Building a Stock Portfolio? Here’s How to Think About Position Sizing

If you have around 25 stocks in your portfolio, you may be wondering what your average position size should be. In this video clip from “Beat & Raise,” recorded on Sept. 24, contributors Brian Withers, Demitri Kalogeropoulos, and Neil Patel share their advice on how to best think about position sizing when building out your stock portfolio.

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Brian Withers: Dee asks a question about, “What is a full position percentage look like when you’re building out your portfolio? Can you explain this logic?” I’ll go first and you guys can tag on. For me, I have 20 stocks. For a 20 stock portfolio, the average position size is going to be five percent. If you own 50 stocks, the average position size is going to be two percent. You look at what your average sizes are. Then I always look at the lower third of my portfolio, the middle third, and the top third, and I look at promoting companies as they do better and as they get more comfortable with them into the next phase of ranges. If you could think of the middle third being around that five percent average, the lower third being lower than five percent, and the upper third being higher than five percent, all build as I move something up in the range. Demitri, Neil, how do you think about a full size position from a percentage standpoint?

Demitri Kalogeropoulos: Sure. Yeah. I’d just add to that. I probably own about the same, maybe 25 individual stocks. Some of them are way bigger than others, mainly because they wanted a couple of grown over the years. I don’t tend to just want to pare back on those, I let the winners run situation. I don’t know. That of course, may have been a bit more risk, but I try to think in industry is a little bit too, because for example, I own a lot of what I think I’m pretty exposed to digital advertising, you might say, I own some Facebook. That’s why I might not want to buy Google. I don’t own Google. I think I’m covering this market pretty well in this way. It’s not a very hard and fast rule, but I try when I can when I’m looking for the next one to buy, I’m like, if I have a really big position already in this industry, like we were talking about Nike, I do own Nike and Under Armour too. Buying a third athleisure apparel retailers makes me think I want to diversify a little bit more.

Neil Patel: I will be quick as well. I said that five percent limit of position at cost. Then I will just if the company executes and continues doing well, it’ll make itself a larger position in the portfolio. But one thing I tried to do is not enter or exit a position all at once. Just looking at a company initially and I like some of the characteristics of it, I’m comfortable taking a 1-2 percent position and then my research process is fluid. As I learn more about the business, I can add more and get up to that five percent.

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