I've written a blog post about exactly that some time ago, I hope it's at least a bit enjoyable read: https://blog.millionintegrals.com/kelly-criterion-and-invest...
It's common to use some percentage of the Kelly-calculated stakes in betting, Kelly might be the optimal sized bets but it is extremely aggressive. IIRC, even if you are calculating your % edge correctly, Kelly staking means that any point, you've got a 50% chance of losing 50% of all your existing bank at some point in the future. Not many investors/gamblers can stomach that!
I mean, it's not acceptable to use it if there are no stakes below a certain point and no way to borrow more money. Or if the stakes below a certain point have worse returns (higher house take)
Re:Kelly Criterion (2007)
by evrydayhustling on Monday November 19, 2018 @07:48AM
(#18486005)
This. The article concludes:
> So what is the answer to the question, how much should stock should I buy? The answer is probably less than you think.
But in my experience, optimal log-wealth portfolios look like the craziest guy on your desk. Kelly accepts huge drawdowns that most people would get fired (or fire themselves) for. Half Kelly or quarter Kelly looks more like most professionals' instincts about acceptable risk.
And, given need to allow for errors in estimation and eventual deterioration of many alpha-generating strategies, adjusting investment fraction downward (a sort Bayesian prior, I suppose) is sensible on its own, sans vol sensitivity considerations.
Results may surprise you (it's a lot for even a modest Sharpe). But also most practitioners aren't going to use the full number. If you've overestimated it you are always worse off on the right side of that.