Park So-yeon on Why Markets Are Hard to Predict and How the Kelly Criterion Guides Risk

Markets are difficult to predict, Park So-yeon, a director at Shinyoung Securities, said, arguing that investors should focus on principles and systems that can withstand changing conditions. Drawing on her book Study Money Seriously, she said building a structure that can survive different scenarios matters more to asset management than trying to forecast the market.

A share price recovered after nearly 20 years

Park recounted an experience from her time as an analyst. She held shares in a securities firm that she had received from her employer, but had to sell them under compliance rules when she changed jobs. In September 2007, when the market was at a peak, she sold all the shares at 35,500 won each.

She said she had not wanted to sell, but disposed of the shares at the market price as required. Their price recovered only recently, about 20 years later. Park cited the episode as an example of how difficult it is to predict markets accurately, and said investors should design systems and principles that can withstand whatever happens rather than fixate on short-term forecasts or prices.

Claude Shannon’s mathematical approach

To explain investment principles, Park cited Claude Shannon, described as the father of information theory. Shannon established the theory that all information and facts can be represented in binary, using zeroes and ones, laying the groundwork for the digital world and AI, the source said.

Shannon, a mathematician and physicist, was also known for unusual pursuits, including juggling and riding a unicycle. These activities involved mathematical and physical calculations, the source said. For example, when juggling while riding a unicycle, Shannon reportedly connected the speed and sense of weight required to the acceleration of gravity, approaching research playfully and producing inventive ideas.

Edward Thorp and the Kelly criterion

Park discussed bet sizing and risk management through the example of mathematician Edward Thorp, who lived in the same era as Shannon. Thorp drew wide attention after mathematically proving that card counting could let a player beat the dealer in casino blackjack.

The key idea, Park said, is to choose an appropriate share of one’s capital to wager rather than bet everything, even when the odds of winning are high. This connects to the Kelly criterion, which draws on information theory and mathematical probability. Park stressed that controlling risk and surviving—by keeping cash available and rebalancing according to rules—must come before making a profit.

Source: original video (YouTube)