I think it’s at the very least clear for the majority of investments, leverage of 1 is suboptimal even if you assume future returns are lower and volatility is higher.
I’m not certain of that—depending on leverage options and rates, and one’s estimate of investment expectation and variance, it may be that no leverage (or negative leverage—putting some amounts in ultra-safe but low-return options) is correct.
Also, don’t think of “individual investments” or even “accounts” or “types” as the unit of optimal betting calculation. Kelly’s calculations work over an investor’s decisions across all of their investments, and are suboptimal if applied separately to multiple slices.
I apply kelly criterion to all investments I control. It doesn’t take much for leverage to be worth it, excess returns of 7% and a standard deviation of 12% still imply greater than 1 leverage.
I think it’s at the very least clear for the majority of investments, leverage of 1 is suboptimal even if you assume future returns are lower and volatility is higher.
I’m not certain of that—depending on leverage options and rates, and one’s estimate of investment expectation and variance, it may be that no leverage (or negative leverage—putting some amounts in ultra-safe but low-return options) is correct.
Also, don’t think of “individual investments” or even “accounts” or “types” as the unit of optimal betting calculation. Kelly’s calculations work over an investor’s decisions across all of their investments, and are suboptimal if applied separately to multiple slices.
I apply kelly criterion to all investments I control. It doesn’t take much for leverage to be worth it, excess returns of 7% and a standard deviation of 12% still imply greater than 1 leverage.