Position size: A real challenge

Investment Analysis Clubs Liquid Lounge
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I typically start positions with 1%, and slowly grow them over time to 3%. I used to trim them if they are over 5%. This is purely coming out of GFC, and bad investing approach, and generally a “cat that sat on hot stove” syndrome. I slowly gathered enough confidence to leave few stocks alone and not trim, because I had strong conviction.

However, the real challenge is when you have a strong conviction idea like $C or $WFC, or $BABA I felt I didn’t go big and missed out a very big opportunity to make huge gains.

I know, this is part of growing up as an investor.

“Our doubts are traitors, and make us lose the good we might oft win, by fearing to attempt” - Shakespeare

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I couldn’t agree more. Strong conviction has its limits. I suspect you are in the same category as many here. Wealth preservation is primary. Capital appreciation is secondary.

At what point does this factor into asset allocations to individual ideas?

The counterpoint to your argument is that your increased allocation is not only related to your CONFIDENCE in any idea, but also your ATTENTION to micro changes to the theme (thesis).

For context, we have the hypergrowth investors here who only have 6-12 ideas for the entire portfolio. Since those investors only speak to that framework through ideas and allocations, we don’t see the invisible proportion of their ideas to their REAL ENTIRE portfolio.

For example, an allocation to NBIS was recently discussed at length here:

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(post #4 for the first example - almost 20%!)

But the challenge is, 20%…. of how much in total? Perhaps its truly 4% or maybe even 7%? For a young investor, I suspect it could be truly 20%!

These investors have both conviction AND attention; information flows impact their point of view on a very frequent basis.

So, I ask again:

How much does capital appreciation factor into your portfolio management?

I recently shifted a SIGNIFICANT proportion of my growth ideas to capital preservation. In doing so, I’ve missed out on 2% appreciation on my entire portfolio in just a week.

But, I’ve mitigated a significant alternate risk of exposure to black swan or company specific issues.

My growth portfolio was reduced to less than 60% of it’s prior size. The shift came as funds have been moved to stable income opportunities (cash and equivalents).

I am building that side of my portfolio now.

To continue rambling, I ALSO increased my WFC/L proportion to 4.5% of my portfolio. company risk still exists here, but without the growth proposition. That position represents ~10% of my preservation portfolio.

There are so many moving parts here.

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You can say that but for me it is more of risk management. I have 3% limit and I used to trim the winners to stay with that. Then slowly, I let few names go beyond 3%, but that 3% approach had severely hurt me, because I trimmed the winners and at times relative losers stayed in the portfolio.

Best example, $MA, $V, I am holding them now about 10 years, lately are underperforming the market, but I am not selling them and releasing the cash to go big on names where I have more conviction.

Also, my financials allocation is at 38%, this also makes me hesitant to add.

I don’t look at growth vs value etc. Because mostly I am tilted value. Except one Mag7 name, and a core position on $GOOGL, I have no other Mag7 names. I have Tech exposure, but they are scattered on many names like $BABA. BTW, $BABA is another example of my 3% rule and overall China exposure to 5% rule. I really wanted to go big on $KWEB and $BABA, but didn’t.

Separately, 1% is a significant money for me and I am still hesitant to go big like 10% on a new purchase.

Actually, the big banks with Trillion $$$ assets/ liabilities have inherent put by government. So, I would not be too worried. Also, WFC.PR.L has no immediate risk of redemption and a solid dividend. I bought some around 6.75% yield but could not add more due to cash limits on the account. Someday, I might have to consider buying on margin :slight_smile:

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That seems like too small of a number for your threshold - it is even less than what industry professionals tell their less savvy clients is too much (often between 5-10% concentration).

I don’t have a hard percentage but I generally think of a position being too large and requiring trimming when I feel as though I can’t afford to lose 50% or more of that amount in one week. In your case, that would be just a 1.5% loss - something that would seem trivial in the long run.

I just sold a position that was 4.6% of my total holdings. It had underperformed and was once roughly 6% of my total.

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It is. Also, most of these positions are also multi-baggers. So, there is inertia and tax considerations. At the least I should start eliminating some positions in IRA.

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Much depends on your investment style and what’s in your portfolio. If you have highly speculative stock without earnings or very high PEs, trimming is probably a good idea. Let you winners run to me is more profitable when profits continue to grow and PE is still acceptable.

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Almost every stock is now high PE’s. No I don’t invest in highly speculative stocks, may be Crypto is an exception, but that is collectively < 3%.

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Yahoo is showing forward PE for Nvidia as 39, peg ratio 1.32. I think that is one not highly overvalued and suitable to hold while it continues to gain.

That is much better than many other high flyers with no earnings or very high PEs.

This is a stock pickers market. You have to do your research and hold the good ones.

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