Fortune's Formula
, subject: Ed Thorp, Claude Shannon, gambling, information theory, and investing
A history of the Kelly criterion as it moves from information theory into gambling and investing, with sizing treated as part of being right.
About the book
Poundstone turns the Kelly criterion into a narrative history, following the idea from Bell Labs through blackjack, horse racing, hedge funds, and Wall Street. Rather than promise a winning formula, the book shows why edge and bet size must be considered together—and how even a favorable strategy can fail when it ignores risk of ruin.
Why read it
Best if you want the Founders thread connecting information theory, Ed Thorp, Claude Shannon, gambling systems, and investing discipline, especially the question of how much to bet when you have an edge.
Key themes
- Sizing an Edge
- Shannon and Thorp
- The Munger Trail
Evidence and original sources
This record is supported by 8 public evidence rows linked to original Founders episodes.
- Ed Thorp (My personal blueprint) — David references his earlier coverage of Fortune's Formula on Founders #92.
- Charlie Munger (Poor Charlie's Almanack) — The host says Munger's book introduced him to Fortune's Formula, calls the premise fascinating, and commits to covering it soon.
- Ed Thorp and Claude Shannon — This episode is a highlights walkthrough of William Poundstone's Fortune's Formula, focusing on Claude Shannon and Ed Thorp.
- Ed Thorp (A Man for All Markets) — The host points listeners to the prior week's Founders episode on Fortune's Formula for more on Claude Shannon.
- Claude Shannon — Host references his earlier Founders episode on Fortune's Formula, which covered Claude Shannon's investing record.
- Henry Singleton (The Outsiders) — David says he covered Claude Shannon's Teledyne investment in his Fortune's Formula episode.
Unofficial listener-built companion, not affiliated with or endorsed by David Senra or Founders Podcast.