Get Rich: Here's The Math

In July, 1956, the august Bell System Technical Journal published one of the oddest articles in the history of communications research -- an equation-filled treatise on how to make money at the racetrack if you have inside information on which horse is likely to win. Betraying no sense of incongruity, the article, by a young Texan physicist named John L. Kelly Jr., prescribed how much of your bankroll to bet based on two things: how certain you are of betting right (your "edge") and your winnings if you are right (the odds).

Fortune's Formula, by William Poundstone, is the sometimes-deep, sometimes-Runyonesque tale of the Kelly system's origins in research at Bell Laboratories and how people have used it to make money since. Although Kelly wrote about the horses, his approach is at least as useful on Wall Street. Legg Mason Capital Management CEO Bill Miller, among the most consistently successful investors of recent decades, wrote two years ago that "the Kelly criterion is integral to the way we manage money."