The Game Was Rigged in Their Favor. 28% Went Bust Anyway | Kris Abdelmessih on How to Size Bets

<p>How much of your portfolio does a good investment idea deserve? Kris Abdelmessih of Moontower joins Matt Zeigler to explain why having an edge is only part of the decision: position size can determine whether favorable odds translate into long-term growth or damaging losses.</p><p>Through a coin-flipping experiment and everyday examples, Kris makes the Kelly Criterion accessible without a complicated derivation. The conversation explores the difference between expected returns and compounded wealth, why growth-maximizing bets can still be uncomfortable, and how uncertain probabilities make a case for betting less. From portfolio decisions to insurance and extended warranties, the goal is to build better intuition about how much risk to take.</p><p>Topics covered:</p><ul><li>How a favorable coin-flipping game exposed costly mistakes in bet sizing</li><li>Why maximizing the expected payoff of one bet differs from maximizing long-term compounded growth</li><li>How oversized bets can undermine an otherwise profitable opportunity</li><li>The Kelly Criterion's three inputs: probability of winning, probability of losing, and payoff</li><li>Why a constant percentage of your bankroll means changing the dollar amount after wins and losses</li><li>How different payoffs change the appropriate size of a bet</li><li>Applying the framework to hypothetical self-insurance and extended-warranty decisions</li><li>Why full Kelly can involve substantial drawdowns, and the tradeoffs of fractional Kelly</li><li>Working backward from a position size to the odds needed to justify it</li><li>Allowing for uncertainty in your estimates and preserving capital for future opportunities</li></ul><p>The essay behind this conversation:<br />After this post you will be sizing bets in your head<br /><a href="https://www.panoptica.com/after-this-post-you-will-be-sizing-bets-in-your-head/" rel="ugc noopener noreferrer" target="_blank">https://www.panoptica.com/after-this-post-you-will-be-sizing-bets-in-your-head/</a></p><p>Research discussed:<br />Rational Decision-Making Under Uncertainty: Observed Betting Patterns on a Biased Coin<br /><a href="https://arxiv.org/abs/1701.01427" rel="ugc noopener noreferrer" target="_blank">https://arxiv.org/abs/1701.01427</a></p><p>Kris Abdelmessih's Moontower newsletter:<br /><a href="https://moontower.substack.com/" rel="ugc noopener noreferrer" target="_blank">https://moontower.substack.com/</a></p><p>Moontower:<br /><a href="https://moontower.ai/" rel