Comment by lutorm
4 years ago
It doesn't seem obvious that this is a good strategy for personal wealth management because besides maximizing expected wealth, there's another very important criterion: minimizing probability of going broke. I only get to play one game, after all. Obviously you can't go entirely broke if you always bet a fraction of your portfolio, but are there results of how these strategies compare in, say, the probability of dipping below 10%, or 1%, of the starting value?
I can't tell you about the 1% version, but when it dipped to 15%, it was a strange feeling that I made a bad decision with the thinking that I'm making a great decision (or more trying not to think about it and trust the decision that I made earlier). It's a mental game at that point that you have to wait through. At least with investing it's just about waiting through those periods, being a CEO of a company and making decisions in that state would have been much harder.
I love the quote “the money in investing isn’t in the buying and selling but in the waiting”.
I know for me I had the moment where things had gone down to roughly 15% and I questioned my decision making. Learning to wait through those periods is super important. Years ago I made the repeated mistakes of not waiting through those periods and missed out on log gains in favor of linear gains.
Agree that it’s easier as an investor and not a CEO to manage that experience day to day.
For me most of my BTC is in a multisig contract between 3 physical trezors in another continent, so actually I am not able to change my decision just because the price dips. Still, as I'm planning to change my portfolio, I'm afraid more of the execution risk than the volatility.
One thing I can tell you is that banks hate people executing the Kelly strategy, as they expect wealth of people to be predictable so that they can issue loans against it to other people.