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“Survival is the only road to riches.”
Peter L. Bernstein
Two men who won the Nobel Prize for pricing options helped found a fund that bet 25 dollars for each dollar it held.
Long-Term Capital Management lost 4.6 billion dollars in four months, almost everything it owned.
Ed Thorp ran a fund on a formula that told him exactly how much to bet. For 19 years he compounded at about 19% a year.
Thorp’s formula came from John Kelly. Give it a bet you want to make and it returns one number: the share of your money that bet should get.
Say you find a bet you win 60 times out of 100.
Win and you double what you put in. Lose and it’s gone.
Start with 100 dollars and bet a fifth of what you hold each round.
Win the first and you hold 120. Lose the next and you hold 96.
Bet two fifths instead. Win the first and you hold 140. Lose the next and you hold 84.
Run all 100 rounds with the same 60 wins.
A fifth each round turns your 100 dollars into about 750.
Two fifths turns it into about 78.
Thorp never bet the number the formula gave him. He bet half of it, so where the formula said a fifth he put down a tenth.
That earned about three quarters of what the full number would have earned. His fund’s value rose and fell half as far.
The formula only works if you know your chances exactly.
He could count them at a blackjack table. In the market he could only estimate.
Eliud Kipchoge runs up to 220 kilometres a week and runs hard on only about a fifth of those kilometres.
He won the Olympic marathon twice on training he never ran flat out.
Diners at an Okinawan table stop eating when they are 80% full.
The rule is called hara hachi bu.
Ask which of your weeks you could repeat all year.
Roald Amundsen held his party to 15 nautical miles a day on the way to the South Pole, well short of what the dogs and the men could have covered. His men rested up to 16 hours a day.
Robert Falcon Scott raced him for that pole the same Antarctic summer and marched on whatever the weather gave him. Long days under a clear sky. Tent-bound days when the storms came.
Amundsen stood at the pole on 14 December 1911 and walked back into his hut on 25 January, all his men alive and heavier than when he left.
Scott reached the same spot 34 days behind him and found the Norwegian flag already flying there. His party of five turned for home.
Edgar Evans died in February. Lawrence Oates said he was just going outside and might be some time, then walked into a March blizzard.
Scott and the last two lay down 11 miles from a depot stocked with food and fuel.
A blizzard held them there until they died.
The attention you have today is all the capital you have to bet with.
Give each habit a smaller share than your best week could carry.
Run it at the smallest share you’ll still keep on a bad day.
Too big a share ends the habit.
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Which habit can you protect by asking less of it?
