Episode 964: Martin Shkreli Explains How To Become Rich With Trading

**Martin Shkreli** (0:01)
Yeah, no ads other than for Godel Terminal. Make sure you try godelterminal.com, a hand-built financial software. Also want you to check out this Keli Criterion Calculator. It's a lot of fun. So, how many trades do you make a day? Oh, let's see. Make 30 trades a day. Let's say you write 55% of the time. Now, if you can do that, maybe even say you're right 52% of the time. That seems more realistic, right? How long would it take you to become a billionaire? Well, it depends on how much money you start with. Let's say you start with $10,000.
Okay, we're up to 11 Oh, we're down. We're down to 7 Or 8 Okay, we're back up to 11, 12, 13, 14, 15, 16, 17, 18 Do we have 18, 19, 17, 16, 19, 17, 18, 19, 20? This is pretty good. I mean, just 100 days, you'd have almost doubled your money. You'd find 30, 52% trades a day. It's not easy. That's pretty difficult, but based on my own experience. So we back down, a little draw down there back, we'll break even basically. All right, it's only been a few months in this simulation. I think it's important if you're struggling with trading to look at this because, you know, what you'll find, you might help diagnose some of your problems.
You know, my problem, the reason I'm not, you know, a trillionaire. Oh, 30, 3X now. So look at that. I mean, just in three months, you 3, 4X your money. If you're right 52% of the time being right 52% of the time is not easy. But notice that I picked a really interesting bankroll amount that you bet 3, 3.5% of your portfolio on each bet and you have 52% bets, you do really, really well.
Now, notice, I mean, in this case, you've only 2X or something like that, but over 3, 4 months, that's pretty good. It's amazing, actually. So if you can find 52% bets consistently, that doesn't mean you're right every time, right? That means you're right 52% of the time. That means you're almost as wrong as you are right. You'd be very humble in this game. But look at that. Even within 5 or 5 months, you've 10x'ed your money.
You know, but the key is optimal bet sizing. This is a 20x of your money now at 5 months, just being right 52, 51.9% of the time. But the key is finding lots of trades. It's not easy. You might find a trade, you're not just 51.9% likely to win, but maybe even 90% likely to win. Problem is those trades don't come out every day. And if you think they do, then you're probably misestimating your probability.
And you have to bet small enough that you survive the drawdown, but bet large enough that it matters. And that's usually much smaller than you think. And that's why this guy made this calculator. You can check it out at kelly.godelterminal.com.
And you can see, again, a 20x over five or six months. Very doable. I've seen people do it. I've done it. You've seen me do it, as a matter of fact. But again, you have to survive drawdowns. You have to be very patient and diligent, which is not easy. A lot of times, your mind will get the best of you, especially when you're up 60x, as this thing was a moment ago. But over time, the Kelly Criterion is proven to maximize your earnings. Now, you can go below the Kelly Criterion to be conservative, so you don't have this kind of variance, which is very large variance. But technically, the Kelly Criterion is immutable. I mean, it is correct. It's just a question of, you know, certain assumptions it makes. You have to make sure that you're not violating some of those assumptions.
So, you know, almost 40x, 50x return here, just in under a year, six months, basically. Very doable, just a matter of actually getting this level of trades, this level of opportunity. You know, I think most of the trades we do during the day probably don't have a very large expected value. So it could be that you make 30 trades, but, you know, your average success is not always 51.9%.
But, you know, there it is now at over a million at one point there.
So anyway, you get the picture. What's really interesting though is, you know, you might look at this and say, oh, that sounds too good to be true. But here, this is why I want you to think about this, because let's say you write 65% of the time. That's an awful lot. But if you bet too much, which most of us do, you bet 40% of your bankroll on these surefire things, right? You say, I only want to bet on really surefire bets. I don't like this 51.9 thing. I'm on 65% sure. I find trades like Capra. I'll find trades, you know, some of the trades we've done well, Cassava, stuff like that. I'm only going to bet big when I have a bet. I'm going to bet big. That doesn't work that well. I need a clear button here for... I can just close it, I guess. That actually can be quite dangerous. So let's go to 65, and let's sort of overbet. And you'll see that you have some interesting swings. In this case, the 100, the 10,000 went to 40, 50 million. But you can see this isn't necessarily as effective. This simulation's a little kooky. Had some good luck.