Kelly should be applied to one’s total wealth, including the value of future income (see: Lifecycle Investing). Taking future income into account, my Tesla position is a smaller share of the total. Additionally, I want to target something like 2x leverage (Lifecycle Investing, again), so 40% of my net worth is only 20% of what I’d want to allocate to the market.
That said, 40% might still be too much. I haven’t rebalanced after the recent run-up, and I have a pending to-do to calculate my estimate of the expected returns and variance, and then adjust accordingly. I’m not sure which way that will come out.
It is not very rational to have 40% of one’s net worth in a single investment. You should use the https://en.wikipedia.org/wiki/Kelly_criterion to size your bets.
Kelly should be applied to one’s total wealth, including the value of future income (see: Lifecycle Investing). Taking future income into account, my Tesla position is a smaller share of the total. Additionally, I want to target something like 2x leverage (Lifecycle Investing, again), so 40% of my net worth is only 20% of what I’d want to allocate to the market.
That said, 40% might still be too much. I haven’t rebalanced after the recent run-up, and I have a pending to-do to calculate my estimate of the expected returns and variance, and then adjust accordingly. I’m not sure which way that will come out.