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Theres a basic trade-off between accuracy and difficulty in keeping the count==== Did Thorp use a similar approach in his book? ==== Thorp started out with a ten and non-ten count. In his second book, he revised that so twos through sixes had a value of plus one, sevens, eights, and nines were neutral, and tens and aces had a value of minus one. ==== So, in essence, the Revere Advance Point Count was a more sophisticated version of the Thorp approach. ==== Right. Theres a basic trade-off between accuracy and difficulty in keeping the count. Even the Revere approach doesnt represent the optimal solution based on probability theory. But if you use a more complicated (and presumably more accurate) counting method, you would be prone to making more errors. ==== Was it hard to keep track of the true count? ==== It takes a lot of practice, and you need to have discipline. Also, you develop mental shortcuts. For example, if you see a five and a ten together, you automatically associate the combination as plus because the five has a value of plus four and the ten a value of minus three. ==== How much time did you actually spend in honing these skills? ==== Initially, it takes a lot of time. After a while, its a matter of practicing a couple of hours before each trip. ==== Were you shocked when you flunked the teams test? What happened afterwards? ==== There was a battery of ten different tests. I was informed as to the lack of my knowledge. I practiced for about a month and retook the test successfully. ==== How many people were part of the team at the time? ==== When I joined, there were eight members, but it eventually grew to about twenty. ==== Does this type of operation depend on a great deal of trust and honesty? If you combined banks and played independently, how did players know how the other members were really doing? ==== In the later stages, we actually started using polygraphs. I have both taken and administered them. In the early days, there werent any polygraphs; people just trusted each other. ==== At what point did people start becoming suspicious of other members of the team? ==== [He laughs.] It became obvious that one of the players was skimming off the top. ==== Because theres a lot of controversy about polygraphs, Im curious about whether you believe that the tests actually work. ==== Generally speaking, I believe theyre about 85 percent accurate. Ive taken four and administered about six. Theres no question that the process of getting ready for the polygraph and administering the test can get information from people. In one case, I literally saw the blood drain from a persons face when I asked a question. Ive had admissions before, during, and after polygraphs. Sometimes the information you turn up is minor-for example, a person not accounting for expenses accurately. Sometimes there are bigger issues involved. For example. one fellow was playing for another team at the same time he was playing for us, which involved passing on proprietary information to a competitor. ==== Did the team operate as a team or just simply separate individuals using a common bank? ==== There were several versions of teams. This particular large team used a method in which there was a Big Player and several card counters. The card counters were spread out over several tables and would bet relatively small. They would then signal the Big Player when the count was very favorable. ==== Was this done to be less obvious? ==== Right. If this guy isnt looking at the cards, how could he be counting them? ==== How long did it take for the casinos to learn of the teams existence? ==== A little over six months. We started playing very big. We just kept building and building, and pretty soon we were playing limit, and they knew who we were. ==== Did they know you were all part of the same team, or did they just know you individually? ==== They knew each of us, but then they slowly started to pick up the associations. There was a detective agency the casinos employed that specialized in finding card counters. The agency classified card counters in the same category as dice cheats or slot machine drillers. Essentially, the casinos dont want to have skillful players. And I understand that. I wouldnt either if I owned a casino. ==== Is it easy to spot a card counter because hes not playing every hand? ==== Its easy to spot him even if he is playing every hand. ==== Because of the variation of bet size-betting low on low-probability hands? ==== Yes. If I stood behind someone playing with a large amount of money, I could tell very quickly at what level of advantage or disadvantage he was playing. ==== Did you originally think the team would last longer before the casinos caught on? ==== I think if we had been a little more discreet, the team could have lasted longer. One of the problems was that one of the members of the team was more interested in writing a book than in the continued success of the team. [The book Hull is referring to is The Big Player, by Ken Uston; Holt, Rinehart and Winston, 1977.] Ironically, I was the one who talked the other partners into allowing him to be a Big Player. It proved to be the start of the teams downfall. People have a basic need to be recognized. He had a need to be recognized-even by the casinos. Until you get barred, the casinos havent recognized that youre a good player. There are direct parallels to trading in the markets. ==== Lets talk about that connection. ==== Its the same thing. The people who want to be recognized as the greatest traders are probably not the greatest traders. Egos get in the way of the process. In my opinion, you never want to be the largest player in the pit. ==== Before I get to the connection between blackjack and trading, Im just curious: Is it still possible to beat the casinos using the card counting method today? ==== Absolutely. If I didnt have any money, thefes no doubt in my mind about where I would go. ==== Then why dont the casinos use larger decks or reshuffle more frequently so as to make card counting unfeasible? ==== First of all, the prevalence of blackjack strategy books actually helps the casinos by giving people the hope of winning. Also, its not the mathematical skill thats critical to winning, its the discipline of being able to stick to the system. There are very few people who can develop the skills to get the edge, and far fewer still who can withstand the losses emotionally and still stick with the system. Probably only one in five hundred people has the necessary discipline to be successful. ==== Did the teams on which you played help enforce the necessary discipline? ==== To some extent, the team helps you to develop discipline. Its almost like the army-you have to do things under certain conditions and you have to have a certain skill level. The discipline is imposed by the team as a self-regulatory process. Its very difficult for an individual to have the same level of discipline. ==== So the casinos leave it feasible to win in blackjack by card counting because there are more people who misapply the strategies for winning. ==== Absolutely. ==== What element of the blackjack playing experience do you believe contributed to your success as a trader? ==== The experience of going through extensive losing periods and having the faith to stick with the system because I knew that I had the edge was something that helped me a great deal when I went into the pit. Also, the risk control experience was very beneficial. In blackjack, even if you have the edge, there are going to be periods of significant losses. When that happens, you have to cut back your bet size in order to avoid the possibility of ruin. If you lose half your stake, you have to cut your bet size in half. Thats a difficult thing to do when youre down significantly, but its essential to surviving. ==== The way you express it, blackjack and trading are very similar. ==== Thats right. All you need is a mathematical advantage and the money management controls to assure that you stay in the game. Everything else takes care of itself. ==== What happened after the team was uncovered? ==== For a while, I used the same principles to organize smaller teams. I kept a low profile by being a counter instead of the Big Player and playing in other locations, like Atlantic City. When I got tired of traveling so much, I tried to find other ways of applying probability theory. For a while, I tried poker, but I found that, although 1 had all the mathematics down pat, I didnt have the appropriate skills. Every time I had the hand and bet large, everybody folded, and every time I bluffed, everybody stayed in. ==== Now correct me if Im wrong. In blackjack, the rules are absolutely dictated. The dealer has to draw another card or he has to stick, depending on his card count, whereas in poker, people have more choice, and reading your opponent becomes a factor. Therefore, even if you have the edge mathematically, if people can read your emotions correctly or you cant read theirs, you lose the edge. ==== Right, you lose the edge in a major way. Bluffing is an essential element of the game. Theres a mathematician who has written some very good books on poker strategy, but hes never been able to make any money playing poker. ==== Do you believe that some of the successful floor traders are successful because theyre good at reading people? ==== Absolutely. To some extent, you can sense when another market participant is in trouble. In other words, hes offering at a quarter and you can just read that he needs to get out. So even if you want to buy at a quarter, youll wait, because you know hes eventually going to reduce his offer to an eighth. This approach was never an important element in my own trading, however. Most of the money Ive made has been the result of being on the right side of the theoretical value. ==== When did you actually get involved in trading? ==== During the period when I was winding down my involvement in black-jack, I started to work on some option valuation models. ==== Was your model similar to the standard models, such as Black-Scholes? ==== Actually, the paper on this model was published in 1973. I was unfamiliar with the literature, so in 1975 I was busy constructing this model, which in fact had already been developed. In tate 1976,I applied to be a market maker on the Pacific Stock Exchange. |
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