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How I think about position sizing in a concentrated 'folio
[THREAD]
My initial position size is a reflection of:
The attractiveness of the business
Risk/reward of current valuation
Cash available
New positions are usually kept below 3% if the total portfolio until confident
[THREAD]
My initial position size is a reflection of:
The attractiveness of the business
Risk/reward of current valuation
Cash available
New positions are usually kept below 3% if the total portfolio until confident
I have ~ £60,500 allocated to investments
I am happy with 9-15 positions
That would naturally suggest position sizes of £4000 to £6700
I tend to buy in stages: half positions or third of my intended positions
So ~ £2000-£3350 initially
I try to control fees/FX too
I am happy with 9-15 positions
That would naturally suggest position sizes of £4000 to £6700
I tend to buy in stages: half positions or third of my intended positions
So ~ £2000-£3350 initially
I try to control fees/FX too
I occasionally take on "nibble positions" of £1000 while I follow a stock more closely
Helpful because growth stocks are volatile
Gives a degree of "skin in the game"
But, here's the thing:
Most of my test/nibble positions are not valuable to me in the long term
Here's why:
Helpful because growth stocks are volatile
Gives a degree of "skin in the game"
But, here's the thing:
Most of my test/nibble positions are not valuable to me in the long term
Here's why:
I invest in companies ONLY where I can see a path to a
3x-5x return on my original investment in 5-10 years if my thesis is correct.
3x on a £1000 investment is £3,000: nice but not portfolio changing
3x on a £6700 investment is £20,000: now we're talking!
3x-5x return on my original investment in 5-10 years if my thesis is correct.
3x on a £1000 investment is £3,000: nice but not portfolio changing
3x on a £6700 investment is £20,000: now we're talking!
You have to consider the downside risk too
I am psychologically able to handle a ~50% drop in stock price AS LONG AS THE THESIS REMAINS INTACT
This was tested recently (pic)
I don't do a lot of trading: this would be a terrible trading strategy
https://twitter.com/adventuresinfi/status/1249082431799463939?s=20
I am psychologically able to handle a ~50% drop in stock price AS LONG AS THE THESIS REMAINS INTACT
This was tested recently (pic)
I don't do a lot of trading: this would be a terrible trading strategy
https://twitter.com/adventuresinfi/status/1249082431799463939?s=20
Valuation plays an important part in capital allocation
Short term, valuation (typically on an Enterprise Value/Sales) can drastically change within a relatively short period of time depending on company performance and market sentiment
3 year range for my companies in pic
Short term, valuation (typically on an Enterprise Value/Sales) can drastically change within a relatively short period of time depending on company performance and market sentiment
3 year range for my companies in pic
I tend to think in Tiers
and allocate higher capital to my Tier 1 picks - these have up to ~ £8700 ($11,000) allocated to them - I will try to opportunistically add to my "overfunding limit" when possible but won't go over the limit
Tier 2 picks have typically £3500-£5000
and allocate higher capital to my Tier 1 picks - these have up to ~ £8700 ($11,000) allocated to them - I will try to opportunistically add to my "overfunding limit" when possible but won't go over the limit
Tier 2 picks have typically £3500-£5000
I'll consider adding to a Tier 2 pick more slowly over time as appropriate
Current Tier 2 picks
$CRWD, $TWLO, $ZS
Questions on investing in security
https://softwarestackinvesting.com/why-i-wont-invest-in-security-stocks/
$ZS: valuation limited my position size, sales exec
$TWLO: size, deceleration of growth, gross margin
Current Tier 2 picks
$CRWD, $TWLO, $ZS
Questions on investing in security
https://softwarestackinvesting.com/why-i-wont-invest-in-security-stocks/
$ZS: valuation limited my position size, sales exec
$TWLO: size, deceleration of growth, gross margin
Tier 3 picks may be more speculative or have a question mark over them. I have lower confidence in them
but they still have the opportunity for asymmetrical upside if the thesis works over the long term
$NVTA, $BZUN
I typically won't add to these beyond my initial allocation
but they still have the opportunity for asymmetrical upside if the thesis works over the long term
$NVTA, $BZUN
I typically won't add to these beyond my initial allocation
Current tryout positions for me are $LSPD.CA and $ROKU
both interesting, but $ROKU plays on the same thematic as $TTD
and $LSPD looks great but is facing recession-related headwinds - my position got cleaved to 1/3 of its value between Feb and March
but was lowish in overall £
both interesting, but $ROKU plays on the same thematic as $TTD
and $LSPD looks great but is facing recession-related headwinds - my position got cleaved to 1/3 of its value between Feb and March
but was lowish in overall £
This is still a work in progress for me
How do you allocate capital in a concentrated (20 companies or less) portfolio?
How do you allocate capital in a concentrated (20 companies or less) portfolio?
Curious to hear how you think about allocation and position size as a %
@dhaval_kotecha @7AustinL @cperruna @saxena_puru @7Innovator @StockNovice @reshoftc @mujimu @TMFStoffel @Matt_Cochrane7
@dhaval_kotecha @7AustinL @cperruna @saxena_puru @7Innovator @StockNovice @reshoftc @mujimu @TMFStoffel @Matt_Cochrane7
@trevmuchedzi how do you approach this?
