I used to think running a concentrated portfolio was just one way to go. Now I think it’s absolutely the best way to go, and I’ll explain why.
My returns this year are more than I’d dared to hope for, but I’ve also missed out on some big gains:
Sold out of STMP too early
Sold out of YELP too early
Sold out of XPO too early
Sold out of PAYC too early
I should have never sold, right? No way! Yes, selling does cause me to miss out on some things, but if I’d never sold anything, I’d still have money WASTING AWAY in the likes of SKX, LC, RUBI, SUNW, INUV, INFN, TWTR, FIT…the list goes on and on. I could have held hoping things would improve and the stocks would come back. Meanwhile my money would have been doing nothing, instead of growing 178% in SHOP, 106% in SQ, or 57% in HUBS.
With a concentrated portfolio, there is a 100% chance you will miss out on some things. But it will also keep you from allowing money to do nothing for you for years on end.
Yes a concentrated portfolio will drastically increase the positives but… if things go bad they can also decimate your same portfolio. You are just concentrating the risk. I think people are nuts having just a couple stocks and just as nuts having too many. My personal preference is to keep it at 9 to 12 stocks. I will let a winner run for a couple years but generally speaking I don’t like one stock to get over 20%
Seems that the conventional wisdom of this board as a whole is that 12-ish stocks constitutes a concentrated portfolio.
I can only think of the 1 rare instance (Tinker, I think) that someone had grossly fewer (only NVDA and SHOP), and in that case they stated over and over that that was not recommended for anyone else.
I will let a winner run for a couple years but generally speaking I don’t like one stock to get over 20%.
I won’t buy over 10% of one stock, but if it grows to over 20% I don’t care. I view diversification from the entry point.
I said that too. And then it happened. And I was happy. Then that one stock which was 40% of my portfolio was cut in half. 20% of my portfolio value (on paper) disappeared in less than two months.
Now I don’t let any stock get over 30%. If it does, I sell half.
Jeb,
Different strokes . . . If I have an investment that grows to more than 20%, I get nervous. In fact, I generally get nervous sooner than that and sell some of it to redeploy the funds elsewhere.
That being said, SHOP stands at just a hair under 23% of my portfolio right now and I’m letting it run. I just don’t see any grave risk with the business model or the way this company is being managed. It doesn’t keep me up at night, but I do pay close attention to it.
When people here say they have some vast percentage ‘of their portfolio’ in one company, probably technological and lacking any history of ROIC or cash generation, in order to avoid a constant feeling that I should express some kind of altruistic concern I always assume they mean their speculative portfolio; that is to say less than 15% of their overall portfolio, to make what would otherwise be wild and bizarre statements something more reasonable. Thus ‘I have 30% of my portfolio in ABCD’ really means ‘I have 4.5% of my portfolio in ABCD’ - quite a lot but perfectly in order as book cost of the holding.