While having dinner with a fund manager in Portland, Oregon a few years ago we got to discussing position sizes in a portfolio and what he said has stuck with me since then. When asked what his ideal position size was he said that he prefers to have no more than 4% of his overall portfolio in an individual position. This implied that he preferred to hold about 25 positions in his portfolio.
Then he asked me what kind of position sizing I use and I told him that my standard position size was 5% of the portfolio but I was willing to build a concentrated position that amounted to 10 to 15% of the portfolio if I really liked a particular investment. I was thinking of Activision Blizzard (ATVI), a company that I thought had a great blend of good products, strong management, growing revenues, a strong balance sheet and decent valuation. I had about 15% of my portfolio in Activision Blizzard. He then told me that the reason he sticks to a 4% allocation is that often it is not our top idea that turns out to be a winner but something else in the portfolio that delivers the big gains.