Position Sizing
Valuation tells you what to buy; sizing tells you how much. Lay out your scenarios — the downside, the base case, the upside, and the odds of each — and the Kelly criterion solves for the bet size that maximizes long-run compounding. Then apply your fraction: most people, sensibly, bet half or less.
Scenarios
Suggested position · % of portfolio
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Sensitivity
Suggested position across the Kelly fraction you apply (rows) and the bear-case return you assume (columns) — the downside drives sizing more than anything. The center cell is your inputs.
How it works
The idea. The Kelly criterion is the bet size that maximizes the long-run compound growth rate of your capital — not your expected return (that would say bet everything), but the geometric growth that survives the losing scenarios. It's the bridge from a valuation view to a portfolio decision: a great thesis sized wrong still blows up.
The math. For a set of outcomes with probabilities p and returns r, full Kelly is the fraction f that maximizes Σ p·ln(1 + f·r). We solve for where its derivative, Σ p·r / (1 + f·r), crosses zero, bounded so no scenario can take you below zero. Your applied size is that fraction scaled by the Kelly fraction you choose.
How to use it. Pull the scenarios straight from the through-cycle PT — each price target is a return, each scenario a probability. Then bet a fraction. Full Kelly is mathematically optimal but brutally volatile, and it assumes your inputs are exactly right (they aren't); half-Kelly keeps ~75% of the growth at a quarter of the variance. If the tool suggests more than 100%, that's leverage — a sign your inputs are too rosy, not a green light.
This is a math tool, not investment advice, and not a recommendation to take any position. The Kelly criterion only maximizes growth if your probabilities and returns are exactly correct — they never are, so real sizing should be more conservative than full Kelly. Position sizing is personal: size to what you can actually hold through the drawdown. Built by Brandon Leon — independent research focused on cyclical industries.