Excellent Excerpt

Here is an excellent excerpt from a book that I'm currently reading.  It's amazing to think that in 1991, Ed Thorp called it, saying that Madoff had to be a fraud.

He [Ed Thorp] also worked as a consultant for pension funds and endowments.  In 1991, a company asked Thorp to look over its investment portfolio.  As he combed through the various holdings, he noticed one particular investment vehicle that had produced stunning returns throughout the 1980s.  Every single year, it put up returns of 20 percent or more, far outpacing anything Thorp had ever seen--even Princeton/Newport [Thorp's hedgefund].  Intrigued, and a bit dubious, he delved further into the fund's strategies, requesting documents that listed its trading activities.  The fund, based in New York's famed Lipstick Building on Third Avenue, supposedly traded stock options on a rapid-fire basis, benefiting from a secret formula that allowed it to buy low and sell high...

It took Thorp about a day to realize the fund was a fraud. ... He told the firm that made the investment to pull its money out of the fund, which was called Bernard L. Madoff Investment Securities.

 

The above excerpt is from The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It  by Scott Patterson.