Bill Gross: Blackjack taught me risk management

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In his recent interview on Masters in Business, Bill Gross explains how blackjack taught him risk management. Here is an excerpt from the interview:

RITHOLTZ: Interesting. You know, we’ve gone so far in the conversation, and I just haven’t taken the time to ask you about your days as a card counter and playing blackjack. Tell us a bit – what you also mentioned in the book. Tell us a bit about Ed Thorpe and – and his books and what led you – to come to Sin City.

GROSS: Well, run through it quickly. You know, the–the year before I graduated from Duke in 1965, I went to the Bahamas for spring break. I lost $50 on the blackjack table. And I remember after I almost cut off the top of my head in a car accident, I was in the hospital for a long time, and someone 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 find out whether his card-counting theory worked or not. I didn’t have a computer, but I played thousands of hands of blackjack back and forth, back and forth. And–and I found out that it worked.

And so when I graduated from Duke in May of 1966 and before I entered the Navy, and finally Vietnam four months later, I–I went to Las Vegas. I jumped on a freight train. I had $200. That’s all I could afford to put on the tables and I took freight trains, took seven days to Vegas, stayed at the Golden Nugget right downtown and–and I rented a motel for $6 a day – oh, 95 free nickels and a – free breakfast.

And so, I started playing blackjack which – it basically taught me, I – I eventually turned it into $10,000 and it paid for my college, but it taught me how to manage the ‘money. Basically it worked for 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 extremely in your favor because things can turned bad.

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

You can listen to the full interview here:

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