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The Kelly Capital Growth Investment Criterion
882 pages, 2011
money & investing
165 books
business & management
1082 books
economics & politics
987 booksThis volume provides the definitive treatment of fortune's formula, or the Kelly capital growth criterion, as it is often called. The strategy is to maximize the long-run wealth of the investor by maximizing the period-by-period expected utility of wealth with a logarithmic utility function.
Mathematical theorems show that only the log utility function maximizes asymptotic long-run wealth and minimizes the expected time to arbitrary large goals. In general, the strategy is risky in the short term but as the number of bets increases, the Kelly bettor's wealth tends to be much larger than those with essentially different strategies.
So, usually, the Kelly bettor will have much more wealth than these other bettors, but the Kelly strategy can lead to considerable losses a small percentage of the time. There are ways to reduce this risk at the cost of lower expected final wealth, using fractional Kelly strategies that blend the Kelly suggested wager with cash.
In The Kelly Capital Growth Investment Criterion, Leonard C. MacLean introduces the Kelly Criterion, a formula used by gamblers and investors to determine what proportion of their wealth should be put into high-risk ventures. It's a fascinating concept that can help you make smarter investment decisions.
The book explores the relationship between risk and reward. It shows that the Kelly Criterion can help you balance these two factors to maximize your returns. If you're interested in investing, you'll find this concept incredibly useful.
MacLean emphasizes the importance of focusing on long-term growth rather than short-term gains. He argues that the Kelly Criterion can help you achieve this by ensuring that you don't risk too much on a single investment. This is a valuable lesson for anyone looking to build a sustainable investment portfolio.
The Kelly Capital Growth Investment Criterion isn't just theoretical. MacLean provides practical examples of how the Kelly Criterion can be applied in real-world situations. This makes the book a great resource for anyone looking to apply these principles to their own investments.
While the Kelly Criterion can be a powerful tool, MacLean also discusses its limitations. He points out that it assumes that you have perfect knowledge of the probabilities involved, which is rarely the case in real life. This is an important caveat to keep in mind when using the Kelly Criterion.
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The Kelly Capital Growth Investment Criterion is a must-read for anyone interested in serious investing. It provides deep insights into the theory and practical application of the Kelly criterion.
Harry M. Markowitz - Modern Portfolio TheoryThis book is a comprehensive guide to the Kelly criterion, a formula that has been my secret weapon for successful investing for years.
Edward O. Thorp - Beat the DealerThe Kelly Capital Growth Investment Criterion is a groundbreaking work that provides a deep understanding of the Kelly criterion, a formula that has been a cornerstone of my investment strategy.
William T. Ziemba - Financial MathematicianRecommendations
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