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Portfolio portion measurements – How do you measure up?

Slicing the pie, taking measurements or dividing the spoils

You want what measurements?

You want what measurements?

White Top View series, Introductory Portfolio Management – Counts and Sizes, Portfolio portion measurements, Part 5 of 6

Portfolio portion measurements or the share or part of your overall portfolio that you put into an investment position needs to be considered. We need to be aware of what percentage of our total portfolio that we dedicate to each investment as well as the inevitable percentage changes that happen over time.

Last week we discussed related topics in the White Top View series, Portfolio Counts and Sizes. First we discussed the numbers of positions to hold in, Part 1, Five Factors – how many stocks to holdNext we discussed studies and further holding count considerations in, Part 2, Investing academics and holding counts.

We covered the size of positions in, Part 3, Size matters in stock positionsLast time we discussed the need to make each investment transaction large enough to be a difference maker to the portfolio and to minimise the transaction costs per share in, Part 4, Costs drive investor position sizes

Today we cover 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.

I just want a little tiny taste!

I just want a little tiny taste!

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.

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Have a prosperous day!

Bryan

White Top Investor
whitetop@WhiteTopInvestor.com
www.WhiteTopInvestor.com
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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact info@WhiteTopInvestor.com.

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Links to all parts of the White Top View series, Portfolio Counts and Sizes:

Part 1, Five Factors – how many stocks to hold

Part 2, Investing academics and holding counts

Part 3, Size matters in stock positions

Part 4, Costs drive investor position sizes

Part 5, Portfolio portion measurements – how do you measure up?

Part 6, Investor watch lists and toe holds

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