]

How rich are you? [His fund returned almost 20% for 20 years] That is a question I don’t answer. Best to stay mute. [16:40]

You are 84 years old. You are amazingly fit. Do you have a secret to that to? I try to stay aerobically fit. I try to keep good muscular strength. I get frequent checkups at the doctor. I try to eat fairly well. I weigh myself every morning and I write it down. That automatically changes my behavior. Awareness leads to change. If my weight starts creeping up I find myself eating less without even thinking about it. [18:31]

You end your book [A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market] with things that anybody can grasp. You are saying marry well and be surrounded by friends and family. What do you have to say about that? What really matters in life isn’t how much money you make or the things you have. It is who you spend your time with and who you are close to. Family, spouse, good friends. Life is really about spending time well. [20:05]

Full video A Man for All Markets Part 2

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