Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
amazon.com
Saved by Fish Arts and
Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street
Saved by Fish Arts and
You might then ask how LTCM would have been any better off with the Kelly system. The answer is that the Kelly criterion can be more forgiving of human error than many other systems—including highly leveraged approaches such as LTCM’s. Recall the example of simultaneous bets on a large number of coins, each with a 55 percent chance of coming up
... See moreThe Kelly system manages money so that the bettor stays in the game long enough for the law of large numbers to work.
Life is short, and the stock market is a slow game. In blackjack, it’s double or nothing every forty seconds. In the stock market, it generally takes years to double your money—or to lose practically everything. No buy-and-hold stock investor lives long enough to have a high degree of confidence that the Kelly system will pull ahead of all others.
... See moreThe core of John Kelly’s philosophy of risk can be stated without math. It is that even unlikely events must come to pass eventually. Therefore, anyone who accepts small risks of losing everything will lose everything, sooner or later. The ultimate compound return rate is acutely sensitive to fat tails.
The Kelly formula says that you should wager this fraction of your bankroll on a favorable bet: edge/odds The edge is how much you expect to win, on the average, assuming you could make this wager over and over with the same probabilities. It is a fraction because the profit is always in proportion to how much you wager. Odds means the public or
... See moreLatané called his approach to portfolio design the geometric mean criterion. He demonstrated that it is a myopic strategy. A “near-sighted” strategy sounds like a bad thing, but as economists use it, it’s good. It means that you don’t have to have a crystal ball on what the market is going to do in the future in order to make good decisions now.
... See moreThe infinite expectation is a big problem for anyone who wants to use math to decide what to do in the real world. It implies that no amount of money is too much to pay for the privilege of playing this game. Were a casino to charge a million dollars to play this game, rational customers should jump at the chance, it would seem. Same if the casino
... See moreWithin a few years as U.S. Attorney, Giuliani was probably the nation’s best-known crime-fighter since J. Edgar Hoover. That was due both to how many important convictions he secured and to his genius for promoting them. Though Giuliani expanded the U.S. Attorney’s office to 132 assistants, he presented himself as the iconic figurehead of that
... See moreWhen faced with a choice of wagers or investments, choose the one with the highest geometric mean of outcomes. This rule, of broader application than the edge/odds Kelly formula for bet size, is the Kelly criterion.