The Kelly Criterion
The formula that tells you exactly how much to bet — and why most people ignore it.
Grounded in the research on kelly criterion
Step 1: What It Is
The Kelly Criterion is a formula for sizing bets to maximize long-run wealth growth. It tells you what fraction of your bankroll to stake on any given bet. Too little and you leave money on the table. Too much and you blow up. Kelly finds the exact middle. The formula: f = (bp - q) / b. Where b is net odds, p is your win probability, q is your loss probability (1 - p). One formula, endless application.
Step 2: Where It Came From
John L. Kelly Jr. was a Bell Labs physicist. In 1956 he published 'A New Interpretation of Information Rate' — a paper technically about signal noise that became the bible of professional gambling and investing. Ed Thorp, the MIT math professor who beat blackjack and wrote Beat the Dealer (1962), was the first to apply it at the casino. Later Thorp used Kelly to run one of the most consistent hedge funds in history, averaging 20%+ annually for decades.