By Matt Oguz From TechCrunch

Enrico Fermi tore a large sheet of paper into small pieces and dropped them. A few seconds later, the pieces were blown a short distance in midair and landed some eight feet away.

“The parts themselves need to be connected and interacting together in a tumultuous dance. When this happens, you see certain characteristic behaviors, hallmarks of a complex system: small changes cascade through this network, feedback occurs in the complex system, and there is even a sensitive dependence on the initial state of this system. These properties, among others, take a system from complication to complexity.”

“This sounds like detective work because it is— or to be precise, it is detective work as real investigators do it, not the detectives on TV shows. It’s methodical, slow, and demanding. But it works far better than wandering aimlessly in a forest of information.”

• Your fund must have recycle provisions which allow you to continue investing as you get returns.
• The outcome of this bet is assumed to have no relationship to any other bet you make.
• Assuming a $1,000 fund, according to the Kelly criterion the optimal bet is about 34% of your capital, or $340.00.
• The fund is expected to grow, on average, by about 34.33% on each bet.
• If you do not bet exactly $340.00, you should bet less than $340.00.
• The Kelly criterion is maximally aggressive — it seeks to increase capital at the maximum rate possible. Most investors typically take a less aggressive approach, and generally won’t bet more than a certain percentage of their fund on any deal. A heuristic measure nonetheless.
• A common strategy is to wager half the Kelly amount, which in this case would be $170.00.
• If your estimated probability of 40% is too high, you will bet too much and lose over time. Make sure you are using a conservative (low) estimate.