The equity holder version
The continuous Kelly formula and what it says about your SIP.
For an asset with expected excess return mu and volatility sigma, the Kelly fraction reads f-star = mu over sigma squared. Plug in long-run Nifty numbers and read the answer carefully.
f-star = mu / sigma squared
Long-run Nifty 50 . continuous form
01
Edge alone is not enough. Sizing is the bridge. A sixty forty edge is a forecast. A sized trade is a portfolio decision. The Kelly formula converts an edge into a fraction of book. Most retail oversizes by two to three times.
02
Half Kelly is the practitioner default. Captures roughly seventy five pct of Full Kelly's geometric return for roughly half the drawdown. The convexity between size and drawdown is why no real quant fund runs Full Kelly. Quarter Kelly is what survives a tail.
03
A 100 pct equity SIP is already quarter Kelly. The continuous Kelly on Nifty long-run numbers reads 3.7x leverage. Almost nobody runs that. Holding equity at 1.0x with no margin is sizing the trade well below the mathematical optimum. By design. The cushion is what lets you hold through the drawdown.
The line
Full Kelly is a graveyard with the right tombstone math. Half Kelly is the same edge, half the drawdown, and three quarters of the return. The brochure prints the edge. The trader sizes the trade. The math says the size is what decides whether the next ten years compound or unwind.
Edge is the forecast. Sizing is the strategy.
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