CW8888: How can retail investors fully practice this position sizing well across volatile market cycles?
9. Position sizing (maximizing the payoff from edge).
Puggy Pearson was a cigar-chomping gambling legend who won the World Series of Poker and was one of the world’s best pool players. When asked about his success, Pearson said, “Ain’t only three things to gambling: Knowin’ the 60-40 end of a proposition, money management, and knowin’ yourself.”
Great investors take to heart all three of Pearson’s points, but money management is the one that gets the least attention in the discourse on investment practice.
The book Bringing Down the House by Ben Mezrich tells the story of a half dozen students from MIT who deployed a card counting system to make lots of money in Las Vegas. Their system had two parts. The first was the method for counting cards. Here, members of the team fanned out to different tables …