Having faith in the Kelly Criterion for angel investing

Latané 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. Th

The discussion of luck versus skill in investment management goes far beyond theoreticals and should directly inform the way that behavioral investors structure their portfolios. Understanding that markets are part luck and part skill informs us that we should emphasize rules over practice and that we should hold portfolios that are diverse enough

Once again, placing bets of significant size depends on appropriately skewed probabilities, and these types of probabilities are uncommon, but both the mathematics and the investors argue for large bets when situations with unusual risk/return arise. It is important to note that the risk referred to here is the risk of permanent loss of capital and

When 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.

In theory people should make investment decisions based on their goals and the characteristics of the investment options available to them at the time. But that’s not what people do.