Position Sizing

What this unit covers

Learn to calculate how much of a portfolio any single holding should take up, so one bad pick cannot do outsized damage.

By the end you will be able to

• Calculate what percentage of a total portfolio a single holding represents.
• Explain why position size, not confidence, determines how much a wrong call can cost.
• Apply a position-size check before adding money to a holding.

How it starts: Two Ways to Be Wrong

1. You and another investor each own the same falling stock.
2. You put 10,000 rupees into it, the other person put 80,000.
3. The stock drops 30 percent for both of you, so who feels it more?

Words you will meet

Position size

The percentage of your total portfolio that one holding represents.

Total portfolio value

The combined worth of everything you have invested, used to measure any one holding against.

Conviction

How strongly you believe a stock will do well, which does not make the stock safer.

In this module: Building Your Portfolio

1. Asset Allocation
2. Diversification Done Right
3. Position Sizing (this unit)
4. Rebalancing & Staying With the Plan