Quarter Kelly Method
Why Betting ≈ Investing
Both rely on edge (your expected advantage), variance (ups & downs) and bankroll management to grow steadily without blowing up.
What’s the Kelly Criterion?
Kelly tells you the optimal fraction of your bankroll to wager. 100% Kelly can be bumpy, so we use ¼ Kelly—a smoother ride that still compounds.
How to Calculate ¼ Kelly
At even odds (1:1), with a 60% win‐rate:
- P(win) = 0.60 Q(lose) = 0.40
- Edge = P − Q = 0.20
- Kelly full-stake = Edge / Odds = 0.20 / 1 = 20%
- Quarter-Kelly = 20% ÷ 4 = 5%
Example: Start with $100
- Stake 5% → $5 on a bet with 60% win-prob at even odds.
- If you win, your bankroll becomes $100 + ($5 × 1) = $105.
- Next bet = 5% of $105 → $5.25.
- Repeat—each win gently compounds your balance.
After 10 consecutive wins (unlikely, but illustrates compounding), you’d have roughly:
$100 × (1 + 0.05)¹⁰ ≈ $162.89
Even with some losses mixed in, ¼ Kelly smooths out the ride and keeps you solvent.
Key Takeaways
- Only risk a small fraction of your bankroll.
- Compound slowly—like reinvesting dividends in stocks.
- Discipline beats excitement: it’s a marathon, not a sprint.