Dinesh Sairam's Portfolio: Requesting Feedback

[dineshssairam]

I tried to do it based on a Mathematical Model:

Kelly Criterion Capital Allocator (Model): A Mathematical Approach to Capital Allocation

Hi Valuepickrs, Dinesh Sairam here once again, with… you guessed it… another excel model. This time, it’s not so much realted to Valuing stocks, but towards the elusive concept of Capital Allocation. Kelly Criterion The idea behind the model is completely owed to Dr. J. L. Kelly Jr., the author behind the famous paper “A New Interpretation of Information Rate”, which gave us an interesting way to think about bets in a wagering game. In short, ‘Kelly Criterion’ is a formula which calculates ho…

Clearly, there’s no single formula that I can give you. It differs from person to person. But consider these sub-components

1. Expected loss in Value / Expected Drawdown if Risks materialize (Lower the loss, higher the allocation)
2. Probability of Risks materializing (Lower the Probability, higher the allocation)
3. Expected Returns if Risks don’t materialize (Lower the Returns, lower the allocation)

Some combination / weight to these points based on your personal experiences / opinions should determine the allocation to each stock.

Then, as an additional step, you can have thumb rules. Ex: Not more than 10% in BFSI, not more than 20% in a single stock / sector and so on. By definition, there’s no defined logic behind thumb rules. They’re mostly safety measures.