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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: E. Charters who wrote (13721)6/10/2007 5:03:30 AM
From: Paul Senior  Read Replies (1) of 78421
 
OT: Thanks for your explanations regarding Kelly Criterion. I'm still trying to understand the implications of what you've said, as well as what I can gather from reviews of Mr. Poundstone's tome.

Best I can determine is that I've got the wife who would prefer I not reinvest winnings, ergo I should be in arithmetic mean camp. If even that -g-

Issue currently for me is I have found a takeout stock with expected gain of 1.0+ percent over next two weeks with maybe 98% probability of completion, with expected loss of 25% if the deal fails (So, That'd be 2% likelihood. Just my guesses of the probabilities and possible stock drop.) The thing has a positive expectation by this: (probability of gain x gain amount)- (probability of loss x loss amount.) My question to myself is, how much of my portfolio am I willing to bet or should I bet on this deal being done, given that I'm very confident of the deal but I have to put up quite a lot of money to see anything worthwhile if it does occur?

Oh well. So far in for 8 percent of my portfolio. Guessing maybe in for 20-25% would be the optimum figure. OTOH, maybe the issue isn't so much calculating a correct formulaic amount, but that there's slop in my (or anybody else's) probability assessments of any deal being completed, and therefore more risky than what plugging odds guesses into a formula might suggest.
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