Position sizing

Deciding how much of a portfolio to commit to a single holding. It is the decision that determines outcomes more than stock selection does, and it receives a fraction of the attention.

The size should follow from two things: how confident the judgement is, and how much would be lost if it is wrong. A holding sized at 6% of a portfolio that falls by half costs 3% of the whole; the same conviction expressed at 25% costs 12.5% and changes the trajectory of everything that follows. Concentration raises expected return only if the edge is real, and the edge is usually smaller than it feels at the time of purchase. The practical compromise most careful investors reach is a maximum position size fixed in advance, applied without exception, so that the decision is made when calm rather than when excited.

Sizing before buying, not after.

The size decides the outcome more than the pick does.

A practical structure most disciplined investors converge on has three tiers. A maximum position for the highest-conviction ideas, a standard size for ordinary ones, and a small starter position for something being worked on. The tiers exist so that the sizing decision is made once, in advance, rather than negotiated case by case when enthusiasm is highest. The rule also has to specify what happens when a position appreciates past its ceiling, because doing nothing is a decision to let the market set the concentration.