Simplifying the portfolio (1 Buy, 1 Sell and more to come!)
Position sizing matters a lot. Let's focus more on it!
Recently I thought about portfolio allocation a lot. Then I came across an old Tweet of Brandon Beylo, talking about the biggest reason investing legend Stanley Druckenmiller managed to generate a 30% CAGR over decades. While I have a very different strategy then Druckenmiller, there is something to take away from it: Position sizing matters a lot!
Druckenmiller is very macro oriented and does large bets and trades. I will of course stick to my long-term quality value investing, but I need to improve at sizing my positions.
I have not discussed my other assets on this Blog, but they are a substantial part of my net worth. Stocks are very significant at 40% (and I plan to raise this part to well over 60% in the coming years), but this also means that I should look at the diversification lenses through another angle.
In my portfolio, there are a bunch of small positions that are insignificant to my development:
4 positions under 0.65% of net worth
another 5 positions under 2% of my net worth
only 5 positions are over 2,5% of my net worth
To mitigate these positions that take up time to analyze, but at the end of the day won’t move the needle, I’m looking to reduce the number of positions in my portfolio to 10-15, with a cap of 4% minimum per position throughout 2025. That way I’ll have investments that actually matter to my net worth development and fewer distractions. I want to bet bigger when huge opportunities arise. These are the advantages we have as retail investors compared to institutional players.
Next Steps (1 buy and 1 sell to start)
Thanks to Gustav, I found these useful matrixes to give a bit of guidance regarding portfolio management. I like the idea of moving my portfolio companies into buckets to represent the quality of each holding. Naturally, we should be harsher on lower quality businesses than on our stars. As a first step of this simplification process I have put my portfolio into three buckets and have sold one companies from the good quality co bucket.
