It doesn't matter if you are 99% sure that your YOLO will moon because of the transit of Uranus or something. It's heartbreaking to see people posting losses amounting to years of savings, I was also seriously considering a YOLO on long SPY puts until I came across this concept because I'm feeling super sure about a pending recession. Read up on it and I am converted, I'll maybe make a sizeable bet of like 10% but I ain't going all in (at that point it's basically a hedge).
The gist is the best way to make money over time is to sensibly size your capital allocation to any bet you make, statistically you will come out better off. Even if a bet has a 99% chance of doubling your investment it doesn't make sense to bet your entire port because if you hit that 1% you're fucked. Think of it as playing Russian Roulette with a revolver with 100 barrels (YOLOing), vs…. I don't know, some equivalent situation but if the bet doesn't go your way you just get punched in the face really hard (sizeable allocation but not a YOLO). Not even accounting for the fact most of this shit has odds sub 10%, not to mention you probably don't understand options correctly and will lose even if what you think will happen to the underlying happens.
If you bet 10% on something that moons, you made great gains! Enviable gains even. Don't risk having to leave the table entirely and impacting your future because you FOMO your entire port on something.
Seriously: https://en.wikipedia.org/wiki/Kelly_criterion
Read it or weep.
For the love of god, google "Kelly Criterion"
byu/Flibidyjibit inwallstreetbets
Posted by Flibidyjibit
48 Comments
🫵🫵
no
this guy is trying to avoid Wendy’s like the plague
Sir, this is a Wendy’s
I transited your mom’s anus
Better applied to sportsbetting.
This isn’t r/investing buddy
Shut up MOM!
Fortune’s Formula (Poundstone) explains the development of the Kelly Rule, as well as a bunch of awesome stories about these rad lads (Shannon, Kelly, and co) working out how to bust casino roulette wheels and blackjack tables.
The Idea Factory (Gertner) is a related book, also fascinating, about the sheltered playground Bell Labs was in the early days for pure science, driven by monopolistic profits.
“logarithm of wealth” is a great name for a band.
This is the casino. 10% chance of hitting means huge gains.
thats why i only yolo on the 100% ones
*taps head*
The funny part is that full Kelly is still considered very volatile by most “serious” investors. Half-Kelly is popular for exactly this reason.
Boring
Also, if you yolo twixe in a row, your odds of failure are not 2x as much
/r/sportsbook exists my guy. It DOES NOT translate to this just because you just learned what the fuck Expected Variance is.
From your comment history, you just started getting into options you dumb mofo. Your first strategy is to wheel ASTS lmao.
I’ve told me friend to look up Kelly criterion numerous times 😂😂😂
I read it, and it doesn’t really apply to investments. Your overall point is good though.
Ummm… imma all in 100% of the time if my win rate is 99%. Me doubling my money 99 times compounding out risk of 1%. Basically poker
If it has a 99% chance of doubling my money you bet your ass I will yolo everything I got.
Kelly requires you to have answers for all 3 of the following for every bet you make:
•Defined bankroll amount which is adjusted after each bet
•Probability of success of hitting price target
•Payoff if successfully hit price target
I don’t think anyone in here typically has even one of those numbers handy when they throw the dice, or even a price target.
This is capping 101, no degen gambler wants to hear this.
SPY 0dte ladder challenge to 1m or bust
Ban
Professional gamblers and degenerate gamblers are two totally different species. Good luck teaching one the rules and attitudes of the other.
Not saying you are totally wrong, but the Kelly Criterion assumes repeatability, which might not be a given. Yoloers often think that their’s is a once in a lifetime opportunity.
Thank you for writing this, it’s becoming increasingly rare to read productive posts on this sub filled with idiots that promotes losing money.
Is this the Kelly index where we buy LULU and Louis Vittoin brand stocks?
Saying all the right things in all the wrong places.
wtf, chart that go up are supposed to be green and ones that go down are to be red. This chart doesn’t meet that criteria so it’s just bs
Did this guy just make a post about risk management?
Bankroll management
Here is a great [post on Kelly’s Criterion](https://www.reddit.com/r/thetagang/s/j8b5BSCpB0)
This guy used a scientific math formula to describe common sense
So… *don’t* YOLO your life savings on a single bet? What an novel idea.
Uh I wish I was smart enough to understand the formula and apply this to my strategy. unfortunately I’m not, yolo it is. How tf do you figure out the probability of your investment increasing?!
OMG Guy E=mc^2 so buy puts now!
Very interesting. And how many billions did Kelly make in the market?
The problem is that you have to have a winning edge.
If you don’t, then it’s actually better to go all or nothing.
If you have a 49% of winning a bet, and you play 10000 bets (1:1 win loss ratio) you have a very high chance of losing. However, if you do 1 big bet. You have a higher chance of winning.
Who’s Kelly?
Is she hot??
$sofi is about to begin the ascent. Look what happened when rate cuts were mentioned 3 quarters ago. And now they’re staring at ever increasing profits. It’s bound to go higher, thanks to shorts that will cover
I don’t care. I keep going til I’m a billionaire or I live in a ditch eating neighbors cats. Win win.
Most degens here don’t just bet 100%, they leverage so gamble 300%
rip Kelly Criterion she was so brave to bet it all
I don’t need this kind of negativity in my life,
But I don’t want to read, I want to get rich
Does she have an only fans page?
If it’s a lock it’s a lock you gotta full port