Jason Choi Profile picture
Jan 18 14 tweets 3 min read
How to size bets

Some personal principles 👇
1/ Picking the right investments is half the game; sizing the bets is more important.
2/ A wrong bet sized right can be a valuable lesson; sized wrong it can spell absolute ruin.

A right bet sized wrong means you worked for nothing; sized right means victory.
3/ Your framework for sizing should optimize for upside while limiting tolerable downside.

Tolerable because everyone's appetite for risk varies.

A hedge fund may have investors redeem if they end the month down 20%; a prop guy might eat 20% days for breakfast.
4/ In bet sizing, you can generally manage for risk (top down) or manage for upside (bottom up).

Top down: Limit every bet to x% of book

Bottom up: Size every bet based on conviction
5/ Good outcomes != good process

Just because your friend printed millions by aping their net worth into 1 shitcoin doesn't mean you should trust them with your money.

In the investing game, performance OVER TIME is the only truth.
6/ Example of top-down sizing: only making standard check sizes, regardless of conviction or bankroll.

Common in: angel investing, spray and pray funds, accelerators.
7/ Example of upside-based sizing: only making an investment if you think it can return the fund.

Common in: funds with discipline around fund size and valuation, ok with missing small wins in order to prioritize giga home runs (h/t @richardchen39)
8/ Example of EV-based sizing: using Kelly criterion to determine optimal bet size.

Bet size = p - (1-p)/b

Where p = probability of win (subjective, or based on historical perf), b = odds (e.g. in a 2-1 odds, b = 2)
9/ Kelly is common in poker, and some VCs where risk of an investment going to zero is real.

But in public markets where things rarely go to zero, Kelly is reductive.

An investment that can return 200% at a -50% risk has the same output as one that can go up 400% but -10%
10/ My current personal framework is

(p/a - (1-p)/b) * x

Where p = prob of win, a = magnitude of loss, b = magnitude of win, x = top down risk cap
11/ Benefit of the above is it highlights asymmetry easily (low a), but a pre-defined size limit (x) for a specific type of bet

e.g. Capping core holdings to 50% of bankroll, catalyst play to 25%, venture stage to 10% allow me to control risk
12/ It's not perfect but at least it gives me a barometer to gauge my decisions.

Does it work? Guess we'll find out in 10 years...

But point is having a systematized way to inform discretionary bet sizing is pretty key.
13/ Finally - a common trait of successful investors in history is their propensity to place large, concentrated bets when asymmetry is identified.

These bets may occur once a year, or once in a career...

However, beware survivorship bias.

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Jason Choi

Jason Choi Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @mrjasonchoi

Jan 17
🤔 How should DAOs pay people?

@JacobPPhillips and I had an eye-opening chat on @theBlockcrunch.

Some highlights 👇

apple.co/3ny6Uy7
spoti.fi/3IbM0fZ
1/ DAOs today spend millions to pay apes in liquidity mining incentives...

But cringe when it comes to paying governance facilitators.

e.g. GFX's proposal to charge $3M for a multi-billion dollar FeiRari merger was struck down
2/ While tooling for rewarding freelancers and core contributors exist (@coordinape, @gitcoin)...

There's no clear standard on how contributors in DAOs should be compensated.

For example...
Read 7 tweets
Jan 8
Learning from my mistakes.

Here are some of the most embarrassing mistakes I made in my investing career.

Hopefully some can be cautionary tales.
1/ Confidence

Early in my career I placed much more emphasis on other people's views than my own analysis.

While triangulating views is useful, this leads to bad process and you end up being someone's exit liquidity, or missing fund-returning investments ( $FTT ).
2/ Hip firing

In 2020 I got carried away by the sheer euphoria of DeFi. I couldn't believe my thesis was finally playing out after a year.

I mistook beta for genius and started losing discipline. When things started unwinding I got hit bad.
Read 12 tweets
Jan 6
Crypto market outlook, Jan 2022

Thought dump to look back on
1/ Caveat: these are my personal views.

I prefer to think on venture horizons (5-10 years) - it's more fulfilling and much more interesting.

I mostly only consider weeks - months timeframe when making high time preference decisions. This thread is about the latter!
2/ In November I shared what I thought the next bear market could look like.

TL;DR: extreme sector rotations, and fast(er) recovery for sector-agnostic sell-offs.

Read 15 tweets
Dec 31, 2021
Despite billions raised for crypto funds in the past 12 months, I don’t see it as particularly bullish $BTC

Short 4 am brain dump 🤔
1/ Managers in crypto are not paid to trade / long $BTC.

$BTC liquidity is high, accessibility to tradfi infra is massively improved since ‘17 - most allocators don’t need their GPs to charge 2/20 just to long corn
2/ Second 99.9% of new projects are building on $ETH, L1s, L2s - which can survive and thrive with or without the increasingly insular Bitcoin community.

$ETH functions better as beta for crypto funds thematically
Read 5 tweets
Dec 29, 2021
🚨 Last thread of 2021! 🚨

Why @TheOfficialA7X, a global chart-topping metal band, is going all in with NFTs.

bit.ly/blockcrunch_sy… Image
1/ For those uninitiated, @TheOfficialA7X is...pretty big

8M albums sold, 6M streams monthly, Grammy nom...

Even if you're not into the genre, if you're one of the 30M people who played @CallofDuty you've likely heard their music

2/ Interestingly, the metal community is similar to crypto:

> Niche sub-culture
> Ardent fans
> Anti-establishment

But like crypto maxis, the genre also has purists, which makes it hard for innovation to be accepted.

Read 11 tweets
Dec 13, 2021
Interesting thread, though I suspect most of these are already consensus

Agree with some…

But if I had to be contrarian…
1/ Alt L1s underperform $ETH

Alt L1s had a 10,000% year. Development will continue and LT bullish, but profits being distributed year end by funds means large overhang.

ZKR impact on ETH also seems overlooked, wouldn’t write off ETH/altL1 trade yet.
2/ DeFi catalysts

DeFi has already been through a full bear market, with most names down 70-80% against ETH. Who’s left to sell?

L2 proliferation, outside capital being onboarded via projects like @goldfinch_fi, sustainable yield products like @ribbonfinance hard to write off
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!

:(