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gjm comments on A hypothetical question for investors - Less Wrong Discussion
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I don't understand: the situation here is one where your only option is to be all in cash or all in the stock. The Kelly criterion only makes sense when you can choose an arbitrary fraction to be in each.
(And the Kelly criterion amounts to maximizing E(delta log wealth), which is exactly what I'm proposing. If you have to wager your entire bankroll, any gamble with a nonzero chance of bankrupting you has E(delta log wealth) = -infinity and just sitting on your cash is better.)
Ah, I missed that part of the OP. So then I think your argument is correct.