No. of Recommendations: 23
GordonsGecko writes:
Billions of dollars have been made or lost depending on your side of the trade tickets when people have let winners run or cut them for fear of concentration risk.

I would think that given your MF handle, you'd consider that "Greed is Good" and wouldn't be afraid of letting your winners run. ;^)


Seriously, though, I think some/many here believe that percentage of portfolio isn't as big a risk as holding onto a stock whose company isn't doing as well as it was.

For instance, 7 or so weeks ago, many here were trimming/selling out of SHOP not based on concentration, but on slowing growth, and not just less growth but the deceleration was itself increasing! Yet, here we are not two months later and SHOP is up about 30% since that thread (and more since some did their selling).

Right or wrong outcome, the discussion was a good one - it wasn't that "I've got too much SHOP and need to sell," it was "SHOP isn't growing as much as its stock multiple demands and that's probably due to cannabis speculation and they're doing some desperate marketing, so I'm moving on to greener and less risky pastures."

I don't think most here have a hard and fast concentration threshold. If you hold 7-9 stocks then it wouldn't be surprising to have multiple stocks over 10% of your portfolio. Maybe you start thinking about when a stock is pushing 20%, but that wouldn't by itself be a reason for me to sell. I've had a third of my portfolio in a single stock, and that worked out really really well. That's the outlier, though.

Anyway, I'd use portfolio concentration as an indicator for digging more deeply into a company's future, but not as the primary motivation to sell. After all, it could be that 6 of your 9 stocks are doing poorly so you should sell your winners, but trim your losers and find future winners.
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