Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Randomness, Disorder, Uncertainty

Information exists only when the sender is saying something that the recipient doesn't already know and can't predict. Because true information is unpredictable, it is essentially a series of random events like spins of a roulette wheel or rolls of dice. The more improbable the message, the less "compressible" it is, and the more bandwidth it requires. This is Shannon's point: the essence of a message is its improbability.

Private Wire

The best strategy is one that offers the highest compound return consistent with no risk of going broke. The Kelly formula says that you should wager this fraction of your bankroll on a favorable bet: edge / odds

The Kelly Criterion, Under the Hood

The Kelly system manages money so that the bettor stays in the game long enough for the law of large numbers to work.

Nature's Admonition to Avoid the Dice

When faced with a choice of wagers or investments, choose the one with the highest geometric mean of outcomes. This rule, of broader application than the edge/odds Kelly formula for bet size, is the Kelly criterion.

Survival Motive

The core of John Kelly's philosophy of risk can be stated without math. It is that even unlikely events must come to pass eventually. Therefore, anyone who accepts small risks of losing everything will lose everything, sooner or later. The ultimate compound return rate is acutely sensitive to fat tails.