Fortune's Formula: how to size your positions right

How large an investment position can you take in a stock that offers exceptional value? It’s a question that is debated rigorously amongst the analysts at Intelligent Investor, because it can mean the difference between returns that are mediocre, exceptional or disastrous. In Fortune’s Formula, author William Poundstone provides a fascinating account of a mathematical approach to position sizing, known as Kelly’s criterion, which has been employed with some success by a range of hedge funds since the 1970’s. There are some useful lessons for stockmarket investors. The approach is best demonstrated by an example. Suppose you are given the...

How large an investment position can you take in a stock that offers exceptional value?

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