I did some real estate deals with guys from wealthy families a long time ago. We failed but the difference in consequences was enormous. I lost my savings of 10 years and struggled getting out of the situation. The other guys got bailed out by dad, did more deals and are now very successful business people.
Sorry to hear. For the benefit of others, I read this as the importance of sizing the bet relative to your portfolio and nobody else’s, and is broadly applicable.
If someone bets a million bucks on stock A, but is worth a billion bucks, then that’s not $1m conviction, it’s <1% conviction. And that information is then factored into the size of my bet.
Problem is that your bets have to be of a certain size to make a difference. Making 100% on $100 is not doing much good for you. So the guy with less money has to take much higher relative risks if he wants to get somewhere.
I really like the word conviction here for this concept and this use is new to me; has this been used before? A casual search for me doesn't term up anything.
41 Jesus sat down opposite the place where the offerings were put and watched the crowd putting their money into the temple treasury. Many rich people threw in large amounts. 42 But a poor widow came and put in two very small copper coins, worth only a few cents.
43 Calling his disciples to him, Jesus said, “Truly I tell you, this poor widow has put more into the treasury than all the others. 44 They all gave out of their wealth; but she, out of her poverty, put in everything—all she had to live on.”
There's a formalism in math/information theory describing this idea called the Kelly criterion. Not a common/colloquial phrase, but it describes a similar idea of portioning bet size according to percentage of available cash based on the risk of the bet.
I really appreciate this comment! (I think that word just popped into my head given some professional experience recently rather than being sourced from the field.)
