Position Sizing

Position sizing is how much of your capital you put in any single bet. It's not which assets to hold — it's how much. A great idea with 100% of your capital is a single point of failure; a bad idea with 2% is survivable. The same edge, sized too large, can blow up the account; sized too small, it barely moves the needle. The discipline is to match size to edge and to risk: higher conviction and better odds justify larger positions, but only up to a limit that keeps you in the game if you're wrong.

The math is straightforward. If you risk 10% of your capital on one position and it goes to zero, you're down 10%. If you risk 50%, one full loss is catastrophic. Multiple uncorrelated positions reduce the chance of total wipeout — but only if no single position is so large that one loss dominates. Position sizing is the main lever for controlling drawdowns and avoiding ruin. Kelly Criterion and its variants (half-Kelly, fractional Kelly) give a theoretical optimum for how much to bet given edge and odds; in practice, most investors use a mix of rules: max single position, max sector, and a link between conviction and size.

The mental model extends beyond portfolios. In business, position sizing is how much you bet on one product, one geography, or one hire. In time allocation, it's how many hours you put on one project. The principle is the same: size the bet to the edge and to the downside you can tolerate. Over-concentration creates existential risk; over-diversification dilutes edge. The art is in between.