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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (27185)	6/30/2007 5:34:16 PM
From: Madharry	Read Replies (1) \| Respond to of 78731

I researched kelly criteria at length read fortunes formula which i found to be a hoot but real useful. Kelly's criteria i think is much more applicable to horseracing or straight win/lose propositions than anything else but thorp is a sharp guy so he my have some adaptation that works. I have a math background and looked at kelly's original article but i couldnt figure it out. One of the big problems in using this criteria is that its based on probability of winning and i think thats difficult to predict that probablity accurately in most most mergers, and most stock market plays. although thorp made a lot of his money in pricing warrrants correctly, and there you could price warrants based on a particular model fairly accurately and there were a lot mispriced warrants at the time. also thorp went into debt to buy att stock and short the spinoffs as his odds of winning was 100%. Not to many opportunities like that. Now if you do have expertise in likely outcomes of merger -what is your feeling about the trib merger going through? according to barrons that represents a 30% annualized return if it comes to fruition as planned.

To: Paul Senior who wrote (27185)	7/1/2007 12:44:33 AM
From: Spekulatius	Respond to of 78731

I would not have bet anything in this situation because the reward would not have been worth it for me. Couple weeks back I came across a buyout offer to close roughly three weeks hence. Stock selling for $21.65 with offer of $22.00 cash/sh. 0.35$ is a 1.65% return. Loss Potential of 5$ means loss potential is 14x higher than return potential. This means if you have a probability of roughly 7% that a deal is not going through your average return would be breakeven.the problem with your math is that i think you estimated the risk that the deal will fail very low, only 1-2%. I personally would refuse to accept a failure risk of less than 5% in any case of merger situation.