You've done the research. You found a great stock. Now comes the question that determines whether your work actually pays off: how much should you buy?

Most investors either spread capital equally across everything (treating their best idea the same as their 20th best), or they buy random amounts based on gut feeling. Neither approach really makes sense though.

Position sizing is quite possibly the most underrated skill in investing. Get it right, and your winners actually move the portfolio. Get it wrong, and you either blow up from concentration or earn mediocre returns from over-diversification.

Today, we're breaking down practical frameworks for deciding between a 2%, 5%, 10%, or 20% position based on conviction, risk, and portfolio math that actually works.

In today's edition:

📊 Why Equal-Weighting Every Position Is Lazy (and Costly)
⚠️ The Four Biggest Position Sizing Mistakes Investors Make
🎯 A Conviction Hierarchy: Core Holdings vs. Speculative Bets
📈 Real Examples: How to Size Microsoft vs. Intel vs. a Biotech
🧮 The Concentration vs. Diversification Trade-Off (with Actual Numbers)

Let’s begin.

Everyone's screaming about AI bubbles and dollar crashes.

Meanwhile, you're frozen. Should you buy? Sell? Wait?

Here's what actually matters:

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If you own 20 stocks at 5% each, you're implicitly saying you have equal conviction in all of them. That's almost never true.

Your best idea (the one you understand deeply and believe will compound for years) gets the same capital as a speculative play you bought on a hunch. When your highest-conviction stock doubles, your portfolio gains 5%. When your 20th-best idea goes to zero, you lose 5%.

The math doesn't reward your research or judgment. It flattens everything into an aimless P&L.

Professional investors don't work this way. Warren Buffett has said at the start of his career, he and his team focused on 5-6 “generals” he would invest 5-10% of their portfolio in. Why? Because position sizing is how you translate conviction into results.

Before we get to frameworks, let's cover what NOT to do.

You buy 1% of something planning to "add more if it goes up." By the time you build conviction, the stock is up 30% and you've missed most of the move.

If you have enough conviction to buy at all, size it appropriately from the start. If you don't have conviction, skip it entirely.

The stock drops 40%, so you double your position to "lower your cost basis." But if the original reason you bought no longer holds (e.g. management departed, a competitor emerged, the product failed), you're just throwing away good money after you lost the bad money.

Only add to losers when the thesis remains intact and the drop creates better value. Otherwise, take the loss and move on.

You hold 5% Microsoft, 5% Apple, 5% Google, 5% Amazon, and 5% Meta. That's 25% in mega-cap tech that moves together. You have less diversification than the topping options at Chipotle, and sector concentration that could hurt you badly during a tech selloff (or like a bad Chipotle burrito).

Position sizing has to account for how stocks correlate, not just individual position percentages.

"This stock is only $3, so I'll buy more shares." Or "This stock is $1,500, so I'll buy less."

Share price is irrelevant. What matters is the volatility, business risk, and percentage of your portfolio at stake. A $3 penny stock is probably going to be higher risk than a $500 blue chip, and with fractional shares, you can buy $50 of each of them. So investing based on share size is just plain dumb.

Here's a practical framework for position sizing based on conviction and risk:

These are your highest conviction, lowest risk positions. Companies you'd hold for 10+ years. Established businesses with moats, proven management, and predictable cash flows.

Example: You deeply understand Microsoft's cloud business, have watched them execute for years, and believe Azure will continue taking share. This (again, example) stock deserves 15% of your portfolio.

Strong conviction but higher volatility or uncertainty. Established companies in growth mode, or solid mid-caps with proven track records but less predictability than core holdings.

Example: You believe in UiPath’s robotic process automation platform, but could see the case for its valuation being stretched and competition from Microsoft and Blue Prism is real. A 7% position captures upside while managing risk.

Moderate conviction with higher risk/reward. Turnaround stories, cyclical timing plays, or emerging trends where the thesis could work but has meaningful uncertainty.

Example: Imagine that Intel was struggling (it’s doing quite well now, but just imagine). You think new chip designs and government subsidies could drive recovery. The turnaround is speculative and could take years. A 3% position makes sense: large enough to matter if you're right, small enough that failure doesn't hurt much.

Low conviction, high risk, lottery ticket potential. Biotechs awaiting FDA approval, some altcoins in the crypto industry (outside of the top ~20), or emerging technologies where the outcome is binary.

Example: A small-cap biotech with an Alzheimer's drug in Phase 3 trials. If approved, it could 5x. If it fails, it goes near zero. A 1% position captures the upside while limiting downside to something you can easily absorb.

Adjust position size based on stock characteristics:

A 15% position in Johnson & Johnson might carry similar risk to a 5% position in a single-product biotech. Absolute percentage matters less than the risk you're actually taking.

Position sizing affects how you think and act:

If your position is too small, you won't care about the outcome. You won't follow the company closely. You’ll learn nothing and the position won’t move your portfolio even if you're right.

If your position is too large, you won’t be able to sleep at night. You’ll check prices obsessively. You’ll panic sell at bottoms because the emotional weight is too heavy.

If you can find the Goldilocks investment size, where your position is large enough to matter and keep you engaged, but small enough that even a complete loss doesn't wreck your finances or sleep, you’re doing great.

The "sleep test" matters. If you can't sleep because of position size, it's too big, regardless of what any framework says 😅

Here's a sample portfolio structure that balances conviction with diversification (not financial advice, just an example):

30-40%: Core holdings (3-4 positions at 10-15% each)
30-40%: Growth positions (5-8 positions at 5-8% each)
15-25%: Opportunistic plays (5-10 positions at 2-4% each)
5-10%: Speculative bets (5-10 positions at 0.5-2% each)
5-10%: Cash (for new opportunities)

This gives you 20-30 total positions with meaningful size differences that reflect conviction.

Your best ideas get the capital they deserve. Your speculative bets stay small enough to survive being wrong. And you're diversified enough that no single mistake ruins you.

Position sizing is pretty much where your investment thesis meets reality. And you can find great stocks, but if you size them all equally or randomly, you're leaving returns on the table. Essentially, finding the stock of a lifetime isn’t the end of the battle; you then have to play the stock correctly in your portfolio.

The key principle: position size should reflect both conviction AND risk. High conviction plus low risk equals a large position. Low conviction plus high risk equals a tiny position or a pass.

Most investors never do this well. They buy 10 shares of one stock and 50 shares of another based on what "feels right" or what fits their available cash that day.

The professionals who consistently outperform have frameworks. They size positions deliberately, based on research, conviction, and risk assessment.

The difference between a good portfolio and a great one often comes down to this single skill.

That’s all for today’s special edition. We hope you got value from it. Reply and let us know if you did. 

Until next week,

— Brandon & Blake