First he taught a computer to sing, then he blew the mind of the stock market!
The inventor of the Kelly Formula was John Kelly. He was an engineer in Bell Labs in New Jersey.
At the time, in the 1950’s, Bell Labs was the center of the technology universe. Of course, Bell Labs was where telephony was being driven forward.
Bell asked Kelly to come up with a formula that would maximize the amount of data that could go through a copper wire. The more data Bell could push through a copper wire, the more money AT&T would make.
So he came up with what we call the Kelly Formula. I’ll come back to the formula in a minute.
But Kelly is also famous for one other thing. He was the first person to get a computer to sing! Remember that computers at the time were the size of rooms!
Click here to watch a youtube of the computer singing! Totally amazing to me!
Well, it turns out that the famous sci-fi writer, Arthur C. Clarke, was walking the hallways of Bell Labs at the same time and heard the computer singing. He was totally blown away!
So he wrote a scene in 2001: A Space Oddysey about the singing computer. Click here to watch the scene in the movie directed by Kubrick. All of this blows my mind!
Well, Kelly showed the formula to his boss, Nobel Prize winner, Claude Shannon. Turns out that Shannon was a gambler and a stock market investor. He immediately saw that the Kelly Formula could be used in gambling and stock investing. So he was the first person to use the Kelly Formula to invest!
Nobody knows how well he did and he never reported the results. But people around him thought he did very well because he started buying new big cars and so on.
So Shannon then shows the Formula to a young mathematician named Ed Thorpe. Thorpe is most famous for his book Beat the Dealer where he shows a mathematical method for beating casinos in blackjack. But he also started using the Formula in both gambling and investing.
But Thorpe also wrote an intense academic book on the Formula. Frankly, the math is beyond me!
I then met Thorpe in the 1990’s. He is an amazing guy. I respect him so much. I always tell people that when I grow up I want to be Ed Thorpe.
Well, Thorpe starting investing using the Kelly Formula and ended up starting two funds and traded them publicly for about 30 years. His return was about 28% per year compounded. Much better than Warren Buffet!
Now actually, I don’t think that Thorpe was using very good techniques for his investing but he used the Formula which significantly transformed his inferior methods into a stellar track record.
The Kelly Formula is a truly transforming technique!
The basic concepts are very easy but the nuances are much more difficult.
I’ve never taught the Kelly Formula with stock investing. But I’m doing it right now!
I’m going from the history to the basic concepts to all the tricky nuances of using the Kelly Formula with investing in stocks!
I’m putting the complete training only in the Wealthbuilder Insider membership program. If you sign up, you will get the Kelly applied to stocks plus many other techniques and methods for trading stocks and options.
Click here to learn more and sign up now to learn this revolutionary technique!