1/ Here are some of my thoughts on portfolio allocation w/ the caveat that I probably don't put as much time in thinking this through as I do in researching individual positions. Would love feedback or thoughts. (cont)
2/ 1st Principle: I move slowly, buying little at a time. That first bite can be quick though, before I'm done fully researching it. So I start small. If thesis holds and confidence grows as I learn, I'll add over time. If not, I'll sell. I think of it as time diversification.
3/ 2nd Principle: To become a major position in my portfolio (say 5%+) the stock must do a lot of the heavy lifting. This is especially true for my largest positions. I'll keep buying to a point, but eventually positions need to earn their keep. (cont)
4/ 3rd Principle: My largest positions are those that I believe won't lose a lot of money, e.g. $SHOP / $PAYC have grown so that they would've been top positions w/o trimming. But w/ those valuations, I know drawdowns are likely. Don't want them at high % if/when that happens.
5/ IMHO, these principles naturally bias my portfolio so that my largest positions are one that I have owned for some time and have grown, e.g. the ones I'm most familiar with. That's how I like it. I want to know my 8% positions better than my 1% positions. (cont)
6/ Buying small also gives me permission to buy companies I wouldn't otherwise buy. For instance, I NEVER would've bought $MDB if I felt like I had to make it a large position or fully understand it first (ha, like I could ever fully grasp NoSQL databases!). (cont)
7/ But buying small, allowed me to get in $MDB at ~$60. I have yet to add to $MDB again, but still hold that position and its more than doubled. If I had thought that I had to buy at least x amount to make the purchase "count" I never would've had the courage to do so.
8/ I think logic of a concentrated portfolio makes sense, e.g. "Better to invest more money in your first-best idea than your 25th best idea." But IRL that does not help me. When I invested in $PAYC or $MDB or $SQ, I thought all were overvalued, but all have been multibaggers.
9/ It goes back to the discussion @Greenbackd @BillBrewsterSCG and @farnamjake1 were having about long right tails. Buying small gives my portfolio a long tail and chance to capture some big winners that I never would have initiated at large positions.
10/ Now, I don't believe in owning 80-100 stocks like some (cough - @David_Kretzmann - cough) but I have found a happy medium for me, which is about 30-40. Others like @saxena_puru and @AustinLieb run a tight portfolio. Yet all 3 of the above have seen monstrous returns!
11/ In other words, I really don't think there's a one-size-fits-all answer here. Find what works best for you and run with it. Different temperaments, fields of competence, etc. will naturally play a role.
