My Position Sizing Framework
The Other Half of Investing
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One of the less talked about elements of investing is portfolio strategy.
Not stock picking. The other stuff.
You can find the best companies in the world, but if you size them wrong, it doesn’t matter. Position too small on your winners and you miss the compounding. Position too heavy on your losers and one blow-up sets you back years.
I hold a concentrated portfolio of 8-12 stocks. Today’s post is about how I size positions within that portfolio.
This is something I think needed work looking back at 2025. So this is as much an exercise to help me think clearer as it is something you might find useful.
Furthermore, as I transition toward a portfolio weighted more heavily in microcaps, position sizing becomes even more critical. Volatility makes buy-ins harder. A 20% drawdown a week after you take a position can shake conviction even when nothing fundamental has changed.
The framework needs to account for this.
How It Works
There are two parts to position sizing: the buying phase and the management phase.
The buying phase is how you build a position. The management phase is how you let sizes evolve within your portfolio.
Buying the Position
Not all positions are created equal. Some I understand deeply from the start. Others take time.
I think about buying in two paths depending on conviction level.
Path A: High Conviction
This is when the research is done. The thesis is clear. I can defend it in two minutes to anyone who asks.
When I reach this level of conviction, I don’t nibble. I buy 70-100% of my target position immediately. Waiting around for a better price often means watching the stock run away from you. If you’ve done the work and you believe it’s undervalued, act.
I add the remainder if price drops 20% or more. That’s not a sign something’s wrong. It’s a gift.
Rules here: no initial position above 20% of the portfolio. That ceiling is reserved for the highest conviction bet, the kind of opportunity that comes along once or twice a year if you’re lucky. Normal high conviction bets start at roughly 10%.
Path B: Lower Conviction / Learning Position
Not everything starts with full clarity.
Sometimes I find an interesting company but there are gaps in my understanding. I see something, but I’m not ready to go full size. Maybe management needs more time to prove themselves. Maybe I want to watch a few quarters play out.
In these cases, I buy 30-50% of my target position. Enough to have skin in the game. Enough that I’m paying attention.
Then I build to full over 3-6 months as conviction grows. Or I exit if conviction doesn’t develop. No shame in that. The goal is learning, not forcing a thesis that isn’t there.
These are smaller bets. Around 5-8% of the portfolio. They can work their way up to full positions over time as understanding deepens. Some of my best investments started as Path B positions.
Entry Rules
A few rules I’ve learned the hard way.
One position at a time. Adding multiple new names at once splits attention and dilutes conviction. Better to do one thing well.
Wait one week between decision and first buy. This is the cooling off period. Excitement fades. If I still want to own it after a week of sitting with the idea, that’s a good sign. If the urge has passed, I probably saved myself from a mistake.
Match position size to conviction level, not excitement. They’re not the same thing. Excitement is emotional. Conviction is built on work.
Portfolio Structure
After positions are bought, here’s how I think about the overall portfolio:
Top 5 positions: at least 50% of the portfolio, concentrated in my best ideas.
Remaining positions: around 40%.
Cash: I try to leave 10% always, unless deploying into drawdowns or what I believe to be undervalued opportunities.
I approach this with flexibility. Context matters. Hard and fast rules tend to break down in practice.
What does need careful attention is managing positions that grow large enough to threaten the portfolio if they fail. I’d say that threshold is somewhere around 50%. Once a single position reaches that size, the maths of a blow-up becomes uncomfortable.
This is why downside protection matters more than upside capture. Compounding only works if you stay in the game. Which is why position sizing at initiation matters so much. Get it right at the start and you give yourself room to let winners run without sweating every tick.
I sell when the thesis breaks, not when the price drops. These are different things. Price is what Mr Market offers you on any given day. Thesis is why you own the business in the first place.
And when a new opportunity comes along that significantly outweighs something I already own, I have to consider opportunity cost. Capital is finite. Sometimes the right move is to swap one good position for a better one.
What makes one opportunity better than another?
A larger margin of safety / asymmetric potential. A clearer path to value realisation. More upside optionality. If the new idea wins on all three, it’s probably time to rotate.
Free vs Paid: What You Get
I want to be clear about what sits behind the paywall.
Free subscribers get posts like this one. Frameworks. Ideas. The way I think about investing.
Paid subscribers get the portfolio itself.
Full access to my concentrated asymmetric microcap portfolio. Every position, every weight. You see exactly what I own and why I own it.
Update posts with commentary on how positions are evolving. What’s working, what’s not, and what I’m watching.
Deep-dives into future additions before I buy. The full thesis. The risks. The valuation work.
If that sounds interesting, you can get that below:
I hope you liked today’s post and thank you always for reading,
Dom
Schwar Capital
Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.