Buffett sells down Berkshire’s Moody holding with a hat tip to Fusion Investing which sells down MQG ahead of the trading halt.

It’s over a year since I read any of the articles I linked in yesterday piece on the Kelly formula and portfolio management. After reading the brilliant article by Michael Mauboussin Size Matters – The Kelly Criterion and the Importance of Money Management I realised that both he and I did not explain how to actually use the Kelly formula in sizing individual positions. So let’s try to fix that clearing ommision.

Using the Kelly Formula for Portfolio Management:

I have two main uses for the Kelly formula, neither of which are the intended purpose. My third and less important use is the intended purpose of Kelly, an aid in determining my indiviudal investment size.

I use Kelly as a comparitive tool and as and aid to focusing on probabilities, risk and returns. Before we dive into each of those I should explain how I use a method that is designed to be used with binary outcomes with known odds for investing, where their are multiple possible outcomes with unknown odds.

At the bottom I link some great articles from Ed Thorp, John Kelly, Michael Mauboussin and Paul Samuelson

Someone is always left holding the bag. This is the same concept as the oft quoted patsy at the poker table.
If you invest late into trends then you have a higher probability of being that patsy.
People investing late in trends should examine if they suffer from herd mentality, confirmation bias etc. While numerous studies show momentum strategies are successful, all those strategies attempt to identify major trends early on. One of the most basis the death cross of the 50dMA crossing below the 200day shows when getting on board this …

Most Friday’s I drop my daughter at dance class, head to one of Melbourne’s best cafés and have a latte while I wait for Borders to open at 10. I then have around 20 minutes to choose and scan an investment book. While I am normally a slow reader I can skim a book in 20 minutes and pick out a few lessons which resonate with me.
Today my book of choose was Way of the Turtle, by one of the original turtles, Curtis Faith.
Almost every page I scanned contained a …

Investing is all about probabilities, the probability of reward versus risk. It doesn’t mater whether you’re a value, growth, fundamental or technical trader or investor you should be using probabilities to help you be a better investor. I use the Kelly Formula for comparative analysis of my portfolio and new opportunities and will discuss that in depth another day. Today I’d like to focus on short term probabilities. If you sit firmly and unflinchingly in the long term buy to hold camp then move along there is nothing for you …