Using the same types of probability calculations that they once used to beat Las Vegas, the MIT Blackjack Team has now taken on Wall Street with more resounding success.
The team's blackjack operation made famous in the book "Bringing Down the House" involved betting large sums of money when they calculated that a favorable outcome was likely at the table. To predict the outcome, the team monitored playing cards as they were dealt from a single shoe. With their new scheme, they monitor the economic forecasts coming from a single person. That person is Chairman of the Federal Reserve, Ben Bernanke.
Simply by reading Chairman Bernanke's statements and betting large sums of money against each of his predictions, the MIT students have generated tremendous profits. They report over 300% in average annual returns since they began the fund in 2007, a year after the current Fed Chief took office.
"I knew this thing was a slam dunk. This guy has been more reliable than a weatherman in Antarctica." said team member Ethan Depler adjusting his Rolex watch conspicuously. "The only difference is this guy is always wrong."
The first big move they made was in Spring of 2007. Bernanke had said the subprime crisis was contained when he appeared in front of the Senate Banking Committee. The team quickly researched who had the most exposure to these "toxic" loans and began shorting those firms heavily.
With that success behind them, they were now working with what Professor of Statistics and Team Captain Sergei Grenkov simply referred to as "some real capital."
Their biggest winner of all came soon afterward when they shorted Fannie Mae and Freddie Mac after Bernanke claimed multiple times that both entities were "well capitalized."
"He was so sure." said Grenkov. "And, therefore, so were we."
Moving nearly their entire portfolio into short positions on both of the government sponsored enterprises, they turned an astonishing 471% profit over just four short months.
Since then, a changing combination of investment banks and inept American car companies have made it easy for the team to continue its winning streak while staying on the short side of the market.
Grenkov has been delighted with the both the results and simplicity of the operation, especially when compared to their previous endeavor.
"With our blackjack operation, the mathematics involved were so complicated. The practice sessions were exhausting." he explained. "We needed the sharpest minds at MIT, but also people who could also operate under tremendous pressure. We were going up against the most incredible security apparatus in the world."
None of that is the case anymore. With the Bernanke Fund, team members are making more while working less, a lot less according to Grenkov.
"We are sleeping much better." he said with a chuckle.
Grenkov is puzzled why more people have not tried a similar investment strategy. The fact that people have not caught on has actually helped the MIT group to continue to make astonishing profits month after month as there are always people to take the other side of their deals.
"I thought this was going to be a short term project." said Grenkov. "Because once people figured out Mr. Bernanke's consistent record of ineptitude, they would start making the same financial moves we were and profits would be minimized."
He is amazed at how Americans continue to believe the media's portrayal of Bernanke. It reminds him of when he lived in the Soviet Union.
"In the USSR, we knew you couldn't believe what you were reading. But Americans are different. They believe anything." he said.
Team member Michael Giffen said he is grateful not only to Bernanke for his contribution to their success, but also to the media that enthusiastically promotes his viewpoints.
"None of us ever predicted that CNBC had so much power over the average American investor." said Giffen.
That might be the only prediction that Grenkov and his cohorts have gotten wrong.