Position sizing is deciding how much of your portfolio goes into each stock. A common rule: no single stock should be more than 8–10% of your portfolio, and any single sector no more than 25–30%.
Why it matters: if your worst holding drops 50% and it was 30% of your portfolio, your total portfolio drops 15% from that one mistake. If it was 5%, you only lose 2.5%. Same mistake, very different pain.
Sizing forces humility. The more certain you feel about a stock, the more tempting it is to over-allocate. Predetermined caps protect you from your own confidence.
Rebalance once or twice a year: trim positions that have grown too large, top up ones that have shrunk (assuming the thesis still holds).