Many investors wrongly equate high conviction with making a large initial investment. A more evolved approach is to start with smaller at-cost positions, allowing a company's performance to earn its eventual large weighting in the portfolio. This mitigates risk and improves decision-making.

The firm found that positions growing beyond 8% of the portfolio did not add enough value to justify the increased concentration risk. This disciplined approach prevents overconfidence in single ideas from jeopardizing overall fund performance.

Instead of using an arbitrary percentage, Gorham Thomason of AKO Capital determines maximum position size based on a stock's liquidity. This ensures the fund can exit a large position without crashing the share price if the investment thesis sours, providing a practical risk management framework.

To manage the perceived risk of a highly concentrated fund, Mohnish Pabrai advises investors to size their position appropriately relative to their total net worth. By recommending investors allocate less than 20% of their wealth to his funds, a single stock representing 50% of the fund becomes a more manageable 10% of the investor's total assets.

To manage risk, GQG determines maximum position size by thinking like a credit analyst. A company with diversified business lines like Exxon can get a "AAA rating" and be a large holding. A more narrowly focused business, despite being attractive, gets a lower rating and a smaller size, preventing concentrated blow-ups.

To pursue massive upside, one must first survive. Gardner mitigates risk by never allocating more than 5% of his portfolio to any new position. This discipline prevents catastrophic losses from a single bad idea, ensuring he stays in the game long enough for the big winners to emerge.

A powerful risk management technique is setting a maximum percentage of your portfolio that can be invested in a single stock *at cost*. A 5% at-cost limit means once you've invested 5% of your capital, you cannot add more, even if the stock price plummets and its market value shrinks. This prevents chasing losers.

Gardner notes that whenever he has broken his own rule and invested an "exciting amount" into a new idea, it has generally failed. This emotional excitement leads to poor decision-making and oversized bets on unproven theses. Strict discipline on initial position sizing is a crucial defense against one's own biases.

Since 2020, even top-quartile stock pickers have faced extreme drawdowns with concentrated portfolios. A more diversified approach, holding more names than usual (e.g., 50-75 stocks for an institutional manager), has proven superior for mitigating risk and achieving better performance.