How do you think about position size (for individual stocks)?

[Viking]

On 7/25/2025 at 2:14 PM, gfp said:

Don't be afraid of concentration.  If you know what you own inside and out, you should be fine holding 90%+ of your liquid net worth in one security, just like many company founders and employees do.

 

If you don't know what you own and why, 10% is probably too big.

 

@gfp, I have spent a great deal of time thinking about position size (for individual stocks) - especially the past 2 years. And it probably is topical for a lot of board members today, given the incredible run we are having with Fairfax. Position size is a multi-layered topic. Very situational. &nbsp

I would love to hear from other board members. How are you thinking about position size (for individual stocks)?

 

I have always been comfortable having a very concentrated stock portfolio. There have been times in the past where I have been 100% in one stock. Fortunately, I never blew myself up. Was that skill or luck? It certainly was some combination of the two - and of course, impossible to know. 
 

Bottom line, I am at a stage in my life today where I now have enough. And probably a little extra. As a result, I am now able to (thoughtfully) help out the next generation (and extended family members) - education/mentoring/permanent savings. Growing my wealth from here is probably not going to benefit me all that much… but it would certainly have an impact on the next generation (and that is a whole other discussion). 
 

The following quote really hit me hard about 2 years ago:
 

“Never risk what you have and need for what we don’t have and don’t need.” Warren Buffett

 

It has impacted my views on position size (of an individual stock). Of course, there is a lot of other factors at play (like my age, life situation etc). I’ll share more of my thinking in a future post. For now, I would love to hear from other board members. 

Edited July 26, 2025 by Viking

[Viking]

@MMM20’s response to @gfp’s quote above

 

11 hours ago, MMM20 said:

I’m with you and it’s probably a longer discussion on another thread, but I’ve said before that I started this out at ~10% in Jan ‘21 and let it run up to ~40% before cutting it back maybe a year ago after failing the sleep at night test. It probably says more about some of my other picks that I’m back at 30%+ and that’s still concentrated in my situation. I’ve gotten there through trial and error and generally fine with 10-20 positions and top 5 about 50% of net worth. IMHO good portfolio management is a constant tension between conviction and epistemic humility (some food for thought here = “The only time you're really diversified is when you have assets you don't want to own." -Peter Bernstein), between getting rich and staying rich. The fact is that no matter how deep you get, some things are unknowable to outsiders (and even insiders!). I’ve tinkered my way over time into bias for inertia in core positions in great businesses like Fairfax, Berkshire, Philip Morris, Exor/Ferrari and Prosus/Tencent unless they’re trading at absurd prices (Ferrari these days but still basically free within Exor) or I start failing the sleep at night test. I guess my point is it’s not some willy nilly itchy trigger finger but a rough regret minimization framework that works for me. “Never sell” is back en vogue again these days, and I’ve learned a lot from guys like Munger and Akre, but from guys like Prem too. Still learning but I’ve taken what resonates from all of them and ended up with a mix that seems to fit / suit me. And Fairfax still by far my biggest position right now like for the past 4.5 years. Lucky or good? Still unclear!

[Viking]

8 hours ago, nwoodman said:

The question of concentration is always a juggle. But if you believe in capital allocation machines like FFH, you’re getting more than adequate diversification. I’m more than comfortable holding large positions and copping the conglomerate discount which, in my view, is the margin of safety.

 

We know Bradstreet is a 3–4 sigma event in fixed income. The equity positions, which I think are just as,  but perhaps more important, over the long term,  are finally getting some recognition in the market. But scorekeeping on a quarterly basis is no reflection of true IV. Anyone following the undelying IV evolution of the equity book knows there’s a lot more upside ahead.

 

This is perhaps slightly at odds with my view that the TRS position should be wound down, but that view is more about risk management. In a deleveraging event, there’s nowhere to hide, and you’d hate to see cash drained to shore up the TRS just as the market is offering up gems. It’s an optionality issue,  no doubt the asymmetry has worked to date but an outlier event could undo a lot of this good even if the IV of Fairfax remains constant. 

[Libs]

I'm 63 and fortunate enough to be able to retire if I wanted. So, since I've 'gotten there' financially, it's incumbent on me now NOT TO BLOW IT. Which is a really weird place to be. I'm still adjusting to that mental framework. That Buffet quote ^^ rings in my ears constantly.

Back in the day I had no problem being up to 80% in, say, Berkshire, if it got too cheap. But now I Iimit myself to 5% positions at cost. I'll consider trimming if it runs to 10-15%. Thankful I can trade in my IRA; that's a godsend tax-wise.

Good topic.

[Junior R]

I believe several factors influence how much to allocate to a single stock. Stock concentration can make sense when a company is extremely undervalued like Fairfax Financial (FFH) was in 2020 based on price-to-book, price-to-earnings, and growth metrics. But once a stock transitions from being deeply undervalued to just modestly undervalued relative to peers, holding a concentrated position becomes harder to justify.

Your personal situation also matters your age, whether you're still working, and the size of your portfolio all play a role. If you're retired or no longer generating income from work, you may want to take on less risk. And if your portfolio has reached a size where it can compound steadily, limiting individual stock positions to 5% or less might be a more prudent approach.

In the past, I used to go all-in on single stocks sometimes holding 100% in one name but I’ve started to move away from that strategy. These days, I try to avoid letting any stock grow beyond 5% of my portfolio. FFH is still above that threshold for me, but I consider it a long-term compounder, and my confidence in its management and investment team gives me some peace of mind. That said, this could change over time.

As for FFH specifically, I still believe they're in the early innings compared to something like Berkshire Hathaway. Their smaller size actually works in their favor: while a 10x return on an acquisition might barely register for Berkshire, it would be transformational for FFH.

So while I’ve become more cautious about concentration overall, I still make room for exceptions when the fundamentals and context align.

 

and yup IRA / RRSP is a wonderful account as you can trade in and out there with no tax risk lol 

Edited July 27, 2025 by Junior R

[dpetrescu]

I think it depends on confidence level in companies you’re investing in. I try to be patient and invest in only the companies that I understand and that I have confidence in - that they have and will maintain a strong and growing competitive advantage. And also are immune to being overtaken by technical/AI progress. With that criteria there aren’t more than 2 or 3 companies you might find in a lifetime.

[Ver]

The appropriate position is anywhere from 0-100% depending on the understanding of the business and how attractive the opportunity. Both these will vary so of course the max percentage should vary too. To take the extreme case, I know a few successful entrepreneurs who have 99% of their assets in their company. They know everything about their company and their niche, plus their company is the best positioned with a good business model and culture. It's way safer for them to keep it concentrated like that instead of spreading it into worse companies they don't know. There would be little difference if they retired and "invested" by handing over the reins to a trusted and exceptional CEO while keeping up to date.

 

Of course, the bar of understanding a company at the level of a top entrepreneur in the industry is simple but extremely difficult.

 

Buffett, Munger, Duan Yongping each had periods with 75-100% in one company, but these are rare opportunities. Buffett said it would have been fine to put 100% in Coca Cola in the 80's or Cap Cities in 74, something worry-free and less dangerous than diversifying mindlessly. For us not at their level or who approach it part time, there's nothing unusual with lacking good opportunities, or understanding less and allocating less. The percentage isn't important, but whether the position size is matched to the certainty of future cash flows and opportunity.

[adventurer]

Over here we do not have tax deferred accounts or anything of the sort. So the moment you sell is the very moment your gains are being taxed. The time I will be invested is yet set to be quiet long (30-40 years). My goal (though not always attainable) is a compound rate of 10-15% over that timeline but at least above average. Now, if one wants to achieve 15% p.a. over here, after a bit of arithmetic, you would have to achieve around 22% of a pre-tax gain every time you sell something which is of course crazy high. The golden alternative to a company that you will probably sell at some point (due to an economic cycle ending, management changes for the worse etc.) would be an investment one can hold on to for decades of course, letting it compound. This in turn limits your options significantly what makes Munger`s method of three companies at max. appear logical and attractive. Hence, to my mind, being invested into 1-3 companies at max. is a question of pure necessity (alternatively 1 index fund if you are not as concerned with your investments as most of us are here).

Munger himself said that he was good at buying and holding forever but that he was bad at knowing when to sell. I hope to get to live by this reasonably well though I failed a few times by now already...

Edited July 27, 2025 by adventurer

[Junior R]

5 hours ago, adventurer said:

Over here we do not have tax deferred accounts or anything of the sort. So the moment you sell is the very moment your gains are being taxed. The time I will be invested is yet set to be quiet long (30-40 years). My goal (though not always attainable) is a compound rate of 10-15% over that timeline but at least above average. Now, if one wants to achieve 15% p.a. over here, after a bit of arithmetic, you would have to achieve around 22% of a pre-tax gain every time you sell something which is of course crazy high. The golden alternative to a company that you will probably sell at some point (due to an economic cycle ending, management changes for the worse etc.) would be an investment one can hold on to for decades of course, letting it compound. This in turn limits your options significantly what makes Munger`s method of three companies at max. appear logical and attractive. Hence, to my mind, being invested into 1-3 companies at max. is a question of pure necessity (alternatively 1 index fund if you are not as concerned with your investments as most of us are here).

Munger himself said that he was good at buying and holding forever but that he was bad at knowing when to sell. I hope to get to live by this reasonably well though I failed a few times by now already...

This is true about the 22% pre-tax gain to get 15% this is one of the problems of playing the undervalued game and sell once it becomes fairly valued vs buying good companies that can compounded 

[SharperDingaan]

A few things we practice .....

 

Size isn't the problem; it's liquidity and downside volatility. The sizeable position has to be quality stock, as you can do squat if there's suddenly no market.

 

Deeper the reserve, the bigger the position; size is not an issue if you don't have to sell (deep reserves), but to offset the opportunity loss on that conservatively invested reserves portfolio, you need a bigger win (bigger position).

 

Maximum size at the start, declining as periodic sell offs are initiated to manage the risk. With lesser quality stocks, if we had to double-down we will typically sell 50% as soon as we regain average cost. If it was drama free we will typically sell 50% as soon as we have a double. The interventions largely remove the issue. 

 

Side pocketed exceptions (BTC, UBS, etc.) into a separate portfolio; simply because when everything grows at similar rates, the relative weightings of each security will not change much. Add more opportunistic exceptions (blue chips after deep dividend cuts), and the change in weightings become less volatile. A  significant consideration when crypto is one of the holdings.

 

Macro hedges. Forced withdrawals as soon as the total portfolio exceeds $X, &/or we hit Y% in a long straddle around Trump. Money systematically off the table so that we live to play another day.  Viatical type win if/when we wake up to orange splat tomorrow.

 

Today we're also primarily income vs gains orientated, which lowers our risk profile. No real change in position sizing as cost bases are extremely low.

 

Not for everyone, but we've found that it works very well.

 

SD

 

   

[Saluki]

Like everything else, it depends on who you are and what you want to accomplish. "How do you feel about Ibuprofen?" is the same as asking about your trading strategy. If you have a headache, Ibuprofen is a good idea. If you have a virus, it's useless. 

 

Since I left my job in January, my use of margin has gone from about 10% (the most I was comfortable because I'm risk averse), to zero and portion of my 401k is in short term treasuries (for ballast) instead of any stocks at all. 

 

I know someone here who has only 3 stocks and is okay with that. I think if you are young and have decades to make up a loss, you can get as risky as you want. But if you have the ball and there is nothing between you and the goal post, then you don't have to do anything heroic. Just don't fcuk it up. For me that means diversification.  Currently I have about 15% GOOG, 15% BRK, 15% FRFHF and 12% JOE, 5% NTDOY, KRKNF and CPNG.

 

My biggest positions are my older positions, and I probably would trim if any of them got over 20%. And my strategy is that the biggest positions aren't the biggest possible winners (with a chance of zero), but the ones where I would lose the least. That is, the best moats, or the biggest discount to current value, the least volatile etc. 

 

For me, the smaller 1% positions keep me studying and learning and occasionally have nice runs, but don't hurt if I am wrong about them. 

[jfan]

These are some of the considerations I use for position sizing individual stocks

 

1) how much personal free cash flow do I have coming in now and into future? Which is in part related to the remaining life of my day job (not running other people's money). It makes sense to concentrate early in life where blowing up is a small percentage of one's lifetime of earning.

 

2) the degree I understand and can predict the evolution of the business's key important unit economic metrics (3,5,10+ years). Ie will the behaviours of participants change? Is the degree of technological change or business model change too rapid? Is competition becoming more or less intense?

 

3) how much trust do I have in managements capabilities to provide per share value? As well as their idea of what long term means? This obviously is different if you have the ability to influence the economic drivers as a control investor, which I'm not.

 

Based on these, preference to defer taxes, my own ability to change my mind and enter and exit positions, I usually try to find better businesses with better managers to hold for the long term (5-10 years), and cap them off at 5% at cost, allowing them to earn their way into concentration. That said, I do have some crappier businesses that are cheap with some shorter term catalysts as a trade as well as small illiquid micro caps that are cheap that I can hold onto like venture capital positions.

 

That said, my most concentrated position is 40% with a manager that I trust, that started around a 15%-20% cost. But this is an exception vs my norm.

[SharperDingaan]

The basic discount rate for a new project/acquisition in corporate finance is 25%, reflective of the completion and uncertainty risk that you are taking on. The PV of a resultant doubling 5 years out is roughly 1.33x today's investment, 1.21x today's investment 7 yrs out, and 1.07x today's investment 10 yrs out .... hence, long term is 4-5 years at best.  

 

Sadly, changes in the price of what is being sold, have much more of an impact than the quality of the management. Many an o/g firm with truly awful management looks brilliant at USD 90/bbl, and better still at 110  Yet those same assets also look brilliant in a distressed asset sale priced at USD 40/bbl  

 

Quality assets first, quality of management a distant second.

 

SD

[HubbadaPow]

Just a thought...some of the legends I admire talk about extreme concentration when the situation calls for it, but often in those situations they had some degree of influence over the company as a result of their position.  Cheap valuation and good assets are enough for a diversified portfolio, but if you're going to concentrate in a business you also need to be sure management isn't going to hose you. 

I'm not sure I can think of a concentrated position Buffett has ever held where he didn't have management's ear, even early on in his career.  The Outsiders is basically a book about businesses that did what Uncle Warren told them to do.

[jfan]

My one other thought is that concentration can give you some very extreme outcomes, positive or negative. The other consideration is that maintaining a slightly above average return for a very long time, will put you into the top 5% at the end. Surviving is more important than winning

[Masterofnone]

It certainly depends on the stocks in question. Berkshire was relatively easy to hold in large concentration because of its internal diversity.

A pharma startup? not so much.

[frommi]

For me, it depends on how many "equal" opportunities are available. If I’ve identified 50 stocks with equal expected return, I’ll invest in all of them because I don’t have a crystal ball, and it’s often the ones you didn’t expect that end up outperforming.

Fairfax in 2021 was a unique situation. Rates and inflation were going up, the upside was huge (P/B was super low), and Prem was buying heavily. That made it easy to put 20–25% of my money into it. Eventually, the position grew to 35%, and at that point it started getting hard to sleep at night—so I began trimming it back. That experience confirmed for me that 25% is the absolute maximum I’ll ever put into a single stock, and only in something like BRK or FFH.

For all other stocks, I’ve set a 10% limit at the time of purchase. If something grows to 20%, I trim it. But often you’ll find that a whole sector is depressed at the same time. In those cases, I make sector bets—like I did with tobacco, where I had 40–45% of my money spread across around five stocks. I’ve made a similar sector bet on REITs and Utilities right now, where a bunch of names are trading at what I think are very attractive valuations.

Overall, my main portfolio has 15 to 25 positions, and my Net-net portfolio holds 25 to 35 stocks. That’s all my retirement money and since i am in semi-retirement, I try to stay conservative and hedge often.

Edited August 1, 2025 by frommi

[SharperDingaan]

2-3 truly different sectors plus cash; 1-2 stocks per sector is typically enough for diversification.

 

Thereafter it is all about knowing where each sector is in its economic cycle, and acting accordingly. 65% in o&g at the bottom of a cycle is a great place to be. Sales in the up cycle feed purchases in the down cycles of the other sectors, and vice versa. Rinse and repeat.

 

SD