Why Position Sizing Matters
Position sizing determines how much capital you allocate to each investment. Too much concentration increases risk; too little diversification limits potential returns.
Proper position sizing helps you manage portfolio risk, avoid overexposure to single positions, and maintain discipline during market volatility.
Common Position Sizing Methods
Equal weighting: Allocate the same dollar amount to each position. Simple but may not reflect risk differences.
Risk-based sizing: Adjust position size based on individual stock volatility or beta. Higher risk = smaller position.
Conviction-based: Size positions based on confidence level, while respecting maximum position limits (e.g., 10% per stock).
