The Kelly Criterion - Formula That Tells You Exactly How Much to Bet | The Long & The Short Ep. 38

Welcome to The Long and The Short - a show where you can expect an honest take on trading, something you won't hear elsewhere. I'm your host, Sandeep Rao (SEBI Registered Research Analyst – INH000013059). In episode 38 of The Long and The Short, we’re discussing a formula that has influenced everyone from professional gamblers to hedge fund managers and some of the greatest investors of all time — the Kelly Criterion. If you have a strategy with an edge, how much should you bet on it? Most traders spend years trying to improve their entries and exits but spend very little time thinking about position sizing. Yet, the amount you allocate to a trade can have a bigger impact on long-term outcomes than the trade itself. In this episode, we explore what the Kelly Criterion is, how it works, and why it remains one of the most debated ideas in finance. We’ll look at its fascinating origins, understand where it helps, where it falls short, and discuss how traders and investors can apply its principles in the real world without taking unnecessary risks. 📌 Chapters: 0:00 – Introduction 1:59 – What Is the Kelly Criterion? 6:58 – The Origin Story: Bell Labs & the TV Quiz Scandal 9:24 – What Kelly Gets Wrong: Three Critiques 11:46 – Using Kelly Realistically 14:56 – Book Recommendations 15:51 – Closing Thoughts 📖 Book recommendations: Fortune's Formula by William Poundstone → https://www.amazon.in/dp/0809045990 A Man for All Markets by Ed Thorp → https://www.amazon.in/dp/1786071975/ If you prefer reading, we've written a post about this episode here: https://inthemoneybyzerodha.substack.... Do check out our newsletter "Aftermarket Report" where we do a quick daily wrap-up of what happened in the markets, both in India and globally. here: https://aftermarketreport.substack.com/ Check out Varsity Live, a hands-on way to learn finance with experts. Instead of only listening, you practice in real time through activities like personal finance planning, technical charting, balance sheet analysis, and more: https://varsitylive.zerodha.com/home Open a free demat and trading account online at Zerodha: https://zerodha.com/open-account/?c=Z... Disclaimer: Investments in securities are subject to market risks. Please read all related documents carefully before investing. SEBI registration does not guarantee the performance of the intermediary or assure returns to investors. The securities mentioned are for illustrative purposes only and do not constitute a recommendation. By proceeding, you acknowledge and agree that any returns shown on this platform are solely for informational purposes. They are not intended to serve as advertisements or promotional material, nor should they influence your investment decisions. Trading and investment decisions should be made at your own discretion, and it is strongly advised to consult a qualified financial advisor before acting on any information provided. Note: Some image(s) may have been created using Al, no copyright infringement is intended. About Zerodha At Zerodha, we simplify complex financial topics to empower you with the knowledge to make smarter investment choices. Whether you're just getting started or looking to sharpen your skills, we’re here to help you navigate the financial world with clarity.