The Game Was Rigged in Their Favor. 28% Went Bust Anyway | Kris Abdelmessih on How to Size Bets

How much of your portfolio does a good investment idea deserve? Kris Abdelmessih of Moontower joins Matt Zeigler to explain why having an edge is only part of the decision: position size can determine whether favorable odds translate into long-term growth or damaging losses.
Through a coin-flipping experiment and everyday examples, Kris makes the Kelly Criterion accessible without a complicated derivation. The conversation explores the difference between expected returns and compounded wealth, why growth-maximizing bets can still be uncomfortable, and how uncertain probabilities make a case for betting less. From portfolio decisions to insurance and extended warranties, the goal is to build better intuition about how much risk to take.
Topics covered:
• How a favorable coin-flipping game exposed costly mistakes in bet sizing
• Why maximizing the expected payoff of one bet differs from maximizing long-term compounded growth
• How oversized bets can undermine an otherwise profitable opportunity
• The Kelly Criterion's three inputs: probability of winning, probability of losing, and payoff
• Why a constant percentage of your bankroll means changing the dollar amount after wins and losses
• How different payoffs change the appropriate size of a bet
• Applying the framework to hypothetical self-insurance and extended-warranty decisions
• Why full Kelly can involve substantial drawdowns, and the tradeoffs of fractional Kelly
• Working backward from a position size to the odds needed to justify it
• Allowing for uncertainty in your estimates and preserving capital for future opportunities
The essay behind this conversation:
After this post you will be sizing bets in your head
panoptica.com/after-this-post-you-will-be-sizi…
Research discussed:
Rational Decision-Making Under Uncertainty: Observed Betting Patterns on a Biased Coin
arxiv.org/abs/1701.01427
Kris Abdelmessih's Moontower newsletter:
moontower.substack.com
Moontower:
moontower.ai
Kris Abdelmessih on X:
x.com/KrisAbdelmessih
Chapters:
00:00 Position sizing and the favorable coin-flip experiment
04:45 Why a good bet can produce bad outcomes
13:49 The Kelly Criterion formula explained
18:10 Adjusting your bankroll and accounting for the payoff
23:03 Applying Kelly to a self-insurance decision
30:25 Full Kelly, drawdowns, and reasons to bet less
34:59 Working backward from bet size and evaluating warranties
41:09 Volatility drag, uncertain odds, and the experiment's results
46:09 How much capital does your edge deserve?
Learn more about the Excess Returns podcast network:
excessreturns.co
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.