Position size

How much of your total capital a single holding represents - the weight that decides how much any given move actually matters to you.

Example

The same 50% decline costs 2.5% of a portfolio at a 5% weight and 30% of it at a 60% weight.

Important

Sizing is the decision you fully control, unlike whether you are right. Most portfolios reach a dangerous weight passively, because a winner grows and nobody ever decides to trim it.

Related terms

• Concentration risk — The risk that a large share of your wealth depends on a single outcome - one company, sector, property, currency, employer or counterparty.
• Drawdown — The decline from an investment's highest point to its lowest point before it recovers.
• Risk tolerance — How much decline in the value of your investments you can withstand financially and emotionally without abandoning your plan.

Lessons that explain it

• For most readers, nowhere - and the exceptions are narrow — Derivatives can hedge specific risks or adjust a portfolio at a known cost, but they are not needed to invest well, and for most people the right allocation is zero. (8 min)
• When concentration is the right call — Diversification is the correct default and it is not a law. The honest version of the argument is about what you would have to actually possess to justify departing from it. (10 min)
• Rebalancing: returning to the plan — Left alone, a portfolio drifts towards whatever has done best - which is the same as drifting towards a bet on the recent past continuing. Rebalancing is the small, unpleasant act that undoes it. (9 min)
• The first ten holdings do most of the work; the next fifty do much less — Adding holdings reduces the damage any single failure can do, but the benefit falls away quickly. Beyond a point, more names add admin and dilute your best ideas without removing much risk. (10 min)
• If you invest everything in first cheques, you cannot back your winners — Planning reserves for follow-on investments before making initial investments protects your ability to support your best companies and to maintain ownership where it matters most. (11 min)
• Appraising one trade: size it from the loss, not from the leverage — Before a currency trade, set how much of your account you will risk, where the trade is wrong, and what the broker and costs add. Position size follows from those, never from the maximum leverage available. (12 min)

All 578 terms in the Investing glossary