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Survive first. Then thrive. (THREAD)
You can't win if you've been eliminated from the game.
There's a formula called "The Kelly Criterion" (invented by John Kelly, Jr.) that's designed to keep you playing the game.
Here's how it works...
MORE
You can't win if you've been eliminated from the game.
There's a formula called "The Kelly Criterion" (invented by John Kelly, Jr.) that's designed to keep you playing the game.
Here's how it works...
MORE
The Kelly Criterion is a relatively simple math equation
to determine the percentage of your bankroll you should bet on any given circumstance,
assuming you have an advantage.
The goal of the equation is this:
Don't go broke.
MORE
to determine the percentage of your bankroll you should bet on any given circumstance,
assuming you have an advantage.
The goal of the equation is this:
Don't go broke.
MORE
Here’s @Naval Ravikant talking about the importance of the equation:
"The Kelly criterion is a popularized mathematical formulation of a simple concept.
The simple concept is: Don’t risk everything.
Stay out of jail.
Don’t bet everything on one big gamble."
MORE
"The Kelly criterion is a popularized mathematical formulation of a simple concept.
The simple concept is: Don’t risk everything.
Stay out of jail.
Don’t bet everything on one big gamble."
MORE
Ultimately, the Kelly Strategy relies on situations where the gambler has an advantage (say, 60/40 or 70/30).
It needs those odds to compute your optimal bet, which is a steady percentage of your total capital.
MORE
It needs those odds to compute your optimal bet, which is a steady percentage of your total capital.
MORE
As your wealth increases, the proportion remains the same, but your bet grows.
If you lose on any number of hands, and your wealth decreases, so will your bet.
The upside of this is that only betting a portion of your wealth (almost) guarantees you'll never go broke.
MORE
If you lose on any number of hands, and your wealth decreases, so will your bet.
The upside of this is that only betting a portion of your wealth (almost) guarantees you'll never go broke.
MORE
In "Fortune’s Formula," author Poundstone explains:
"Elwyn Berlekamp, who worked for Kelly at Bell Labs, remembers Kelly saying that gambling and investment differ only by a minus sign.
Favorable bets are called ‘investments.’
Unfavorable bets constitute *gambling.*"
MORE
"Elwyn Berlekamp, who worked for Kelly at Bell Labs, remembers Kelly saying that gambling and investment differ only by a minus sign.
Favorable bets are called ‘investments.’
Unfavorable bets constitute *gambling.*"
MORE
For an even money bet, the formula is pretty straightforward.
Simply multiply the percent chance to win by two, then subtract one, and you’ll have your wager size percentage.
K = 2(W) - 1
Simply multiply the percent chance to win by two, then subtract one, and you’ll have your wager size percentage.
K = 2(W) - 1
Too much math for you? Don’t worry.
Qualitatively, the concept exists to keep gamblers from betting it all —no matter the odds.
At its core, it can help you avoid ruin.
And it's most useful when you're privy to "insider knowledge"...
(when you have an advantage)
MORE
Qualitatively, the concept exists to keep gamblers from betting it all —no matter the odds.
At its core, it can help you avoid ruin.
And it's most useful when you're privy to "insider knowledge"...
(when you have an advantage)
MORE
@Naval tells us that the most likely way to “lose it all" is to end up in jail,
OR face reputational destruction by doing something unethical.
These are more likely to reset your career to 0 than facing financial ruin.
Protect your reputation and freedom first, always.
MORE
OR face reputational destruction by doing something unethical.
These are more likely to reset your career to 0 than facing financial ruin.
Protect your reputation and freedom first, always.
MORE
TLDR:
The Kelly Criterion is a helpful reminder:
Don’t risk everything you have in one go.
Survive so you can keep playing the game.
And keep going.
You read more on my site, here: https://www.wealest.com/articles/kelly-criterion
The Kelly Criterion is a helpful reminder:
Don’t risk everything you have in one go.
Survive so you can keep playing the game.
And keep going.
You read more on my site, here: https://www.wealest.com/articles/kelly-criterion
