Collection: Mohnish Pabrai - #87 'Kelly Formula'



Do you still think about the Kelly Formula in term of evaluating probability? [Inaudible]


Kelly Formula.


I'm glad you brought up the Kelly Formula, the Kelly Formula was a mistake on my part. I should have never put it into my book. I should have never talked about it.

It works, if you are doing, you know, 5,000 coin tosses. You know, where you repeatedly making bets with no nods. I mean if you had heads was 51%, tails was 49% and someone allowed you to do 5,000 coin tosses. And you got to pick heads that would be great to use the Kelly Formula to [Inaudible] bet-size and all of that.

But in investing at least the way we practice investing, you're making one-off bets. It's not like 5,000 coin tosses so it doesn't apply.

And so in hindsight, I realised that if I were to ever do another version of my book or another edition where the odd are low, I would acknowledge that and take that out. So don't worry about the Kelly Formula unless you are in some kind of situation with the ability to make a lot of bets with odd in your favour frequently.



[YAPSS Takeaway]

Well guys just be aware, Kelly Formula was a mistake when you're reading "The Dhandho Investor".