Comment by kqr
4 years ago
I don't have the source at hand but by looking at what data we have from successful investors, many of them have returns that statistically seem like what you'd expect from E log X strategies.
In fact, it's not even a point of debate. If you target growth, you are using the Kelly criterion whether you know it or not. It's just the name for the thing you do when you optimise for growth.
There are kind of two main points by Kelly:
1. Investment returns are multiplicative and should be looked at as a geometric series. To optimize the portfolio, optimize for geometric mean not arithmetic mean.
2. To optimize the geometric mean of some specific games, apply some specific mathematical rules that Kelly derived.
Then 2nd part is not applicable to general market investing. The 1st part is.
I would be surprised and perhaps a little disappointed if any professional investors think of E log X optimisation as the latter.
I think it’s more a difference in what people think the term “Kelly criterion” means, which is somewhat fair. The concept of optimizing for geometric mean came before Kelly, as well as the math showing that optimizing for log utility is a way to do that.