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Hi AJner,

Thanks for sharing your detailed thoughts on this question.

One thing I've learned from the approach I'm taking (2%, can up to 4%, can up to 6% -- 3 separate purchases) is that it takes more effort to get a meaningful amount of money invested than someone putting in 6% right away (my 2% = about $350; $1,000 has been a common position size for several of the other Rising Star ports, but I'm treating that amount as a full conviction 6%).

I don't know if that's good or bad yet, or even if it makes any difference in the long run. On the plus side, it forces me to look at the company again if I'm considering increasing its weighting and ask if it's still a good investment. On the other hand, a nice run up on larger positions (two others have near doubles on $1,000 investments) really boosts the portfolio's overall returns. Countering that, though, is that a bad decision won't hurt me as much as it would hurt a larger initial investment.


In the portfolio proposal I wrote back in September, before we began, I had this on the subject of position sizing. (Note, when this was written, the exact amount of money allocated to each wasn't yet set, thus the "5% to 6%" kind of ranges.)

"Position sizing in the Port will range from 2% to 6%, based on money invested. The best ideas will be from 5% to 6%. Less certain ideas will be about 3% to 4%, and least certain ideas about 2%. These are target allocations and will be reached through two or three rounds of purchasing, as noted. Total number of holdings is expected to be between 15 and 30 positions, though the precise number will fluctuate. I'm comfortable letting a handful grow to 10% to 12% of the total port, but will start trimming if it gets much above that or expectations decline."

I haven't reached 6% on anything yet, am at 4% on three, and 2% on five others, total of eight over 11 buys (not including tomorrow's purchase). I'll have to wait and see how well the upper limits described above work out, both in number of positions and size of portfolio. The expectations priced in will also play a role in selling, as I'll sell if they get ridiculously high (just as I'm buying when I think they're ridiculously low).

This set of decisions is obviously much more about portfolio management and risk management than it is about choosing what to invest in.

Cheers,
Jim
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