Author Topic: position sizing  (Read 28446 times)

AzCactus

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Re: position sizing
« Reply #10 on: February 09, 2021, 10:12:50 AM »
Totally agree with BG's point above.  The risk has to be related to your overall net worth and your ability to grow your net worth organically.
Take the two examples below:

Person 1-30 years old
Able to save 30K/year
50K net worth-all in stocks
largest position is 40%
While 40% is a huge position by most standards it's only 20K-this individual is saving that amount in like 8 months. So unless the position grew at a very high rate or he kept buying more this would become a smaller % of his net worth pretty quickly.

Person 2-63 years old
Able to save 50K/year
600K net worth-300K/stocks/300K in home
largest position is 40%
In this case, the individual has a position of ~120K representing 20% of his overall wealth as he nears retirement.  If this position goes belly up it significantly changes his retirement picture. 

I'm in my early 30's and generally keep no more than 5% of my overall net worth in a single position. 
 


Rod

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Re: position sizing
« Reply #11 on: February 09, 2021, 10:46:44 AM »
Concentrated bets are not for beginners because you need to ensure your bets are all low risk and learning to do that takes experience. I like to own 3 to 5 stocks which puts me at the extreme concentration end of the spectrum. But Iíve been at this a long time and experience has shown me that I have good enough judgement of risk to do it. You have to be able to judge the durability of the business. Factors that increase risk are leverage, financial and operational and a short history. Factors that reduce risk are being in a business that is more at the core of the economy and serve basic unchanging needs. Some companies are low risk because they are more like holding companies and are highly diversified (think Berkshire). I currently own three stocks, two are highly diversified and involved in real estate and infrastructure. The third is a preferred stock in a similarly stable business.

coc

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Re: position sizing
« Reply #12 on: February 09, 2021, 11:06:10 AM »
The variable that needs to be considered is what you're buying. If your three positions are Mastercard, Union Pacific, and Berkshire, bought at not-crazy prices, you're going to be fine.

If your three positions are Twitter, XYZ Gold, and Tesla, I wish you great luck.

So before you ask, how many positions can I have - I would ask, how many positions are you >90% sure won't fail?

What I think gets lost in these discussions is that if you have 3 stocks and one triples, the others can go to ZERO and your portfolio will retain its value. The key is that the three don't overlap with each other and all go to zero at once. You have to understand something about fragility. This last year was instructive.

Six positions is more than enough if you know what you're buying and have an intelligent view of their correlations. More than enough.

BG2008

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Re: position sizing
« Reply #13 on: February 09, 2021, 11:09:31 AM »
Concentrated bets are not for beginners because you need to ensure your bets are all low risk and learning to do that takes experience. I like to own 3 to 5 stocks which puts me at the extreme concentration end of the spectrum. But Iíve been at this a long time and experience has shown me that I have good enough judgement of risk to do it. You have to be able to judge the durability of the business. Factors that increase risk are leverage, financial and operational and a short history. Factors that reduce risk are being in a business that is more at the core of the economy and serve basic unchanging needs. Some companies are low risk because they are more like holding companies and are highly diversified (think Berkshire). I currently own three stocks, two are highly diversified and involved in real estate and infrastructure. The third is a preferred stock in a similarly stable business.

Rod,

Care to share your ideas?  Private messages open.  Anyone who's got 3 positions in RE and Infrastracture as their complete portfolio, I want to get to know. 

gfp

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Re: position sizing
« Reply #14 on: February 09, 2021, 11:17:32 AM »
Sure sounds like Brookfield to me.

Concentrated bets are not for beginners because you need to ensure your bets are all low risk and learning to do that takes experience. I like to own 3 to 5 stocks which puts me at the extreme concentration end of the spectrum. But Iíve been at this a long time and experience has shown me that I have good enough judgement of risk to do it. You have to be able to judge the durability of the business. Factors that increase risk are leverage, financial and operational and a short history. Factors that reduce risk are being in a business that is more at the core of the economy and serve basic unchanging needs. Some companies are low risk because they are more like holding companies and are highly diversified (think Berkshire). I currently own three stocks, two are highly diversified and involved in real estate and infrastructure. The third is a preferred stock in a similarly stable business.

Rod,

Care to share your ideas?  Private messages open.  Anyone who's got 3 positions in RE and Infrastracture as their complete portfolio, I want to get to know.

Rod

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Re: position sizing
« Reply #15 on: February 09, 2021, 11:20:29 AM »
yep. One is Brookfield (actually Partners Value Fund), the others are Dream Unlimited (DRM.TO) and Brookfield Office Properties Preferred (BPO.PR.N).

I could be accused of being Real Estate heavy.

rkbabang

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Re: position sizing
« Reply #16 on: February 09, 2021, 11:44:21 AM »
I always tend to hold a lot of stocks, more and more as time goes on, I used to be more concentrated. I find I'm getting less risk tolerant as I get older (late 40s now :( ).  And all of my regrets are stocks I've sold way too early.  Right now I hold 36 stocks.  My largest position (BAM) is about 13% and I hold a lot of 1-10% positions.   I tend to take small positions and add over time.   Whenever something grows past 10% I tend to trim a little (but not always).   I try never to sell completely unless there is a good non-valuation based reason to sell, which makes me not want to own it at all.  I'm trying to only trim on valuation, but never get rid of a great company entirely on valuation alone.  I don't do this for a living, so I think the diversification gives me some sense that not all of my eggs are in one basket and stops me from doing something dumb out of fear or worry.  If any one of my stocks takes a nose dive it isn't a huge deal.  More and more I like the Peter Lynch type approach of holding a lot of great companies and never selling.  Probably limits my gains, but limits my downside as well.   And sometimes I have great years like 2020 where I demolished the S&P500.  I also tend to hold very little cash, about 5% cash right now which is about where I usually keep it, (although I've been 0% cash in the past)  I also try to make sure I have at least 5% in something on the safe side like BRKB.  BRKB is about 8% now, so cash and BRK is 13%.  I used to count Apple as one of my almost as safe as cash stocks, but with it's valuation now I no longer consider it to be in that category.  I recently trimmed Apple back down to under a 10% position.  Anyway that's my current methodology, like always, subject to change.  And then there's crypto, which I haven't decided what to do with, so I'm just Hodling for now.  It has grown to about half the size of my stock portfolio and is almost all in two coins (BTC & ETH).  So it is about 1/3rd of my combined stock/crypto portfolio.  That means both BTC and ETH are larger than I usually let stocks get.  So I am obviously not managing that portion of my portfolio in the same way.   My cost basis there is so small though that I think I'm just going to continue to do nothing and see what happens in the coming years/decades.


valueinvestor

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Re: position sizing
« Reply #17 on: February 09, 2021, 11:45:11 AM »
Agree with everyone above, but just to add I would rather own one stock that I paid a great price relative to future cash flow/margin profile, then 100 overpriced/overvalued stocks.

I essentially own a two stock portfolio that's 90% of my net worth. While the third is about 5% and the rest is a basket of workouts about 5%.

There are great opportunities in the market. I found an under-the-radar stock that has a couple of businesses and a liquid stake in a grower that's also under the radar, where it has long runway. Priced under cash per share, not even book, but because it's a small company under $100M, and circumstances the screeners are not updated yet.

I think position sizing has to relative to price paid, ability to generate more capital for dollar-cost averaging, and stage of your life.

My portfolio hasn't had a drawdown yet, but when running portfolios for others, I've experienced 50%+ drawdowns in a holding, but overtime it worked out, especially if you bought at the dips. While the other two holdings haven't gone down.

EDIT: Philosophy can change on a dime. Not a portfolio manager/financial advisor, when running portfolio, I meant my family. 
« Last Edit: February 09, 2021, 11:56:08 AM by valueinvestor »

SharperDingaan

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Re: position sizing
« Reply #18 on: February 09, 2021, 02:49:51 PM »
At any one time, most everyone is a lot more diversified that they realize. Equity portfolio, FI portfolio, house(s), partnerships, crypto, pension, interest/dividend income, etc. Equities as a % of the total asset pool, and dividends as a % of total income, are far from 100%. Most are actually TOO diversified.   

Draw downs of 50%+ every 5-7 years (or more often) is pretty common. Capital exists to be used, and nothing cures 'invincibility' faster than getting rid of the 'excess' money. 50% every 5-7 years, is annual compounding of 10-15% (ROE); but the actual YOY returns will of course  look very different. Relying on diversification, and portfolio growth, to manage the return volatility is just not effective.

Most can manage small portfolios very well, but become utter sh1te when the portfolio is 3-4x that.

Different POV.

SD
« Last Edit: February 14, 2021, 02:31:32 PM by SharperDingaan »

cherzeca

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Re: position sizing
« Reply #19 on: February 09, 2021, 03:09:02 PM »
good thread!

one other small point is how you get to the targeted size....I like dollar cost averaging. you never know for sure whether you are buying cheap or dear, so buy steady, more when down and less when up