Portfolio measurements size up new stock positions. Investors pay attention portion sizes of each holding in their portfolio. Size and effect of new stock positions get careful attention. That includes considering changes those portions may have on the overall portfolio.
Wealth Building Portfolio Management, lesson 7 covers the size of each holding in investment portfolios. Links at the end guide you to related content if you want to learn more.
What’s in this lesson for me?
The lesson discusses the size of each investment portfolio holding. Portfolio portion measurements or the size of each share holdings influences the overall performance of the portfolio. Setting the size of each position also needs reviewing over time as inevitable percentage changes happen.
Slicing the pie, taking measurements or dividing the spoils
This lesson covers the portfolio portion measurements when opening or buying a first position in a new holding. This relates the individual stock position purchased to our overall portfolio size. As previously noted we want enough but not too much of each stock. One dominant position can overwhelm a portfolio, tossing diversification out the window and raising risks.
Portfolio portion measurements can have position sizes from 1% to 20%
In portfolios I run the first positions run between 1% to 20% of the total portfolio. Typical position sizes are 5% to 10%.
In unusual very special circumstances one stock can run to 40%. This is a very limited situation that requires being in intimate touch with the market and stock. It is not a recommended approach. It can make obscene amounts of money but needs much knowledge and experience to run well.
Toe dips
The 1% positions are toe dips or tastes. They are large enough to get the transaction cost acceptably low. However at 1% they certainly are not large enough to make any significant difference. In part, that is the point.
When testing a new sector or buying a company that I am not completely committed to, I take small positions. And closely monitor both the company and the stock price.
If they go the right way, up, I quickly buy more to hold a full position. Should they go the wrong way, I quickly sell to redeploy the resources. We simply move on.
In part, the reason for buying a small position is very basic. It forces me to pay attention. To keep focused I need some skin in the game. Then I really do pay attention.
However, when the small position shows I have found a winner, moving up to a full position means portfolio portion measurements again come into play.
Why this lesson matters
How investors buy dips matters because corrections are part of stock markets and present opportunities for sharp investors. Savvy investors need to manage dips to produce the best investing results. Knowing the three steps covered in this lesson can put money into your pockets.
Key take away points from lesson 7,
Portfolio measurements size positions:
Portfolio measurements size up new stock positions. Investors pay attention portion sizes of each holding in their portfolio. Size and effect of new stock positions get careful attention. That includes considering changes those portions may have on the overall portfolio.
- Typical position sizes range from 5% to 20% of the total portfolio.
- Outlier position sizes can range from 1% to 40%.
- A 1% position size is a toe hold of a stock we are interested in.
- A 40% position is the extreme for holding a rapidly running stock.
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Wealth Building Portfolio Management lessons:
Introduction to portfolio management Lesson 1
Pyramid portfolio wealth building Lesson 2
How investors buy dips Lesson 3
Distracted investing misses profits Lesson 4
Investors never average down Lesson 5
Market patterns repeat repeat repeat Lesson 6
Research confirms investment counts matter Lesson 7
Portfolio measurements to size positions Lesson 8
Growth protects investing profits Lesson 9
Winston Churchill said crisis = opportunity Lesson 10
Weeding your investment portfolio Lesson 11
Next lesson 9:
Growth protects investing profits
Have a prosperous investor day!
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