I'm very happy that you discuss the topic. In general I agree with you but I guess the number of positions should be an outcome rather than an input and depend on the opportunity set given by mister market as well as the bandwith to cover the different positions. A provocative question at the end: what is better at the same return a portfolio with 10 positions or one with 20 positions? Happy to go into more depth in this comment section
I agree that, rationally speaking, position quantity would be an outcome, not an input. However, as much as I might try, I am not perfectly rational.
10x10 is like guard rails that keep us on track. We think of it like bowling with bumpers. 10x10 prevents our inherent biases from engaging too deeply.
10x10 suites our temperament and goals, but won't work for everyone. There is no one size fits all approach to portfolio construction.
Further, 10x10 is a guideline, not a rule. We do over ride it occasionally. Having guidelines forces us to critically examine why we want to override the default to ensure we have good reasons that aren't drive by excitement, greed, or fear.
To your last question, I'd love to have 20+ positions that could hit our forward return hurdles and which I understand well. In that case, assuming the bandwidth to monitor all the positions, I think diversification is a free lunch. However, that is relatively rare. It might briefly happen at major market bottoms like March '08 and March '20. Even when there are lots of ideas, I think 10 will usually stand out. I'd personally prefer the 10 simplest or easiest to understand at the same forward return. There's probably some tax efficiency to few positions held longer too.
I'm very happy that you discuss the topic. In general I agree with you but I guess the number of positions should be an outcome rather than an input and depend on the opportunity set given by mister market as well as the bandwith to cover the different positions. A provocative question at the end: what is better at the same return a portfolio with 10 positions or one with 20 positions? Happy to go into more depth in this comment section
I agree that, rationally speaking, position quantity would be an outcome, not an input. However, as much as I might try, I am not perfectly rational.
10x10 is like guard rails that keep us on track. We think of it like bowling with bumpers. 10x10 prevents our inherent biases from engaging too deeply.
10x10 suites our temperament and goals, but won't work for everyone. There is no one size fits all approach to portfolio construction.
Further, 10x10 is a guideline, not a rule. We do over ride it occasionally. Having guidelines forces us to critically examine why we want to override the default to ensure we have good reasons that aren't drive by excitement, greed, or fear.
To your last question, I'd love to have 20+ positions that could hit our forward return hurdles and which I understand well. In that case, assuming the bandwidth to monitor all the positions, I think diversification is a free lunch. However, that is relatively rare. It might briefly happen at major market bottoms like March '08 and March '20. Even when there are lots of ideas, I think 10 will usually stand out. I'd personally prefer the 10 simplest or easiest to understand at the same forward return. There's probably some tax efficiency to few positions held longer too.
Thanks for reading!