In today’s episode, Shawn O’Malley (@Shawn_OMalley_) discusses the formula used by some of history’s best investors to systematically beat the market averages. It’s not a secret formula for winning if you don’t have any investing edge, but it is a system for maximizing wealth over time by properly sizing bets based on your conviction in terms of how favorable bets are for you ( your “edge.”)
You’ll learn about the great minds of Bell Labs behind the Kelly formula, how Ed Thorpe used the Kelly formula to beat the dealers in Las Vegas, which investors have used the Kelly formula and found success with it, how to define having an “edge” in investing and what that can mean for you, the controversies surrounding the Kelly formula, and why the Kelly formula isn’t better known, plus so much more!
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IN THIS EPISODE, YOU’LL LEARN
00:00 - Intro
01:57 - The origins of the esteemed Bell Labs and how its research led to the Kelly formula’s creation
02:27 -How to define and use the Kelly formula
18:22 - Why the Kelly formula is helpful
23:40 - Why there are limits to the Kelly formula
25:17 - How Ed Thorpe beat the dealer and the markets with the Kelly formula
28:22 - How Claude Shannon’s approach to beating the markets with the Kelly formula differed from Thorpe’s
36:38 - What it means to have an edge in markets
38:52 - Why the Kelly formula is controversial
41:02 - How to think about your own edge in markets
41:44 - Why the Kelly formula isn’t better known
And much, much more!
*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.
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