TheSnapper

John Kelly. For gamblers...no better friend, no worse enemy...Never cross this guy.

John Kelly was a remarkable character. Apart from being a physicist he embodied certain stereotypical Texan character attributes being a tough guy, recreational gunslinger and a daredevil pilot all at the same time. He was also an associate of Claude Shannon at Bell Labs. Together they developed a Game theory type method based on the principles of information theory developed by Shannon.[3] It is reported that Shannon and his wife Betty went to Las Vegas with M.I.T. mathematician Ed Thorp, and made very successful forays in roulette and blackjack using this method, later called the Kelly criterion, making a fortune as detailed in the book Fortune's Formula by William Poundstone.[4] Shannon and Thorp also applied the same theory to the stock market with even better results.[5]


Kelly died of a stroke on a Manhattan sidewalk at the young age of 41 in 1965.[6] It is also reported that he never used his own criterion to make money.[6]

I just wanted to add some thoughts today on John Kelly. You don't need to understand the heavy math involved, just take away a few key points that Mr Kelly found to be essential.

1. Never bet unless you have an edge, and you know what that edge(very probably)is.
2. The more edge you have, the more you bet.
3. The more likely you are to win, the more you should bet.
4. If you bet more than Mr Kelly thinks you should, you will probably lose.
5. If you bet less than Mr Kelly thinks you should, you will probably still win, but less than Mr Kelly would.

Embedded in these 5 ideas are the reasons why some gamblers succeed and most fail. Particularly #1 and #4.

Start bank: $198,00
Current bank: $334,77

Since 30.12 I have made 400 bets. The bank total profit stands at $136,77, which is a 69% increase in the bank.
My calculated edge stands at 13,84% profit per bet.

So far, so good. Actually , this is ahead of schedule.

Planned date for buying dream home: Nov.6 2011

Current projected date for buying dream home: Oct.3, 2011

So, it seems to be a whopping full month ahead of schedule! Unfortunately, I am doubtful that this is sustainable. My model is based on less than a 10% edge, although I am running hot right now at 13%. But I'll take it while I can get it

It's been a good weekend, even though I wasn't around on Saturday (had to drive the mother-in-law somewhere)

Total Stake:$126,56    Total Profit:$48,46    Profit % 38,29%


Today I want to talk briefly about bank size, since there have been some questions about why I am using $198 to start the bank.

Bank Size
As a poker player, I can tell you that the money you bring to the table should never be more than 2% of your bank. Here, bank means all the money in your poker account. (Personally, I use 1%). In Betfair betting this means that you use should never be betting more than 2%. So, if you have $10,000
you should not be using more than $200 as a general rule of thumb. The Kelly Criterion will call for larger stakes if you have larger edge, but let's assume your edge is small, under 3%.

So, I treat this entire Florida Dream Home Quest as I would a SNG poker tournament. I play for 1% of my bank. It is treated as money which can be lost with little consequence to my overall betting bank.

So why start small? Why not start big? Why not use the optimum Kelly percentage of your edge to set you start bank (If you have a 10% edge and win about 50% of the time, you should be using more than 1 or 2% of your bank)?

1. Lack of liquidity for larger bets makes compounding harder and slower. It is not going to be easy to slam $1000 bets into the market I play.

2. Psychologically, you should only ever bet inside your comfort zone. You should be able to play without having losses make you change your strategy. One bet should be irrelevent to you. This can only be done using smaller stakes...thus a small bank.

3. Unless you are sure of your edge, if you start with a big bank you are probably betting at levels way over even what Kelly would call for. Betters who violate Mr.Kelly's Criterion on the "overbetting" side will pay seriously for it in the long run, whereas conservative betters who "underbet" what Mr.Kelly calls for will only pay for it by winning less than they should (but win they still shall...).

4. Betting big is bad for your hair. I hate losing streaks, but accept them  as necessary. Small bets at a fixed percentage stake limit your bank variance. If you use massive bets (like 25% of your bank), you are going to have some massive downswings. These big downswings kill your compounding, and that is the key.

Anyway..enough for now. I'm glad to see the number of followers rising. If you have any questions feel free to post. I'm off now to see if I can find anything for sale in Florida for $300...

Here is what I can currently afford to buy on my quest to buy my dream home in Florida.

Start Bank: $198 Current bank:$286,31
Projected Date for buying my dream home: Nov 23, 2011




This is likely all I will be able to afford until sometime in the spring!

Actually, you can by property in Florida for $200 ...check this out!

http://ezinearticles.com/?Back-Taxes-Houses-For-Sale---How-to-Buy-Them-For-$200-Outside-the-Auction&id=4256862

I started my Florida Dream Home Quest on Dec 30.2010 with a $198 bank.
As of Jan.14, 2011 the bank stands at $286,31

Total Stake    Profit     Profit %
$861,79            $88,31    10,25%

So, I am mathematically right on track betting-wise after the first 2 weeks. 357 bets over 15 days.

My calculated date for buying my Florida dream home is now: NOV 23, 2011.

My target model date for buying my Florida dream home is set at Nov.5, 2011.

The 18 day difference is caused by my betting 1% less stake than the model requires. An interesting example of the long-term effects of staking on bank growth!

My goal is to build up a large enough bank to buy a home in Florida. I was there a few years ago, and it is a very nice climate (generally) and was thinking that it would be a nice thing to buy with my betting bank. It should also be said that it is a very good time to be buying real-estate, now and for the next few years, but the window of opportunity will close again. Anyway, it is my goal.My dream. My ambition. I believe that everyone should have some sort of tangible goal to work towards. Particularly something with a date and a time to achieve it by. So, I need to accumulate enough money to buy a house within 12-24 months, but I want to start with a small bank - $200-$300. I'll need to have a small edge and compound the profits ruthlessly and consistently for quite a period of time.

I've been working it out mathematically, and I believe it actually has a good chance of succeeding. It is really a question of sticking to it day after day  with iron discipline and doing nothing else.

I will post my results as I go and I will discuss my system and model, staking, etc. as  I go. I will also calculate mathematically the date of buying my dream home in Florida. On that date, I will publish the whole system, complete results ...everything...to help others to achieve their own goals and ambitions.