What this lesson is about
Even a great company deserves a size limit. Because 'great' and 'risk-free' are never the same thing.
Part 1 of 2
Even a great company needs a size limit in your portfolio. 'Great' and 'risk-free' are not the same thing. Position sizing is about how much of your total portfolio you invest in one stock. The larger the position, the more it affects your overall wealth, both positively and negatively.
Some investors set a personal cap, like 5-10%. This helps them avoid the temptation to go all-in on whatever excites them at the moment.
Quick check
What does 'position sizing' refer to?
It's a portfolio-construction decision, made independently for every position you hold.
Part 2 of 2
Quick check
Why do many financial advisors caution against putting a huge percentage of your portfolio into one single stock?
The math is symmetric: the bigger the position, the bigger the impact of that one company's outcome on your total wealth - good or bad.
Test what you just learned. Correct moves you up, wrong moves you down - reach 100 to master this lesson.