Imagine you were given $25 in cash and a coin that was 60% likely to land on heads every time. You get to take home whatever money you can make up to $250 by betting on the outcome of as many coin tosses as you want in 30 minutes, and using any bet sizes you want, originating with the $25. How much money do you think you would make?
A recent study put this opportunity to a group of college aged economics and finance students, and young professionals at finance firms. If all participants had adopted a constant betting strategy of 10-20%, almost all of them would have received the maximum. However in the study, only 21% reached the maximum, and 28% lost all the money!
It goes to show that operating with a positive expectancy doesn’t mean you will be successful in the long run. You have to have appropriate position sizing as well. Our flagship fund, ECCM SGM, takes advantage of our statistical positive expectancy but operates with careful position sizing to optimise returns.
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