> When you have ~unbounded upside and capped downside, lever the fuck up.
I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.
Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?
Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.
I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.
Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?
Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.