Bet Sizing Research

Michael Mauboussin of Legg Mason offers this recent research on bet sizing (PDF). An excerpt:

“Edge is key. Recall the foundation of Kelly’s model rests on having a view that is different, and more correct, than that of the market. Having an edge requires understanding the market’s perspective. As Poundstone writes, ‘The stock ticker is like a tote board. It gives the public odds. A trader who wants to beat the market must have an edge, a more accurate view of what bets on stocks are really worth.'”