"...you should evenly and equally allocate to all of your stocks as you start a portfolio." - David Gardner

Fair Starting Line

Pretend you are at the Kentucky Derby. 

You are looking across the dirt at the opening gate, and it's empty. There are 20 spots that you need to fill. The good news is you don't have to find 20 horses. 

Instead, you will fill those slots with businesses you want to own. 

Starting from Scratch

If we go back to the 6 Habits of a Rule Breaker Investor and look at Habit #5, we know that we don't want to allocate more than 5% to a single business when we begin.

So, if we are starting a portfolio, we need a minimum of 20 companies.

Why not load up on one or two businesses and give them a larger weighting?

It's tempting to give one or two positions a larger weighting. We allow our intuition to guide us and assume one business will outperform the others.

Here's what David says about allowing our intuition to guide our position sizing. 👇 

"I've never rested too comfortably on those assumptions."

Giving them each a fair starting line allows you to:

• Diversify your portfolio

• Remove emotion from the decision process.

• Establish your sleep number (Principle #4) as your portfolio grows.

• Allow the winning businesses to earn their way to the top of your portfolio.

*Principles 1-3 = Building a portfolio, Principles 4-6 = Maintaining a portfolio

References:

6 Principles of a Rule Breaker Portfolio