LC

Not at all. If you find attractive 'lottery ticket' stocks or options and make some very basic assumptions about them the Kelly criterion will show you that you should keep your position sizes small, completely the opposite of what you are saying. The Kelly criterion also shows you that, in terms of position sizing, it is very important to look at downside protection if you are wrong, rather than solely looking at the upside if you are right. Something that a lot of investors tend to overlook. In general, I think the Kelly criterion can be a useful tool to challenge your own position sizing in certain scenarios. I think that that is a useful exercise every now and then, to avoid getting too attached to your own preconceived notions about sizing. The alternative is solely relying on gut feeling and experience. I should have been more clear: "Best" being defined as a scenario with (1) a higher probability of winning and (2) a higher payoff ratio. A lottery ticket has (2) but not (1). An investment with both of those characteristics (i.e. maximum expected value) should be the higher priority. It is very useful to break out investment opportunities into these 2 factors and do your best to think about them objectively. "What is the chance I am right or wrong here?" "If I am right, how much am I going to make?" In which case it’s really no more insightful than anecdotes like “buy low and sell high”. Giving greater weight to your highest conviction ideas is really just common sense. But it’s also again, subjective. Buffett, Icahn, and Tepper all have different top ideas. Some will do better than others. When all else fails, look at your results. Yes it is common sense and all Kelly did (really Bernoulli before him) was quantify it where you can explicitly define the odds. As you correctly mention it is subjective in other areas outside of a casino because in these areas we cannot discretely identify the odds. You can make assumptions to help (i.e. measure various historical volatilities to define both p and odds) but now you are transferring the subjectivity not to the odds themselves but how you are measuring the historical odds. This is what cherzeca alludes to above or more accurately is essentially a barrier option. Pricing barrier options is how the financial industry has attempted to re-define and price these scenarios using different probability distributions/density functions. Slightly more accurate but still subjective: E.g. if we are both taking a side on a 1-month vanilla and I am using historical monthly local vol and you are bootstrapping using weekly or daily or even hourly, well then we will be on different sides of the trade all else equal.

I would actually disagree with you there. I think the problem is these modellers are requiring precision and not accuracy. The entire point statistical modelling is to use a sparse number of datapoints to create a generalized model. Go back to stats 101 and the sample size problem. What is the generally accepted minimum number of samples? It is 25 or 30. At 200 points you can get to significance at 99% confidence. I have some coworkers from medical research - we used 50, 100 samples to draw medical conclusions back then...and now portions of the bank claim they can't build a sufficiently accurate model due to lack data when they have datasets in the thousands. The tradoff is you can use 500 data points to create a generalized model but it will lack precision. Or you can build a model with 500,000,000 datapoints (we have them - do not believe anyone who says they lack data unless it is risk-specific) but it lacks the ability to generalize over time. Modellers try to take the best of both worlds with various methods to reduce overfitting (you can google the regularization methods) but IMHO there is only one true method, which is intuition - and this currently cannot be modelled or at least I am not aware how.

In the world of investing, all the Kelly criterion tells you is that to maximize your expected wealth, you should concentrate in your best ideas. That is the only lesson. In scenarios with finite solutions it can tell you how much you should concentrate, but these scenarios are rare outside of casinos and can be largely ignored for our case.

Somewhat on topic here: http://news.mit.edu/2019/model-beats-wall-street-forecasts-business-sales-1219 Anyone who is interested needs to understand how proxy data is used. Proxy data can be risky depending on the strength of the relationship. If it breaks down, your model breaks down. And it must make sense therefore human judgement is still required. Using credit card data as a proxy for consumer spending seems reasonable. Using this same data as a proxy for R&D spending in a nuclear energy company may not be reasonable.

Not sure I would agree but perhaps a step down memory lane could be useful: https://blogs.cfainstitute.org/investor/2013/02/27/what-is-the-difference-between-investing-and-speculation-2/ I think I'd agree with the above. Occasionally the horse races may present a great opportunity but by-and-large the house is the winner.

Great decision buying AMD. It continues to surprise me how some (only a few) companies can re-invent themselves. My son (who is in grade 12) alerted me about 2 years ago to what was going on at AMD; he and his buddies are into technology and he explained to me that AMD was a company on the rise. Alas, i was too busy thumb sucking to do anything about it. I use it as an example with him to how small investors can do well if they do what Peter Lynch advises: take advantage of what you see in your circle of competence. I would argue you are not totally in the wrong here. AMD has over multiple times threatened to seriously compete with Intel in the chip space. 75% of the time they fall flat on their face. I think unless you are a chipset or cpu engineer and you have specific knowledge, or they are trading at silly valuations... then it's a bit of a crapshoot.

Merry Christmas everyone!

Just got thru the series finale of Mr Robot. God damn, that is a highly recommended show.

I'll tell ya Scott (or Liz) is an interesting character, wish she stuck around here...and I disagree with her on about half of those points (particularly on the reflexivity and related topics) but one thing I will take a recommendation from her on is aspects of copy-writing, advertising, etc. And in general I'd say most of us are only really able to speak on one or two topics to the point we should be advising others, and it's usually what we do for our day jobs. ;D

For the high roller who need to hit the 5% annual distribution mark for your LastName Charitable Foundation, welcome to the wide world of Donor Advised Funds (DAF, as in "You must be totally DAF(t) if you think some uber-rich guy isn't exploiting this loophole") https://www.vox.com/recode/2019/12/18/21010108/larry-page-philanthropy-foundation-donor-advised-fund-christmas Just another totally sensible portion of the tax code. Merry Xmas! ;D

Somewhat similar but I would argue MMM is a more reliable business. Looking over 5-10 years I see MMM has more stable revenue change rates, and changes in gross, operating and net margins, greater and more stable reduction in share counts over those years. I will give Dupont credit for managing their credit (:)) profile although perhaps the argument can be made that MMM should be levering up their balance sheet given their stable business and rate climate.

Similar thoughts: great biz, fair price. I own it.

My take is that capital heavy industries require capital upkeep. This upkeep is subject to inflation so while you may come out slightly ahead depending on the change in magnitude of your pricing power vs. your suppliers, it is not exactly a thrilling experience. On the second item. Savers invest in assets, so saying that inflation is a tax on savers but not assets somewhat puzzles me. Inflation is really a tax on inaction and value-destructive activity, i.e. un-productivity. Those who hoard their capital (inaction) are hurt by inflation as their purchasing power erodes. Those in value-destructive industries will naturally be eroded as their costs increase faster than their revenues. Inflation rewards those who can charge increasing revenues without significantly expanding their costs.

https://thespoon.tech/uber-eats-is-doing-ghost-kitchens-heres-how-that-could-change-food-delivery/

WACC includes debt financing costs.

https://www.restaurantowner.com/public/Restaurant-Rules-of-Thumb-Industry-Averages-Standards.cfm Grain of salt...my guess is NYC SF will most likely have a different rent structure than Kansas, but I am no expert.

Not sure about the 1040ES but where are you getting the +/- 10% from? My understanding is that all non-taxed cash from the traditional IRA (i.e. pre-tax contributions you made, and any gains within the traditional roth) are then identified as taxable income in the year you perform the conversion. Let's say in 2019 you earned $100 but contributed $5 pre-tax to your traditional IRA. So in 2019 your taxable income is $95. And let's say that $5 grew to $6 within the traditional IRA. In 2020, you convert to a roth IRA, and again make $100. Your 2020 taxable income will be $106, and you pay taxes normally on that income amount. Note: In this example, you would pay an additional 10% on the $6 if you do not make the conversion within 60 days of closing the traditional IRA. Another aside: I often do this when moving homes - If I need up-front cash as a down payment, I can withdraw it from my Roth IRA for the down-payment on the new purchase. Then when the old house sells, I take the exact same amount and deposit it back into the Roth IRA (within 60 days, and you can only do this once per 12 months!).

Saying the same thing in another way: If you have a billion dollars, better to invest only $100MM and earn 10 percent, then take the other $900MM and go buy some islands. Rather than invest the entire for 1% and have zero islands :( I vote islands.

https://www.zillow.com/research/silver-tsunami-inventory-boomers-24933/ Some research on housing supply release over the coming years.

Thanks Greg. I am starting to do something similar but for vacation properties, not even looking for capital appreciation. Would be nice to have 3 places to live for 4 months of the year, then rent/airBNB for the remainder. Difficult is managing from afar if something goes wrong. I am willing to give up a % to a property manager so that will have to be the way to go, but I'm not sure how effective they really are for single family residences.

Greg, are these properties in the same area that you live? If not, how do you manage landlord-related duties (fixing or replacing something etc.)?

aside from an intrinsic "moat", characteristics would be: low capital requirements, addictive or necessary product, ability to scale. historically what has been good: the vices, gambling and drugs in particular although it's easy money so people will always want a cut. "expertise" services: particularly protected ones like doctor/nursing centers, dentists, specialists. look at places where a number of people get moderately rich. the uber-filthy rich are monopolists, in essence. difficult to disrupt, many factors outside of your control. the moderate rich provide services/businesses that are more achievable.

It's this pretty much with any other alpha coming from deep DD on particular companies and/or their situations. Obviously a lot of factors go into oil prices, but on a long-term scale, here's what the story in the US looks like:

Saw this show up on Michael Larson/Bill Gates 13F (paltry tracker position amount but still) Cornerstone is a merged entity of two exterior building materials companies, Ply Gem (residential) and NCI (commercial). https://www.cornerstonebuildingbrands.com/ The merger makes them the largest national producer (aprox 80 facilities) of these type of materials: -windows, vinyl siding, insulated metal panels, metal roof and wall systems and metal accessories So obviously dependent on real estate construction. Lots of debt on the balance sheet, not-so-cash flow positive... Made me wonder why a guy managing tens of billions is even looking at this. It seemed like a weird little addition to a otherwise very stable portfolio (again obviously a small tracker position), so here's the thread on it :)

https://www.cnn.com/2019/11/29/investing/nyse-direct-listings-spotify-slack/index.html Perhaps another factor influencing high equity prices: less publicly traded companies