Bill Gross: Blackjack Taught Me About Risk Management

Johnny HopkinsBill GrossLeave a Comment

In his recent interview on Masters In Business, Bill Gross discusses how blackjack taught him about risk management. Here’s an excerpt from the interview:

RITHOLTZ: Interesting. You know, we’ve gone this far into the conversation, and I just haven’t gotten around to ask you about your days as a card counter and playing blackjack. Tell us a little bit — which also you mentioned in the book. Tell us a little bit about Ed Thorpe and — and his books and what led you to — to head to Sin City.

GROSS: Well, go through it quickly. You know, the — the year before I graduated from Duke in ‘65 I had gone to the Bahamas on a spring break. I lost $50 on the blackjack table. And I remember that after I nearly cut off the top of my head in a car accident, was in the hospital for a long time, and somebody introduced me to this new book called “Beat the Dealer”, and so I had all the time in the world to sit there and — and discover whether or not his theory about card counting worked. I didn’t have a computer, but I would play thousands of hands of blackjack back and forth, back and forth. And — and I discovered it worked.

And so, when I graduated from Duke in May of ’66 and before I was going into the Navy, and ultimately the Vietnam four months later, I — I went Las Vegas. I hopped on a freight train. I had $200. That’s all I could afford to put on the tables and took freight trains, took seven days to Vegas, got off at the Golden Nugget right in downtown, and — and rented a $6 a day motel — oh, a $0.95 of free nickels and a — a free breakfast.

And so, I started playing blackjack that — that basically taught me, I — I ultimately turned it into $10,000 and it paid for my graduate school, but it taught me about money management. It basically — it — it worked off to what they call the Kelly system, the system where you can’t bet more than two percent of your — your –your stake even if the odds are tremendously in your favor because things can go wrong.

And so, when I ultimately went to Pacific Mutual and then the PIMCO, it — it became an instrumental part of risk management for me because it made a lot of sense and — and it still does. But, you know, Vegas, for me, was — was — was the heart of — of my career. Ultimately as — as it came to pass, it — it taught me what I like to do just to bet against the house and to make money and provide a system of money management.

You can listen to the entire interview here:

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