Fortune's Formula (42 page)

“We
own
Kinney”: Bruck 1994, 239. This was reported by two FBI investigators and may not be quite verbatim.

“Fat Tony” a friend of Kimmel’s: Bruck 1994, 242.

Cafaro’s account of labor racketeering: Bruck 1994, 239–42.

“a devil’s pact with La Cosa Nostra…careful, surgical action”:
Newsweek
, July 11, 1988, 33.

“Freedom is the willingness of every single human being”: Barrett 2000, 6.

132 assistants in 1986: Barrett 2000, 138.

“would review press releases like they were indictments”: Barrett 2000, 148.

“He wanted to achieve the Thomas Dewey identity”: quoted in Barrett 2000, 161.

Prosecutors noted parallel between Mafia and Wall Street criminals: Stewart 1991, 404.

“There’s a lot of money to be made”: Stewart 1991, 84.

“Greed is all right”: Stewart 1991, 261.

“I doubt that”: Stewart 1991, 349.

“I know”: Stewart 1991, 350.

Doonan was “Bill”: Stewart 1991, 363.

Giuliani approved Freeman arrest: Stewart 1991, 379.

“You’ve got to be careful”: Stewart 1992, 336.

“I’m very close to the people buying the stock”: Stewart 1991, 194.

“I didn’t leave”: Stewart 1992, 407.

Description of tax implications of parking:
Forbes
, Oct. 2, 1989, 222.

“didn’t have the manpower to sort out”: Stewart 1991, 408.

Hale’s grand jury testimony: Stewart 1991, 407–8.

Details of raid: Stewart 1991, 409; Tudball 2003, 34;
Wall Street Journal
, Jan. 13, 1988, 24; Thorp, interview.
The Wall Street Journal
says that six hundred boxes of evidence were taken.

1985 trades:
Wall Street Journal
, Mar. 21, 1989, A12.

“Were you parking for them?”: Stewart 1991, 410.

“We were hoping you would be willing to cooperate with us”:
Wall Street Journal
, Mar. 21, 1989, A12.

Thought raid was nonsense: Tudball 2003, 34.

“Everybody lawyered up”: Thorp, interview.

$15 million withdrawn after raid; some put in wives’ names: Baird and Vinson 1990, 1028.

20 percent interest; Milken helping Mattel: Tudball 2003, 34;
Business Week
, Aug. 14, 1989, 46.

C.O.M.B.’s business: The company now appears to be out of business. It took out ads in
The Wall Street Journal
; see, for instance, Sept. 28, 1988, p. 10.

Stock-manipulation scheme: Tudball 2003, 34; Stewart 1991, 411;
Business Week
, Aug. 14, 1989, 46.

“It’s not fun anymore”: Stewart 1991, 412.

“You’re a sleazebag”: Stewart 1991, 412.

“I think I’d be very good”:
New York Times
, Dec. 3, 1987.

“I cannot leave unless I’m sure”:
New York Times
, Jan. 11, 1988.

“It would be wrong for me to leave this office now”: Barrett 2000, 172.

Coached by attorneys, asked for extra time:
Wall Street Journal
, Mar. 21, 1989, A12.

Cap saying
SHIT HAPPENS
: Stewart 1991, 435.

“I carried plenty of positions”: Stewart 1991, 411.

Charges “too complicated” for jury: Stewart 1991, 435.

“If I do, I’m going to take the Fifth”: Thorp, interview.

“My theory on taking the Fifth was, I didn’t know anything”: Thorp, interview.

“not a novel approach…when we believe the magnitude of the crime warrants it”:
Wall Street Journal
, Aug. 12, 1988, 4.

“You’d have to be a fool”:
Wall Street Journal
, Aug. 4, 1988.

Giuliani denied making offer:
Wall Street Journal
, Aug. 4, 1988.

“If you cooperate, fine”:
Wall Street Journal
, Aug. 5, 1988, 3.

Harvard and Weyerhaeuser invested in fund:
Wall Street Journal
, Sept. 28, 1988, 10.

“frightening…It seems clear”:
Wall Street Journal
, Aug. 4, 1988.

Paid taxes twice: Thorp, interview; Tudball 2003, 34;
Wall Street Journal
, Jan. 10, 1989.

“My personal opinion is that he was afraid”: Thorp, interview.

Giuliani threatened to support defendants: Stewart 1991, 438.

Reversed threat to dismiss charges against Milken: Stewart 1991, 438.

Jones and O’Neil met with prosecutors, letter about refreshed memory:
Wall Street Journal
, Mar. 21, 1989, A12.

Thorp unaware of stock parking, manipulation: See Tudball 2003, 34.

“We didn’t really connect well as people”: Thorp, interview.

View of Princeton-Newport’s record as definitive example: See comments quoted in Tudball 2003.

“add or subtract something like $5 from the buy-back price”:
Wall Street Journal
, Mar. 16, 1989.

Stocks parked, recipients of list:
Wall Street Journal
, Mar. 15, 1989, A6.

“Told me it was illegal”:
Wall Street Journal
, March 16, 1989.

“a long litany of lies”:
Wall Street Journal
, Mar. 22, 1989.

“very seriously”:
Wall Street Journal
, Mar. 23, 1989, A3.

“psychiatric counseling on the advice of her lawyer”:
Wall Street Journal
, Mar. 24, 1989, B3.

“I don’t have to show you any stinkin’ badges”: L. Gordon Crovitz writing in
The Wall Street Journal
, Oct. 4, 1989, A30.

“Arnold Schwarzenegger couldn’t play a scarier role”: Letter from Martin I. Klein to
The Wall Street Journal
, Nov. 13, 1989.

“‘imaginative’ prosecutions under RICO…bargaining tool”:
Wall Street Journal
, Jan. 26, 1989.

Law changed so that both sides of hedge short-term:
Forbes
, Oct. 2, 1989, 222.

Former IRS commissioner not allowed to testify: Tobias 1989.

“I did not commit a crime”:
Wall Street Journal
, July 11, 1989.

“the judge seemed to be saying by his sentence”: Tobias 1989.

“When half the leadership of your firm is convicted”: Schine 1989.

“The destruction of wealth was huge”: Thorp, interview.

“There was an explosion in the hedge fund world shortly after”: Thorp, interview.

“we’d be billionaires”: Thorp, interview.

“You’re all right”: Stewart 1991, 430.

VI. BLOWING UP

Betting on blackjack, horse race, Cubs games: Lowenstein 2002, 6.

Interest in horses: Dunbar 2000, 109.

Rosary beads in his briefcase: Lowenstein 2000, 9.

“It’s gonna be a great investment”: Thorp, interview (this is Thorp’s recollection of what he was told).

Like having Michael Jordan and Muhammad Ali: Lowenstein 2000, 31.

“martingale man…The general chatter”: Thorp, interview.

Possible 30 percent return after fees: Lowenstein 2000, 35.

Harvard invested in LTCM: William Ziemba, interview.

Gray market in shares, 10 percent premium: Dunbar 2000, 169.

$7. 1 billion by October 1997: Perold 1999, C12.

“many went kicking and screaming”: Loomis 1998, 114.

Samuelson’s doubts: Lowenstein 2000, 71.

Vacuuming nickels pitch: Lowenstein 2000, 34.

Investor told return was 67 basis points: Loomis 1998, 114.

Role of Merton, Scholes, in fund: see Lowenstein 2000, 65.

“There aren’t that many opportunities”: Lowenstein 2000, 33–34.

1 percent chance of 20 percent loss: Loomis 1998, 114.

“I’ve got a bad feeling about this…”: Wilmott 2001, 356.

“We spent time thinking about what happens if there’s a magnitude ten earthquake in Tokyo”: Dunbar 2000, 187.

Boesky offered expertise to Russia: Stewart 1991, 532.

Caesar Kimmel ran Moscow casino: Bruck 1994, 11.

$4. 5 billion of $17 billion loan went to offshore accounts: Dunbar 2000, 200.

“Where are you?”: Lowenstein 2000, 156–57.

“A banker is a fellow who lends you his umbrella when the sun is shining”: Kargin 2004, 2.

“John, I’m not sure it’s in your interest”: Lowenstein 2000, 153.

“When they first started losing”: Wilcox, interview.

Fisher’s visit, details of “Risk Aggregator”: Lowenstein 2000, 186–89.

“I’m not worried about markets trading down”: Lowenstein 2000, 189.

$28 million down from $1. 8 billion: See Dunbar 2000, 224, and Lewis 1999, 31. Lewis puts the sixteen partners’ loss at “roughly $1. 9 billion.”

Merton lost $100 million: William Ziemba (interview) said he had heard this figure as a rumor.

“ten or 15 guys with an average IQ of maybe 170”: Loomis 1998, 116.

“A man who risks his entire fortune acts like a simpleton”: Bernoulli 1954, 29.

“How the Eggheads Cracked”: Lewis 1999.

“swapped their laurels for the booby prize”: Loomis 1998, 111.

Leverage figures for investment banks: Perold 1999, A23.

“People think that if things are bounded”: Thorp, interview.

“had forgotten the predatory”: Lowenstein 2000, 173.

“When the young Fis[c]her Black had crossed the Charles river bridge”: Dunbar 2000, 224.

Enron, telecommunications, portfolio insurance as “overbetting”: Wilcox 2000, 2003, 2004.

“I could see that they didn’t understand”: Tudball 2003.

“a whole lot of bets on Southeast Asian debt”: Thorp, interview.

Contrast of two mappings: See Figure 1 in McEnally 1986, which I have adapted here.

“Convergence trades are a real snake pit”: Thorp, e-mail.

Koonmen bio, Eifuku history: Sender and Singer 2003.

UBS was LTCM’s largest investor: Lowenstein 2000, 158.

“preserve and maximize any remaining equity”: Posted on Turtle Trader web site, www.turtletrader.com/trading.html.

“John Koonmen will try to contact each investor”: Posted on Turtle Trader web site, www.turtletrader.com/trading.html.

Shannon on hedge fund manager’s motives: I am referring to the untitled and undated (evidently circa 1961) notebook in Shannon’s papers, LOC.

Overlap between hedge fund managers and gamblers: Thorp and Ziemba both make this point (interviews).

“Like all of life’s rich emotional experiences”: Schwed 1940, 70.

VII. SIGNAL AND NOISE

28 percent return: Hershberg n.d. [1986].

Hershberg thought of writing an article on the Shannons’ investing success: Letters, Philip Hershberg to Claude and Betty Shannon, dated June 23 and August 28, 1986, with Shannon’s papers, LOC. Betty Shannon supplied me with a transcript of the interview.

“In a way, this is close to some of the work I have done”: Hershberg n.d. [1986]. Similar views on the part of Shannon are expressed in Philip Hershberg, e-mail.

Tried Kentucky Fried Chicken: Hershberg n.d. [1986].

“If we try it and don’t like it”: Hershberg n.d. [1986].

“is a very difficult field”: Letter, Shannon to Dr. George A. Roberts, Nov. 5, 1978, Shannon’s papers, LOC.

Warren Buffett praised Singleton: Quoted in Train 1980.

Downloaded stock prices: Arthur Lewbel, interview.

Portfolio value on Jan. 22, 1981: computer printout in Shannon’s papers, LOC (this is on the back of a sheet filled with juggling machine diagrams and formulas!).

“We have not, at any time in the past 30 years”: Hershberg n.d. [1986].

“I am willing to borrow on our investments if necessary”: Hershberg n.d. [1986].

Check-printer company returns: Hershberg n.d. [1986].

“I have personally tried to invest money”: Roll and Shiller 1992.

Weather effect: Hirshleifer and Shumway 2001.

“Then some business school professor”: Buffett 1984. Fred Schwed, Jr.,’s
Where Are the Customers’ Yachts?
makes a similar case, in equally amusing terms (pp. 159–61). Shannon cited Schwed’s 1940 book as his favorite on investing.

Returns for 1980–82: Ziemba 2003.

Bamberger forbidden to go into computer room: Thorp 2004–5.

“How often do you have a tuna salad sandwich”: Thorp 2004–5.

“I had an interest list”: Thorp, e-mail.

Mizusawa scanned news; “restricted list”: Thorp 2004–5.

18 percent after fees: Computed from data supplied by Thorp, e-mail.

47 percent return: Kurson 2003; Thorp, e-mail.

“The advantage scientists bring into the game”: Turtle Trader web site, www.turtletrader.com/trader-simons.html.

20 percent return and 6 percent standard deviation: Thorp 1997 (revised 1998), 38.

“To help persuade you”: Thorp 1997 (revised 1998), 38.

“pointed to me in the audience”: Haugen 1999, quoted in Thorp 2004–5.

Sports betting system, experiment: Thorp, interview; also Thorp 1997 (revised 1998).

“by far the most popular form of recreation”: www.hong-kongracing.com/trackside.html.

More wagered on single races than in year’s betting elsewhere: www.hong-kong-racing.com/trackside.html.

$150,000 seed money: Kaplan 2003.

Kelly formula that takes into account effect of bet on odds: See Benter 1994 and Kallberg and Ziemba 1994.

“I would have benefited by not telling anybody”: Kaplan 2003.

“I like going to the seedy girlie bars in Makati”: Kaplan 2003.

Instant messages: Kaplan 2003.

Lost $100 million by shorting NASDAQ: Kaplan 2003.

“When you look at how much money I have consistently made”: Kaplan 2003.

“Perhaps the impact Shannon and Kelly have had on finance”: Golomb, Berlekamp, Cover, et al. 2003, 11.

Alzheimer’s symptoms: Robert Fano, interview. Put in home in 1993: Chiu, Lin, Mcferron, et al. 2001. Tinkering with walkers, fax machines: Coughlin 2001.