Teach Me Like I'm Five: Investing Concepts Made Simple
Teach Me Like I'm Five: Investing Concepts Made Simple
Podcast Description
We’re on a mission to make investing concepts simple. In each episode, we bring in an expert to help us break down a key financial idea—whether it’s a rule of thumb, a market principle, or a tool investors use every day. We ask the questions you might be afraid to and focus on clear, accessible explanations that anyone can understand. If you’ve ever felt confused by financial jargon or just want a better grasp on how things really work, you’re in the right place. We’re learning right alongside you—one concept at a time.
Podcast Insights
Content Themes
The podcast focuses on key financial ideas such as options trading, market principles, and investment tools, with episodes like 'The Hidden Logic of Options' that explains put-call parity using relatable analogies and 'Decoding Volatility with the Rule of 16' which breaks down volatility concepts for practical trading applications.
We’re on a mission to make investing concepts simple. In each episode, we bring in an expert to help us break down a key financial idea—whether it’s a rule of thumb, a market principle, or a tool investors use every day. We ask the questions you might be afraid to and focus on clear, accessible explanations that anyone can understand. If you’ve ever felt confused by financial jargon or just want a better grasp on how things really work, you’re in the right place. We’re learning right alongside you—one concept at a time.
How much of your portfolio does a good investment idea deserve? Kris Abdelmessih of Moontower joins Matt Zeigler to explain why having an edge is only part of the decision: position size can determine whether favorable odds translate into long-term growth or damaging losses.
Through a coin-flipping experiment and everyday examples, Kris makes the Kelly Criterion accessible without a complicated derivation. The conversation explores the difference between expected returns and compounded wealth, why growth-maximizing bets can still be uncomfortable, and how uncertain probabilities make a case for betting less. From portfolio decisions to insurance and extended warranties, the goal is to build better intuition about how much risk to take.
Topics covered:
- How a favorable coin-flipping game exposed costly mistakes in bet sizing
- Why maximizing the expected payoff of one bet differs from maximizing long-term compounded growth
- How oversized bets can undermine an otherwise profitable opportunity
- The Kelly Criterion’s three inputs: probability of winning, probability of losing, and payoff
- Why a constant percentage of your bankroll means changing the dollar amount after wins and losses
- How different payoffs change the appropriate size of a bet
- Applying the framework to hypothetical self-insurance and extended-warranty decisions
- Why full Kelly can involve substantial drawdowns, and the tradeoffs of fractional Kelly
- Working backward from a position size to the odds needed to justify it
- Allowing for uncertainty in your estimates and preserving capital for future opportunities
The essay behind this conversation:
After this post you will be sizing bets in your head
https://www.panoptica.com/after-this-post-you-will-be-sizing-bets-in-your-head/
Research discussed:
Rational Decision-Making Under Uncertainty: Observed Betting Patterns on a Biased Coin
https://arxiv.org/abs/1701.01427
Kris Abdelmessih’s Moontower newsletter:
https://moontower.substack.com/
Moontower:
https://moontower.ai/
Kris Abdelmessih on X:
https://x.com/KrisAbdelmessih
Chapters:
00:00 Position sizing and the favorable coin-flip experiment
04:45 Why a good bet can produce bad outcomes
13:49 The Kelly Criterion formula explained
18:10 Adjusting your bankroll and accounting for the payoff
23:03 Applying Kelly to a self-insurance decision
30:25 Full Kelly, drawdowns, and reasons to bet less
34:59 Working backward from bet size and evaluating warranties
41:09 Volatility drag, uncertain odds, and the experiment’s results
46:09 How much capital does your edge deserve?
Learn more about the Excess Returns podcast network:
https://excessreturns.co
No information discussed in this podcast should be construed as investment advice. Securities discussed may be held by the hosts and guests, their firms or their clients.
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