By John Pangere, co-editor, Strategic Trader
One of the most successful investors of all time isn’t who you think. He didn’t start his career in finance. He didn’t even intend to become a stock market genius.
All Edward Thorp wanted was to be a math professor. With PhD in hand, Thorp pioneered the modern applications of probability theory. (Probability is the foundation for statistics.)
Thorp focused on using his knowledge to solve real-world problems once deemed impossible.
So while Thorp was a math professor by day… by night, he hit the blackjack tables.
Beating the House
After reading a paper about the optimal betting size by Bell Labs researcher J. L. Kelly, Thorp thought he could devise a system to win at blackjack.
At the time, most casinos were using a standard 52-card deck at blackjack tables. They didn’t always reshuffle the deck after every hand.
So Thorp made his own card counting schemes to help improve his odds.
In 1966, he wrote a book about his method. Beat the Dealer: A Winning Strategy for the Game of Twenty-One is still one of the top books for serious blackjack players.
Eventually, he convinced bookie Manny Kimmel to stake him $10,000 to prove his strategy. It was a success. Thorp won $11,000 on his first trip, much more than his annual $6,900 salary teaching math.
But as time went on, casinos caught on. He resorted to disguises just to sit and play.
After too much success and more recognition, it was time to move on.
From Sin City to Wall Street
Thorp wasn’t finished proving his math genius. If his strategies could work at the blackjack table… why not in the stock market, too?
That’s when he came across his golden goose: warrants.
Regular readers of our Strategic Trader service are familiar with warrants. My colleague Dave Forest and I show readers how warrants can take your portfolio to a new level.
They’re similar to having an option on a stock. A warrant is a security issued by a company to an investor. It gives the investor the right to buy stock directly from the company at a specific price – the strike price – for a specific time.
In most cases, that time period is anywhere from five to 10 years. That’s a lot of time. It allows investors the chance to buy a company’s stock at a significant discount to its current market price.
That’s what drew Thorp in. So he wrote another book in 1967, Beat the Market, about what he found with warrants. As he wrote with co-author Sheen T. Kassouf:
For the first time my investments were virtually assured of success. I was no longer at the mercy of strange chart formations that smacked of astrology. And it was no longer necessary for the market to eventually agree with me on the value of a security. As I perfected my operations, investment after investment proved profitable.
Thorp’s fate was set.
The man who beat Vegas now had a way to beat Wall Street. And warrants played center stage.
Small Bets. Big Gains.
Thorp realized that traders often misprice warrants, if they know they exist at all. As he said in his book A Man for All Markets:
A warrant, like a lottery ticket, was always worth something before it expired even if the stock price was very low…The more time left, and the higher the stock price, the more the warrant was likely to be worth.
This isn’t unlike our proprietary T-U-V system we use in Strategic Trader. Warrants have value. It’s just a matter of using a system to pick the ones that have a higher chance of turning into big winners.
That’s what Thorp realized. So in 1969, he started Princeton Newport Partners. After raising $1.4 million, he was in business.
With his system in place, Thorp showed what was possible with warrants.
For instance, in 1972, warrants of resort and casino developer Mary Carter Paint Company traded for 27 cents. At the time, the stock traded for $8. So Thorp bought 10,800 warrants for $3,200.
At one point, the stock dropped to $1.50. The warrants went with it, heading almost to zero. Thorp never wavered. He let his system play out and bought even more warrants.
Then in 1978, something interesting happened. Mary Carter Paint owned property in Atlantic City, NJ. The company successfully lobbied to bring casinos to the state. And in May of that year, it opened the first casino outside Nevada.
The company reaped windfall profits. The stock and warrants surged. Thorp cashed out, making over $1 million on the trade. He would do this over and over again for decades.
In almost 29 years as a professional investor, Thorp booked 20% average annual gains after fees. More importantly, he never had a losing year.
Warrants helped him get there.
Our Secret for Turning Dimes Into Dollars
Most investors have no idea warrants exist. In fact, even if they do, they don’t know that you can trade them just like any other stock.
That’s by design.
When wealthy and connected investors find ways to turn small sums into huge windfalls, they tend not to share the details with everyone else. That is, unless you’re willing to invest millions with them and pay them 20% – or more – in fees.
That may seem unfair, and it is. That’s why Dave and I decided to blow the lid off of speculating with warrants when we launched Strategic Trader in 2019.
In just a short period of time, regular readers had the chance to book gains of 392%, 470%, and we even closed two winners out for gains of 2,805% and an astonishing 4,942%.
That doesn’t include some of our current positions showing triple- and quadruple-digit gains so far.
It’s not everyday you can turn dimes into dollars… or turn $100 into $2,900. Or $1,000 into $50,000.
Speculators like Ed Thorp saw what warrants could do. Now our readers are benefiting from the same secret strategy that was the speculating playground of wealthy investors.
But we’re just getting started. And on Wednesday, October 20, at 8 p.m. ET, my colleague Dave Forest will reveal our next target.
It’s an opportunity so extraordinary that Dave is holding his first event ever called “Zero to Retirement Summit.”
It’s a way to potentially make 49 years of profits in ONE trade.
See you there.
Co-editor, Strategic Trader