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The Kelly Criterion for stocks

[Torontojay]

I have written extensively on the Kelly Criterion and have contributed to poker and blackjack forums in the past.  The idea is to figure out the size of a bet or size of a stocks weighing as a percentage of your portfolio to maximize the growth of your investments. 

 The idea behind the Kelly Criterion is that the more confident you are on a stock/bet, the more money you should allocate towards that wager. This makes a lot of sense. If you're an excellent stock picker then you may only need a handful of companies in your portfolio. Peter Lynch mentions in the book "One up on Wall Street" that 5-8 solid companies may be all that you need. Of course, not everyone is Peter lynch and that level of concentration could be risky. I much rather own companies that I have extensive knowledge in and put more money towards them.  

If you believe in a company then go ahead and pick up some more shares. As long as you've done your due diligence and can tolerate the swings to your portfolio then it could pay off handsomely. It becomes difficult to beat the market if you are the market and own every single company out there. At that point you'd be better off to just own an index and call it a day. It's much less stressful that way. 

Invest in what you know and don't be afraid to increase the stakes.