{"title":"Sizing the bets in a focused portfolio","authors":"Vuko Vukcevic, Robert Keser","doi":"arxiv-2402.15588","DOIUrl":null,"url":null,"abstract":"The paper provides a mathematical model and a tool for the focused investing\nstrategy as advocated by Buffett, Munger, and others from this investment\ncommunity. The approach presented here assumes that the investor's role is to\nthink about probabilities of different outcomes for a set of businesses. Based\non these assumptions, the tool calculates the optimal allocation of capital for\neach of the investment candidates. The model is based on a generalized Kelly\nCriterion with options to provide constraints that ensure: no shorting, limited\nuse of leverage, providing a maximum limit to the risk of permanent loss of\ncapital, and maximum individual allocation. The software is applied to an\nexample portfolio from which certain observations about excessive\ndiversification are obtained. In addition, the software is made available for\npublic use.","PeriodicalId":501045,"journal":{"name":"arXiv - QuantFin - Portfolio Management","volume":"18 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2024-02-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"arXiv - QuantFin - Portfolio Management","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/arxiv-2402.15588","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
The paper provides a mathematical model and a tool for the focused investing
strategy as advocated by Buffett, Munger, and others from this investment
community. The approach presented here assumes that the investor's role is to
think about probabilities of different outcomes for a set of businesses. Based
on these assumptions, the tool calculates the optimal allocation of capital for
each of the investment candidates. The model is based on a generalized Kelly
Criterion with options to provide constraints that ensure: no shorting, limited
use of leverage, providing a maximum limit to the risk of permanent loss of
capital, and maximum individual allocation. The software is applied to an
example portfolio from which certain observations about excessive
diversification are obtained. In addition, the software is made available for
public use.
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