François Rochon: Building A Portfolio, Trimming, Position Size

During this interview with Best Anchor Stocks, François Rochon discussed building a portfolio, trimming, and the right position size. Here’s an excerpt from the interview:

Rochon: Probably in my younger years I was more confident in my decisions. So probably I could start with 4 or 5 or 6% in that company very rapidly. Today I’ve seen my share of, you know, disappointments.

So I’m much more prudent. I usually start with 1 or 2% with a new investment, and as I get more confident in my decision, I will increase it. And the goal is to have something like 20 to 25 names with an average weight of about 4%. So if everything goes well an investment, it will become something like 4% weight.

And we have the attitude of letting our winners run. So as a company does well, it will become a bigger part of the portfolio. And once it reaches 10%, we’ll trim it. We don’t want any position to be more than 10%. In the first years probably there were some securities that went up to 15 or 20%. I think that probably the highest was 20%.

But like I said, with experience, comes more realism and it’s very hard to find a company that, you know, there’s absolutely…there are some that the risk is very low, but, to me, and it depends from one person to the other, to me having a 4 or 5% weight on average for one investment and having a maximal 10%, I’m comfortable that I’m managing the risk properly.

But you know, I have friends that are very smart and very bright that have, you know, nine stocks in their portfolio. So the average holding is 11, 12%. So, and they’re doing well. It’s just different ways of seeing things.

And I have my own personal way of looking at it, and I think 20 to 25 names is kind of a good balance between having sufficient diversification. So you reduce the risk of, you know, one or two mistakes. And also at the same time it’s focused enough, it’s concentrated enough so that you have odds of beating the index.

Because once you go to 50 or 60 names, I think it’s very hard to beat the index, the odds become very low.

You can watch the entire discussion here: