Start Bank: $198,00
Mr. Kelly's Bank: $823,60 (+ 4018,00% profit)
Mr.Kelly's Start Bank: $20,00
(I withdrew $28 from Betfair and sent it to the reserve bank. The Demon now has $847,58)
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Mr. Kelly has been exploding in a logarithmic frenzy again. He has won 17/18 bets over the past 3 days, for a total profit of $547,47 - a bank increase of 192%. Incredible stuff.
Take a look at the chart. He has taken $20 and turned it into $800 in a series of 335 bets, each time adjusting his stakes up or down to always be risking a fixed percentage of his bank. This percentage ranges from just 5% for laying under 1.10 runners (The lowest he has actually laid was a 1.32 runner)all the way up to 19% for runners up to 4.00.
The truth is that these stakes are "pseudo-Kelly" stakes, because I have put them into price bands for ease of calculation, rather than calculate each runner. They are actually slightly under the "real" Kelly stake, but OK, close enough for my purposes.
It is certainly not for the faint of heart. Mr. Kelly has lost 50% of his bank on 2 occasions so far. This kind of variance is just too hard for most people to handle; even the pay-off of a 40x bank incease isn't enough to convince some gamblers to wait through a bad losing run.
Some followers have said, "well, this might be fine for high strike rates, but Kelly staking doesn't work for low-strike rates. I back 10-1 shots, I'm better off using a fixed stake". Wrong. The Kelly Criterion provides the optimal stake for ANY given betting system, as long as the edge is positive. It also works to protect your bank against losing streaks, and keep you in the game long enough to hit an inevitable hot streak (and for my friend backing 10-1 shots, these losing streaks will be very long indeed). Kelly will provide a long-term advantage, but with such a low strike rate it will take many,many more bets to be seen. The reason is that the low-strike rate prevents rapid compounding, which is at the heart of the Kelly system. So, in the short term Kelly won't help you win more, but it will help you lose less - keeping you in the game.
So, Mr. Kelly has hit an inevitable hot streak, and you can see the rapid compounding effect. It can't last forever, and Mr. Kelly can expect to have a good chance of his bank returning to $400 before climbing to $1600 in the future.
We'll see how far Mr.Kelly can go before he runs into the problem of lack of liquidity in the market, although I see that $1000 bets are being matched rather well...but $10,000 bets will be another story.
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