IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2402.15588.html
   My bibliography  Save this paper

Sizing the bets in a focused portfolio

Author

Listed:
  • Vuko Vukcevic
  • Robert Keser

Abstract

The paper provides a mathematical model and a tool for the focused investing strategy as advocated by Buffett, Munger, and others from this investment community. The approach presented here assumes that the investor's role is to think about probabilities of different outcomes for a set of businesses. Based on these assumptions, the tool calculates the optimal allocation of capital for each of the investment candidates. The model is based on a generalized Kelly Criterion with options to provide constraints that ensure: no shorting, limited use of leverage, providing a maximum limit to the risk of permanent loss of capital, and maximum individual allocation. The software is applied to an example portfolio from which certain observations about excessive diversification are obtained. In addition, the software is made available for public use.

Suggested Citation

  • Vuko Vukcevic & Robert Keser, 2024. "Sizing the bets in a focused portfolio," Papers 2402.15588, arXiv.org.
    • Handle: RePEc:arx:papers:2402.15588
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2402.15588
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bernhard K Meister, 2023. "Gambling the World Away: Myopic Investors," Papers 2302.13994, arXiv.org.
    2. Bernhard K Meister & Henry C W Price, 2023. "A quantum double-or-nothing game: The Kelly Criterion for Spins," Papers 2308.01305, arXiv.org.
    3. Sergey Lototsky & Austin Pollok, 2020. "Kelly Criterion: From a Simple Random Walk to L\'{e}vy Processes," Papers 2002.03448, arXiv.org.
    4. Tim Byrnes & Tristan Barnett, 2018. "Generalized Framework For Applying The Kelly Criterion To Stock Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(05), pages 1-13, August.
    5. Tim Byrnes & Tristan Barnett, 2018. "Generalized framework for applying the Kelly criterion to stock markets," Papers 1806.05293, arXiv.org.
    6. Nick James & Max Menzies, 2023. "Portfolio diversification with varying investor abilities," Papers 2311.06519, arXiv.org, revised Dec 2023.
    7. Anton V. Proskurnikov & B. Ross Barmish, 2023. "On the Benefit of Nonlinear Control for Robust Logarithmic Growth: Coin Flipping Games as a Demonstration Case," Papers 2303.10417, arXiv.org, revised May 2023.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven Y. K. Wong & Jennifer S. K. Chan & Lamiae Azizi, 2024. "Quantifying neural network uncertainty under volatility clustering," Papers 2402.14476, arXiv.org, revised Sep 2024.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2402.15588. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.