What do you mean by “smarter”? Running full kelly on half account, is essentially like having a global portfolio of 50% cash and 50% risk on. As you increase the rebalancing frequency, the strategy will mirror half Kelly more and more.
From a standpoint of optimizing mean terminal wealth across your entire forward distribution, full kelly is “smarter”. Any time you take a step down from that, you’re sacrificing theoretical expected value for a reduction in variance.
And I think regarding portfolio volatility, it’s easy to conceptualize the % volatility figure, but harder to project out the implications of high var on the 2 std dev floor of your fwd distro across extended time, for example. You may have a decent strategy that solves for 60% pft vol per a given time step and you feel okay about that. But that means on the unlucky paths you can easily lose half your capital in that time step. And the same thing could happen again several times in a row!
At least for me, there’s a flex point where it gets pretty hard to stay engaged and not get defensive, which if you de-risk you’ll essentially be locking in a lower mean terminal wealth figure, on a now much smaller capital base, so in practice you end up trying for full kelly but realizing the worst of both worlds. On the bright side though if you keep getting bad var, eventually it doesn’t matter anymore and you might become content again and willing to go down with the ship without much angst
Let alone all the problems with being penalized with -$ ev at fully kelly for any mis-estimations of fwd vol, gaps/jumps, etc. Whereas at half kelly vol coming in a little higher actually adds some theo ev.
In practice almost everyone who makes good money eventually ends up segmenting their capital, or lowering their (targeted) vol figure over time. Our lives aren’t really long enough to get enough instances to raise nearly the entire full kelly distro over the lower vol distros, outside some niche higher frequency stuff. Pair all that with the decreasing marginal utility of wealth and full kelly isn’t very practical.
I would advise actually taking x% of the money you aren’t risking out of the account and rebalancing when necessary. If you’re targeting half kelly and you miss some tail risk, you could way overshoot your vol target at the worst possible time. Sometimes in tail events, external limiters like broker partial liquidation, leverage constraints, siloed capital, etc. can end up helping us survive when usually they are an annoyance.
One way or another the real world ends up being a lot less tidy than our theoretical plans
